Tag Archives: investing

How to Make the Most of 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. Admittedly, knowing how to make the most of your tax refund can be a daunting task.

Still haven’t submitted your 2016 tax returns? If you have a simple return, such as a 1040-EZ, I recommend completing your simple return with E-File.com today. You can complete your Federal return for FREE and receive free support along the way. And FinanceSuperhero readers can receive a discount on state returns by using this link – $6 Off State Filings With Coupon Code “6OFFSTATE”.

If you’re planning to complete a 1040A or require additional schedules, the team at Liberty Tax has local offices in your area to help you every step of the way. Other tax preparation services come and go, but LibertyTax has been helping people file their taxes the easy way since 1997.

Receiving a tax refund is a great opportunity to improve your financial outlook. Follow these 9 pro tips to make the most of your tax refund!

The FinanceSuperhero Guide to Making the Most of Your Tax Refund

Assuming you have a tax refund coming your way, you could be on the verge of changing your financial picture.  With great opportunity comes great responsibility! The following advice will help you to make the most of your tax refund and make significant progress on your financial journey. I recommend following the steps in numerical order.

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

Longtime readers will not be surprised that I am suggesting giving as the first step to make the most of your tax refund. 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.

I strongly believe that giving 10% is the best way that we can make a charitable 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 only a few months away from carrying no debt other than our mortgage.

Why? As I mentioned, we believe helping others is both a calling and 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 and/or Emergency Fund

When looking to make the most of your tax return, simply saving money can be a wise choice.
When looking to make the most of your tax return, simply saving money can be a wise choice.

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 additional 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. Get out of 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 barrier 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. You may get the push you need if you make the most of your tax refund in this way!

 

4. Invest in Tax-Advantaged Investments

The real fun begins when you no longer have non-mortgage debt. 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.

Want to make the most of your tax refund? Opening an IRA or taxable brokerage account with Betterment is a smart way to maximize the impact of your refund.
Betterment returns vs. US Market and Typical Investor Returns (Credit: Betterment)

If you’re looking for an easy to use platform for investing, Betterment could be the solution for you. Their Tax-Coordinated Portfolio works to maximize your earnings and minimize tax burdens across all types of accounts, including taxable accounts, Roth IRAs, and traditional IRAs. It is simple to sign-up or rollover an account, select a portfolio of ETFs, and be on your way toward earning better returns right away.

Compared to other platforms, the Betterment portfolio is designed to achieve optimal returns at every level of risk. Through diversification, automated rebalancing, better behavior, and lower fees, the Betterment approach to investing can help you generate 2.9% higher returns than a typical DIY investor.

Make the most of your tax refund and start investing with Betterment by signing up today!

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.

Related PostEscape From Student Loans: How Two Educators Paid Off $17,831.65 in 54 Days

6. Destroy Your Mortgage Debt

Pause with me for a moment and imagine a life without a mortgage payment. If you can’t imagine it, check out the FREE E-book, How to Hack Your Mortgage and Save Thousands, written by my friend Andrew at FamilyMoneyPlan. This is the plan he and his wife used to wipe out their $320,000 mortgage in 6 years.

What could you do with an extra $1,000 per month? $2,500? $5,000? I just felt an overwhelming sense of excitement  and 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! Make the most of your tax refund to accomplish progress on an annual basis and you 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.

Want to make the most of your tax refund? Investing in real estate with Fundrise is an exciting option for investors in 2017.Fortunately, today’s investors can invest in real estate without the hassle of becoming a landlord or hiring a property manager. Fundrise offers real estate investment options with low entry costs.. As of February 2017, they offer three eREITs for new investors: the West Cost eREIT, the Heartland eREIT, and the East Cost eREIT. It is amazing that technology has brought common investors like you and me the opportunity to invest in multi-million dollar buildings half way around the country!

Even if you’re on the fence about real estate investing or just not quite ready to dip your toe in the water, I recommend signing-up with Fundrise today – it is 100% FREE, with no obligation, and in doing so, you’ll position yourself to learn more and possibly avoid wait lists.

8. Improve the Value of Your Primary 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 Investments: new front door, landscaping, deck or patio, kitchen or bath remodel, walkway lighting

Bad Investments: swimming pools, 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.

Are You Ready to Make the Most of Your Tax Refund?

A tax refund is a great opportunity to get ahead in your finances. 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.

If you haven’t yet filed your 2016 tax returns, be sure to check out E-File.com or LibertyTax today. Either way, careful consideration of your circumstances will put you on the path to make the most of your tax refund this year!

 

Note: This post was last updated on February 14, 2017.


Readers, did you receive a tax refund this year? Are you currently awaiting a refund? How do you plan to make the most of your tax refund?

Overcome FOMO (Fear of Missing Out) in 7 Steps

When I was 14, the band Styx came to town. I didn’t even know who they were until two weeks before the concert, but I quickly fell for their music and its driving rhythms, synthesized sounds, and meaningful lyrics. You might think that you’re not familiar with the band, but you probably are, as almost everyone knows and loves the song “Mr. Roboto.”

But I have a different favorite Styx song, “The Grand Illusion.” It begins:

FOMO - the fear of missing out - has a powerful effect on life and money. You can overcome its effects and boost your happiness in 7 easy steps!Welcome to the Grand Illusion
Come on in and see what’s happening
Pay the price, get your tickets for the show
The stage is set, the band starts playing
Suddenly your heart is pounding
Wishing secretly you were a star. 

But don’t be fooled by the radio
The TV or the magazines
They show you photographs of how your life should be
But they’re just someone else’s fantasy

So if you think your life is complete confusion
Because you never win the game
Just remember that it’s a Grand Illusion
And deep inside we’re all the same.
We’re all the same…

Who knew that Styx wrote the book on FOMO?

 


WHAT IS FOMO?

FOMO, or “the fear of missing out,” was added to the Oxford dictionary in 2013. However, as a phenomenon, it has been a fixture in our culture for far longer than that.

Consider the following examples of FOMO:

  • You invite a friend to a party at your apartment. She says she “might” drop by if time allows. The real reason for her non-committal response? She wants to make sure she doesn’t commit when there might be a better option that evening.
  • You’re scanning through your feed of Instagram photos of your friend’s vacation; everyone appears to be enjoying themselves in the photos, and you start wishing you had gone along. In order to make yourself feel better, you post a picture from your average weekend and use your favorite filter to make it appear glamorous, spreading the FOMO to other unsuspecting friends.
  • While driving home from work, your iPhone buzzes in your pocket. You can’t stand not knowing what your friends are up to, and you begin texting while driving.
  • You and your significant other are enjoying a romantic dinner in celebration of your anniversary. While this is undoubtedly a special time, you cannot stop your compulsion to check your lock screen for new push notifications.
  • After a long week at the office, you feel lucky to have survived and plan to celebrate by ordering takeout and watching Netflix at home. Then your best friend calls and begs you to go out. You ignore your body’s urge to rest because you don’t want to miss out on the fun. Consequently, you get sick.

You certainly can think of countless other examples of FOMO. After all, we live in a wide world of opportunity, so in a sense, you are always missing out on something at any given moment.

The fear of missing out is powerful.
The fear of missing out is powerful.

THE PSYCHOLOGY BEHIND FOMO

Undoubtedly, the fear of missing out causes us to act, often against our inner desires. Yet, this is ironic, as it is human nature to always be missing out on something!

Research by Tversky and Kahneman reveals that FOMO is deeply rooted in people’s strong tendency to want to avoid any losses, a theory referred to as loss aversion. In fact, they discovered that loss aversion is so powerful that it makes losses twice as psychologically-impactful as gains.

Another possible explanation for FOMO is The Paradox of Choice, a theory propagated by Barry Schwartz in The Paradox of Choice: Why More is Less. At a basic level, Schwartz’ theory states that an increased number of choices generally contributes to decreased happiness with our choices. As Schwartz says in the TED Talk video below at the 7:45 time mark, this increased choice has two possible outcomes:

One effect, paradoxically, is that it produces paralysis rather than liberation. With so many options to choose from, people find it very hard to choose at all. . .

The second effect is that even if we manage to overcome the paralysis and make a choice, we end up less satisfied with the choice than we would be if we had fewer options to choose from.

If you haven’t viewed this TED Talk, I highly recommend you view it now, even in lieu of finishing this piece.


FOMO SUSCEPTIBILITY

At a person’s core, susceptibility to the fear of missing out may be traced back to mindset. For example, while innovators and trend setters naturally do not entertain the fear of missing out, followers are prone to dwell on these types of thoughts.

Schwartz theorizes that two prominent mindsets exist: “satisficers,” who settle for “good enough” and are generally happy, and “maximizers,” who focus upon always choosing the “best option.” Generally speaking, maximizers are more likely to experience FOMO and related indecision, both of which can lead to unhappiness and even depression.

On a personal level, I am a maximizer who suffers from an intense desire to always seek the highest and best use of my time. As I’ve written extensively about in the past, I constantly ask myself the question, “What is it time for now?”

When I can quickly ascertain an answer, this question guides my productivity and happiness. On the other hand, when analysis paralysis sets in, I often find myself in a deep funk. Typically, Mrs. Superhero kicks me out of the house and tells me to go for a run when this happens.

FOMO and social media are inextricably connected.
FOMO and social media are inextricably connected.

SOCIAL MEDIA CONNECTION

For many people today, social media is “the new smoking.” Rather than lighting up a cigarette upon waking up, after meals, and right before bed, we check Facebook, Twitter, Instagram, or Snap Chat compulsively. A very non-scientific poll conducted via my personal Facebook account revealed that this compulsion is real; I believe the results speak for themselves.

The results of a non-scientific Facebook poll on social media use.
The results of a non-scientific Facebook poll on social media use.

The connections between social media and the fear of missing out are obvious. A quick scroll through your Facebook News Feed is all that is necessary to stimulate FOMO and related emotions. We see our friends going on vacations, buying huge houses, leasing Audis, and adding to their designer wardrobes.

Seeing it is one thing, and being happy for your friends is another; yet when envy, jealousy, and disbelief set in, it is a problem.


FOMO AND FINANCES

For the person attempting to live frugally or simply adhere to a set of financial goals, the inundation of pictures, statuses, and tweets serve as constant reminders of a lifestyle gap. Over time, they can be too much to bear.

Eventually, enough is enough, and we splurge a little in order to discover whether we really are missing out.

Perhaps the most notable and obvious manner in which FOMO impacts the average person’s finances lies in its impact upon spending. Research conducted by Eventbrite, in conjunction with Harris, shows that approximately 69% of millennials experience FOMO. This phenomenon has led millennials to value experiences more so than the milestones and rites of passage of previous generations. Yet the trend cannot be fully-attributed to this generation; since 1987, consumer spending on experiential events, such as concerts, performing arts, and athletic events, has risen by 70% relative to total United States spending.

American spending on experiences as a percentage of total consumer spending (Credit to Eventbrite and U.S. Department of Commerce, Bureau of Economic Analysis)
American spending on experiences as a percentage of total consumer spending (Credit to Eventbrite and U.S. Department of Commerce, Bureau of Economic Analysis)

FOMO also rears its ugly head among investors. According to Peter DeMarzo, Financial Group Professor of Finance at The Stanford Graduate School of Business, “Investors fear being poor when everyone around them is rich.” DeMarzo and his colleagues conducted research which showed that investors tend to flock toward high-tech investments which promise vast growth potential. “These are typically high-risk stocks that, in seven out of eight cases, are likely to go bust. But people are willing to invest in them in the hopes that they’ll hit that one-in-eight jackpot,” according to DeMarzo.


FIGHT BACK AGAINST FOMO IN 7 STEPS

By now, I hope I have adequately stated my case: the fear of missing out can impact all of us in many ways. However, I believe that self-understanding, accountability, and decisive action can help anyone fight back against FOMO.

Ironically, the fear of missing out can cause you to miss out on what is most important to you if you allow it to control your actions. But if you strive to live with a purpose and seek to do what you value most, you can be confident in all of your decisions, financial or otherwise.

Don’t give up on the thing you want most to get what you want right now; in the heat of the moment, remind yourself that temporary sacrifice for long-term gain is worthwhile.

7 ACTION STEPS TO OVERCOME THE FEAR OF MISSING OUT

1. Maintain a budget. I know that many people are in favor of tracking savings rate instead, which is a practice I respect. But a budget is a great safeguard against FOMO purchases because it equips you to say “no.”

2. Surround yourself with like-minded people. Admittedly, this can be dangerous sometimes, but it is helpful when you’re trying to break away from FOMO tendencies.

You wouldn’t hang around alcoholics when trying to quit drinking yourself, would you? Stay away from those who enable and encourage your FOMO tendencies.

3. Implement a social media fast. Facebook and Instagram, in particular, have a way of making experiences appear much more exciting than they are, especially when filters are used.

4.Don’t deprive yourself to unreasonable levels. Keep enough fun in your life and be genuinely grateful for blessings and fun opportunities. Gratitude is a formidable power against FOMO.

5. Identify your values to minimize the power of the fear of missing out. When you know what is truly important to you, FOMO will lose its power In your life.

Related:  Values and Budgeting – Part One and Values and Budgeting – Part Two

6. Intentionally disconnect from technology several times throughout the day. As previously mentioned, this could include abstaining or fasting from social media. Fellow bloggers might find it hard to stop the stream of networking, supporting others, and self promotion, but this can be a healthy practice, even if just for a few hours.

This afternoon, I escaped from the rest of the world for two hours while mowing my lawn, tending to my rose garden, and watering my potted plants. A mere two hours helped me to refresh my mind and focus on what is most important to me.

7. When you are with others, put away your phone. Use FOMO to your advantage and don’t let yourself miss out on human interaction. After all, real communication and interaction with others is a central human need; to be loved and understood serves as a bridge between the Love/Belonging and Esteem levels on Maslow’s Hierarchy of Needs. If you have trouble enforcing this, play the Cell Phone Stacking Game: stack your phones in the middle of the table during dinner or happy hour, and whomever checks their phone first pays for dinner or the first round of drinks.

Maslow's Hierarchy Of Needs (Credit: Wikipedia)
Maslow’s Hierarchy Of Needs (Credit: Wikipedia)

Fighting back against FOMO requires dilligence, self-awareness, accountability, and decisive action. However, effort in these areas can contribute to increased happiness, productivity, self-esteem, success, and eventual financial independence.

In closing, I offer more wise words from Styx:

America spells competition, join us in our blind ambition
Get yourself a brand new motor car
Someday soon we’ll stop to ponder what on Earth’s this spell we’re under
We made the grade and still we wonder who the hell we are


Do you struggle with the fear of missing out? Does it cause you to act in ways which do not align with your values? Does it impact your spending habits? What steps have you taken to lessen the impact of FOMO in your life?

20 Budgeting Tips for Singles – A Bachelor’s (or Bachelorette’s) Guide

Last week, the state of Illinois finally passed what I would describe as a “Band-Aid” budget. While politicians largely celebrated this move and patted themselves on the back, their budget does very little to solve the gaping wound that is the state of financial chaos in which Illinois currently finds itself.

As I read the headlines and a few articles, I marveled at the difficulty the legislature faced in passing a budget. As you may or may not know, Illinois recently went an entire fiscal year without a budget. This standoff made previous budget delays (18 days in 1991, multiple delays of several weeks in the 2000s, and the bitter standoffs of recent years) look like small blips on the radar.

While Governor Rauner and Speaker Madigan set aside partisan gridlock long enough to pass a budget, public schools, state universities, and social service agencies are from celebrating. To the detriment of the citizens of Illinois, the finger pointing between Republicans and Democrats will surely resume and intensify in the next months.

Right around the time that Governor Rauner was delivering his press conference regarding the new budget, I sat down to review my planned budget for July 2016. Since September 2009, I have created a unique monthly budget using Gazelle Budget, the online software platform created Dave Ramsey’s team at Ramsey Solutions. That makes 71 unique budgets. It felt good to add yet another accomplishment to the mental list of ways in which I put the state of Illinois to shame.

MY FIRST BUDGET

As I often do when completing a budget, I took a look through the archives to see how Mrs. Superhero and I have come. My trek brought me back to September 2009, the month in which I created my very first budget.

In September 2009, I was a newly-employed, engaged bachelor, living independently for the first time in my life. Less than one week before the new public school year started, I accepted a job offer to teach music about 25 miles away from my university campus. With a week to prepare, I scrambled to locate housing, sign my contract, and prepare for a radical life change.

At the time, I had barely a tiny inkling of how to responsibly manage my money. I had recently read The Total Money Makeover in record speed, but I didn’t know the first thing about budgeting an “adult” paycheck. This was going to be the first time I had ever earned a paycheck which included a comma in the amount field!

After reading about Gazelle Budget (which is being replaced soon by EveryDollar), I purchased an 18 month membership, which included access to all three hours (ad free) of the Dave Ramsey Show podcast, for $89.95. Moments later, I created my first budget.

In all its glory, my very first monthly budget, from September 2009
In all its glory, my very first monthly budget, from September 2009

I began by projecting my total net income for the month, $2,357.29 in total. In that moment, I recall feeling pretty wealthy. I continued by inputting my desired charitable giving ($236 – 10%), rent ($400 – I rented a room in a two-bedroom condo from a friend-of-a-friend), food ($305 – for groceries and restaurants), and my debt obligations ($50 car payment and $200 credit card bill). From that point, I filled out the budget with an estimate of utilities, transportation (gas, car insurance, and routine maintenance), clothing (new work clothes and change for laundry), personal spending (spending money blow money Starbucks fund, books, gifts, hair cut, toiletries, and the Gazelle Budget subscription), and savings (emergency fund and honeymoon fund).

As you can see above, my projections for spending (middle column) were not entirely accurate when compared with my actual spending (leftmost column) at the end of the month. In fact, despite projecting a zero-based budget, I spent more money than I earned in September 2009.

This was hardly a Superhero effort.

On the other hand, the percentages of my categorical spending mimicked responsible spending.

Budget Percentages 1

Budget percentages 8-11
Categorical budgeted spending as a percentage of net income, September 2009

THE TROUBLE WITH PROJECTIONS

For the first full month of living on my own, I updated my budget on a daily basis. I kept a stack of receipts for all cash purchases and utilized internet banking to reconcile all other transactions. Yet despite my diligence, I was still brand-new to the process of budgeting.

As you can see below, I overspent considerably on food and personal spending; I had budgeted a combined $572.29, approximately 24% of my net income, but at the end of the month, I had spent a combined $761.58, approximately 32% of net income.

When I broke these spending figures down further, I discovered that I had spent $156.50 at restaurants and $80.77 at Starbucks.

Ouch.

My First Budget - Spending
20 TIPS FOR THE BACHELOR’S OR BACHELORETTE’S BUDGET

I chose to present the above figures for two primary reasons. First, I wanted to prove that it is possible to build and maintain a monthly budget as a single person. Second, I wanted to be fully transparent about my early mistakes.

Yes, creating a budget is not always easy. It isn’t the cool thing to do, especially as a young 20-something fresh out of college. Even at age 30, I can still recall the temptation to throw caution to the wind and live it up. Heck, I almost went out and leased a car!

However, I still recall one of the most powerful motivators for a 20-something single: the desire to prove one’s independence. Creating a budget is one of the best ways to set out to accomplish this goal and appear to be an adult. If you don’t manage your money responsibly, you will surely appear to be a child to you parents and extended family.

To win with money as a bachelor or bachelorette, follow these 20 tips.

20 BUDGETING TIPS FOR SINGLES - TW

1. Share costs with a roommate.

In my case, I avoided spending $1,000 per month for a one-bedroom apartment and spent $400 to rent a home in a two-bedroom condo. By sharing costs in this manner, I avoided spending 40% of my net income on housing costs.

Housing is by far the biggest budget buster for the average bachelor or bachelorette. Spending within this category can be a difference-maker.

2. Gather an accurate picture of your monthly debt obligations.

When you are just starting out, you will feel the temptation to delay examining your debts, particularly if your student loans are still in deferment. Avoiding your debts will not make them go away, so gather this information, including total principal, interest rates, minimum payments, and loan terms for each debt. If you’re unsure or unclear about any debts, contact the appropriate customer service department right away. Also, you should check your credit report; remember, this can be done free of charge once per year with each of the major credit reporting bureaus.

3. Prepare your own meals and cook at home as much as possible.

As a single young adult, preparing your own meals will accomplish two goals: you will save money, and you will not gain weight eating low nutrition/high calorie fast food. As an added bonus, you will be able to host your dates for dinner and impress them with your fine culinary skills. They’ll expect Ramen, and you’ll blow them away with shrimp creole!

Ladies, don’t forget, the way to a man’s heart is through his stomach.

4. Maintain a college lifestyle, at least in terms of spending.

When your first paycheck rolls in, you will immediately experience the temptation to buy everything in sight. If you establish an unreasonable level of spending out of the gate, you will set yourself up for failure. As much as possible, continue to live a college lifestyle (i.e. behave as if you are poor), within reason, of course.

5. Do not go out and buy a new (or new to you) vehicle.

You need to get used to living on a budget first in order to determine what you can or cannot afford in a new vehicle. Don’t allow pride and vanity to influence your decision-making process. If your current vehicle gets you from point A to B, it’s a keeper – at least for a few months.

6. Invest in a decent coffee maker with a timer function and brew your own coffee at home.

I learned this the hard way when at the end of my first budgeted month I had spent $80.77 on coffee on my way to work. I had a decent Mr. Coffee coffeemaker, but it didn’t have a timer feature. If I happened to be running late to work in the morning, I resorted to a quick Starbucks stop, which cost me significant money without adding any perceived value (neither happiness-wise nor nutritionally speaking).

Nothing beats the sweet aroma of morning coffee, especially when you brew it yourself and save money in the process

Mr. Coffee
Nothing beats the aroma of freshly-brewed coffee in the morning – and it saves you money!

7. Stay in.

Fortunately, I did a good job of this. My wife-to-be and I enjoyed cooking dinner at my condo and watching reruns of The Office. I know that many single people will feel the temptation and be pulled into the expensive night life scene, but do so within reason. Invite friends or your significant other back to your place, where food and drinks are cheap.

8. Find affordable dates with Groupon and Restaurant.com . I’m not even sure if Groupon and Restaurant.com existed back when I was a bachelor, but taking advantage of them today is a key part of our dining out experience. With either platform, you can purchase certificates for what is usually a fraction of the value, which allows you to realize significant savings and still enjoy a night out. The most common Restaurant.com offer is $10 for a $25 gift certificate. Check out the Restaurant.com offerings in your area by following the link and entering your zip code.

9. Build an emergency fund as quickly as possible.

As a young single person, building an emergency fund is the definition of adulting. Without an emergency fund, you will face unexpected expenses and be forced to swipe your credit card. Or worse yet, you may have to beg your parents for a loan or a gift.

10. Begin charitable giving right away.

While I have always given 10% to charity and missions organizations, I know this isn’t for everyone. If you’re not a natural giver, start small. Even $1 or $10 per month will benefit worthwhile organizations. If you’re not into structured giving, pay it forward and purchase the coffee or meal for the driver of the vehicle behind you in the drive-thru.

I strongly believe that regular, consistent giving is a key to winning with money. The act of giving teaches you that money is not an asset to be horded, stockpiled, wasted, or worshipped, but a tool to help yourself and others.

11. Strive to create a zero-based budget every month.

Remember, you will fail at this at first. Over and over and over. However, I found comfort in a Dave Ramsey quote during my initial months of struggle with my budget:

Adults devise a plan and stick to it. Children do what feels good. -Dave Ramsey

12. Accept that your budget projections will rarely be perfect.

On a related note, embrace your budget mistakes as they occur. Be willing to adjust your budget several times during the first several months.

13. Share your budget with a friend who is wise with his or her finances.

Accountability is helpful for everyone. It is part of the reason why I write this blog. A good budget is not inflexible.

14. Tell yourself every day that instant-gratification isn’t all that gratifying.

A few days ago, I read that the average person only waits 5 seconds for a web page to open before becoming irritated and moving on. Clearly, we live in a culture which embraces speed and instant results over patience.

You will need to learn to delay your desires in order to maintain a successful budget. Make a plan and stick to it.

15. Don’t worry about investing money right out of the gate.

In the personal finance blogging community, the suggestion to delay investing for retirement is utter blasphemy! However, I believe that there are better uses for your first months of pay. Make sure your budget is in order, build an emergency fund, and take time to research your investment options. When the time comes to invest, look into low-cost options through Betterment and Motif Investing. You will be glad that you waited.

16. Identify your values and be sure that your budget follows them.

If you’re not sure where to start with values-based budgeting, check out my two part series on budgeting with values in mind:

Values and Budgeting – Part One

Values and Budgeting – Part Two

17. Once you’ve identified your values, create written goals that you wish to accomplish.

Writing V-SMART Goals is the best way to accomplish your goals.

18. Be transparent with your friends and family about your budget.

It is OK to explain that you are striving to manage your spending responsibly. In fact, if you keep your budget goals a secret, it will be more difficult to stick to your budget, as co-workers will invite you out for happy hour drinks and apps every Friday. Just be up front and honest.

You can still have a social life on a budget. But be willing to say "no."
You can still have a social life on a budget. But be willing to say “no.”

19. As follow-up to number 18, be willing to say “no.”

If you want to live on a budget and win with money, you will likely hurt people’s feelings from time to time.

20. Avoid making any purchases on impulse.

If you are considering a sizeable purchase, write it down and check back again in thirty days. See my recent piece, The Thirty Day List, for a step-by-step process on delaying purchases.

Note: This piece contains affiliate links. FinanceSuperhero only recommends products designed to save readers money.


Readers, what budget tips do you have for singles?

Managing the Cycle of Failure and Success

In the midst of studying for my state and national real estate license exam yesterday, I took a coffee break and ended up in my recliner with the Apple TV remote in hand. It was mid-morning, and Mrs. Superhero was out of the house running errands, which provided a golden opportunity: I could watch a documentary without protest.

After scrolling through my List in Netflix, I settled on Broke, an ESPN Films 30 For 30 production, directed by Billy Corben. If you’re unfamiliar with the film, this brief summary should get you up to speed:

According to a 2009 Sports Illustrated article, 60 percent of former NBA players are broke within five years of retirement. By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress. Sucked into bad investments, stalked by freeloaders, saddled with medical problems, and naturally prone to showing off, many pro athletes get shocked by harsh economic realities after years of living the high life. Drawing surprisingly vulnerable confessions from retired stars like Keith McCants, Bernie Kosar and Andre Rison, as well as Marvin Miller, the former executive director of the MLB Players Association, this fascinating documentary digs into the psychology of men whose competitive nature can carry them to victory on the field and ruin off it.

Director Billy Corben (The U, Cocaine Cowboys, Limelight) paints a complex picture of the many forces that drain athletes’ bank accounts, placing some of the blame on the culture at large while still holding these giants accountable for their own hubris. A story of the dark side of success, “Broke,” is an allegory for the financial woes haunting economies and individuals all over the world.

After watching the film, I was left with two prevailing questions:

Why does this happen to professional athletes?

and

What can be done to stop this trend?

Photo Credit - IMBb
Photo Credit – IMBb

THE ROOT OF THE PROBLEM: SUCCESS

Throughout the much-esteemed film, Corben presents athlete after athlete who made millions of dollars only to lose it all (or come dangerously close) just a few years into retirement. From NFL stars Bernie Kosar and Leon Searcy to MLB legend Curt Schilling, the film presents a sobering view of what success can do to the unprepared, immature adult ego.

A vast majority of the athletes’ lives chronicled in the film follow an archetypical pattern: grow up in poverty, develop superior athletic skills, make it the pros, behave irresponsibly with money, retire/face career-ending injury, and go broke. While the average person has no sympathy for the rich athlete, I felt sympathy pains throughout my viewing of the film.

Each of us encounters our own unique hardships and triumphs in life; some people face more of the former than the latter, which often leads to devastating consequences in the future.

For example, consider the life of NBA legend Allen Iverson. The son of a teenage mother, “The Answer” grew up in Virginia and faced a near-constant stream of adversity. Shortly after his birth, his maternal grandmother passed away; the only fatherly-figure in his life was imprisoned and in-and-out of jail; and during his youth, eight of his best friends were murdered.

Iverson lived the ghetto life, and he had grand dreams of getting out and rescuing his family and his future. Sports were the only safe haven in the talented athlete’s life. An undersized athlete, Iverson starred on the football field and later on the basketball court.

He felt that basketball was his ticket out of poverty.

Yet, a 17-year-old Iverson nearly missed his chance entirely when he was arrested for his involvement in a mob incident at a local bowling alley. Iverson denied involvement in the incident, and he was fortunate to have been granted a release by the governor of Virginia after serving four months in prison.

Fate eventually worked in Iverson’s favor, as he was awarded an athletic scholarship to play basketball at Georgetown. Two years later, he was drafted by the NBA’s Philadelphia 76ers, who offered Iverson a $9.4 million rookie contract.

Despite his successes, including winning NBA Rookie of the Year, NBA scoring title, and All-NBA First Team honors in his first three seasons, Iverson struggled to keep his life in order. His image was tarred by his inconsistent practice attendance, selfish play on the basketball court, frequent thug-like appearance, and an arrest for marijuana and weapons charges after a traffic stop.

After being traded to the Denver Nuggets in 2006, Iverson’s career began a slow fizzle: he bounced around to other teams, including the Detroit Pistons and Memphis Grizzlies before returning to the 76ers. All in all, Iverson reportedly earned more than $200 million during his playing career; yet, he is broke today, by most accounts.

In my opinion, Iverson’s meteoric rise to riches and stardom and subsequent fall from the NBA throne can be attributed to (and blamed on) his sudden success. Iverson grew up without a fatherly figure or suitable substitute mentor in his life, and furthermore, he was conditioned to expect hardship, despite his dreams of making it out of poverty. When that success finally came, an immature Iverson was ill-prepared to handle it, nor did he possess the understanding to reflect upon the contributing factors to his success.

Psychotherapist Joyce Marter sums up Iverson’s problems in a single sentence: “We can only be prosperous in love, health, time and money if we are conscious, well and balanced.” At nearly every step in his professional life, Iverson lacked the consciousness to reflect and understand that his successes would not last forever.

Iverson

THE ANSWER: MANAGING SUCCESS IS MORE DIFFICULT THAN DEALING WITH FAILURE

Despite our culture’s prevailing focus on failure and how one should deal with it, I believe that Iverson’s example, along with countless others, reveals that managing success is more difficult than dealing with failure. Ironically, it appears that learning to manage success is the answer to the financial woes of athletes like Iverson.

In my experience as a public school teacher, the notion that failure leads to success is one theme which I have sought to impart upon my students. However, I fear that I haven’t equipped my students to properly respond when success comes their way.

Furthermore, in my adult life, I have realized that I had not been prepared to handle success. Like Bernie Kosar, Leon Searcy, and Allen Iverson, I viewed success as the end game rather than another pillar which begged to be built upon with further successes. Time and time again, success has led me to let down my guard, become lazy and proud, and forget about the practices, actions, and habits which contributed to my success in the first place.

Brian Gast at QuadrantInternational.net describes this phenomenon well:

The point is, we should not take success for granted. Failure can be whatever you want it to be, including a “valuable learning experience”. Put both to work for you, confident in the knowledge that your failures are as valuable to your long-term success and happiness, as your successes can be.

Despite the cultural tendency to focus upon failure, managing success was once a greater focus. Winston Churchill famously said, “Success is not final, failure is not fatal: it is the courage to continue that counts.” Over time, however, the failure-success paradigm has come to look like this:

Failure-Success Paradigm
Failure-Success Paradigm

If we are truly striving to put both failure and success to work and learn from both, we need to change this paradigm. Success cannot continue to be the end of the road, so to speak. I believe the following is a much more realistic, applicable, and beneficial Failure-Success Paradigm:

The Multidirectional Cycle of Failure and Success
The Multidirectional Cycle of Failure and Success

This model (which, along with the previous graphic, I created using Microsoft Paint) illustrates that the pursuit of success is an on-going process. Furthermore, it captures the multidirectional, cyclical nature of both failure and success while illustrating that one can easily lead to the other.

A SOLUTION

Now that we have an appropriate paradigm for failure and success, we can take a more detailed look at the second question posed at the outset of this post (What can be done to stop this trend?).

I feel confident that we have established that one of the worst things a man can experience is success without periodic struggle. After all, it is in the midst of a battle, large or small, that we remember what it is we are fighting for in the first place.

In looking at the trend of professional athletes going broke, we can attribute the problem to several faults:

-The athletes exposed themselves to unnecessary debt by borrowing money.
-The athletes yielded to unrealistic expectations to fund the lifestyles of family and friends.
-The athletes allowed themselves to inflate their own lifestyles to unmaintainable levels.
-The athletes trusted the wrong people to manage their assets.

Instead, the athletes would have been wise to:

-Manage their income well to minimize debt (or avoid it completely).
-Support friends and family within reason, while maintaining that they do not owe anyone anything.
-Live a lifestyle well-below their means.
-Entrust themselves to become financially literature (i.e. understand their own investments and manage their own finances).

Additionally, I believe that each professional sports league and the related player unions/association ought to feel tremendous pressure and obligation to improve the state of its financial literacy programs offered to players. The NFL maintains its Financial Education Program (FEP) and the NBA requires its Rookie Transition Program, but it is evident that these programs are insufficient.

At the same time, it is incumbent upon each player to exercise individual responsibility and rationality in dealing with his finances.

RECOMMENDED APPLICATIONS FOR THE AVERAGE JOE

In the midst of watching Broke, it was surprisingly easy for me to sit back and point my finger at the mistakes of the profiled athletes. However, by the end of the documentary, I came to realize that most of us, myself included, have made similar mistakes, albeit with fewer zeros and commas, from time to time.

In order to avoid these mistakes, I believe the average person can follow a few simple steps:

1. Do not attempt to leverage debt as a method toward seeking financial independence. Unnecessary exposure to debt is always accompanied by exposure to risk and loss. Maintaining a level of assets to cover your debts is one thing, but eliminating debt entirely is wise, if you can do it. Mrs. Superhero and  I recently paid off over $17,000 of student loan debt in 54 days for these exact reasons.

2. Be generous within reason. I recommend giving 10% of your income (gross or net is up to you) as a constant reminder that money is a tool intended to meet your basic needs, build for your future, and bless other people. If giving 10% seems outlandish, start with 1% and build your way up to 10%.

3. Cultivate a lifestyle which is in line with your values and priorities. For most people, the path to financial independence will involve some sacrifices. Develop a system to keep your spending in check. Balance is key.

4. Seek to develop greater financial literacy every day. For some, this step will be the most difficult and most humbling. Some people will need to develop a budget for the first time; if so, Personal Capital is a great, free place to start. Others will need to assemble a list of debts and formulate a plan for paying them off. Many, myself included, will need to continue to grow in their knowledge of investments. Others may simply decide to automate their investing through platforms like Betterment or pursue investments through eREITs via Fundrise.


Readers, which do you find more difficult to manage – failure or success? How do you approach both?

The Fundrise eREIT: Accessible Real Estate Investing For the Average Investor

As most readers have probably gathered by now, I tend to err on the conservative side when it comes to all financial matters, including investing. This is why we opted to pay off over $17,000 of student loan debt in just 54 days rather than invest that money. I’m very interested in buying a rental property, but my conservative nature dislikes the idea of borrowing money on an investment property, even with today’s favorable interest rates.

Currently, there are several quality, profitable investment properties available in our area in the ballpark of $100,000. These homes could command great returns on rent, but again, we don’t have the cash to buy them. That stumbling block aside, I’m not so sure that I have the time or desire to be a landlord at this stage in life.

Are we destined to be “stuck” investing in our IRAs and funnel any remaining funds earmarked for investments into taxable brokerage accounts? Fortunately, we have other options thanks to the REIT.

In most places real estate appreciates by around 2-3% each year. And it is still considered a great investment even though the rate of return is marginal and investing in real estate requires large amounts of cash. There are other options for investors. Read how investors with Fundrise can earn over 10% annually on an investment as low as $1,000.

What is an REIT?

A Real Estate Investment Trust, or REIT, is a type of security which allows everyday investors to invest in real estate, such as apartments, hotels, shopping centers, and office buildings, through property or mortgages. An REIT is modeled after mutual funds in the sense that it provides diversification, regular income streams, and long-term capital appreciation. Essentially, a shareholder invests in an REIT and pools his money with other investors toward the purchase of portfolios of typically large-scale or mid-size properties.

Chief among the benefits of an REIT is diversification, as an investor’s money is not technically tied up in a single asset. Additionally, REITs provide taxable dividend income to investors and allow individuals to invest in real estate while maintaining significant liquidity.

Believe it or not, the earliest REIT, Continental Mortgage Investors, was launched in 1965, according to Investopedia.  While they were not necessarily the hottest investment available in the 1960s, many of today’s investors are flocking to them. Why? Many REITs are outperforming stocks and bonds at the moment.

The eREIT: Improving Accessibility to REITs

FundriseWhen Congress approved the creation of REITs in the 1960s, their intention was to make commercial real estate investing more accessible to the average investor. Whether or not this was successful is debatable and dependent upon your definition of “successful.”

In my opinion, today’s eREIT, or electronic real estate investment trust, is a perfect marriage between the power of the world wide web and the many advantages of the REIT.While an investor in today’s market has multiple options when seeking an eREIT, it's a smart idea to sign-up now - it's FREE - and be among the first in line when a new eREIT opens. is an excellent option for all types of investors.

 

What is Fundrise?

Simply put, Fundrise is an online investment platform for commercial real estate. Fundrise allows investors the ability to:

  • Browse investment offerings based on investment preferences including location, asset type, risk and return profile;
  • Transact entirely online, including digital legal documentation, funds transfer, and ownership recordation;
  • And manage and track investments easily through an online portfolio; receive automated distributions and/or interest payments, and regular financial reporting.

My favorite feature of Fundrise is that is available to almost anyone. While many REITs are only available to accredited investors or require a $3,000 minimum investment (like the Vanguard REIT Index Fund Investor Shares), Fundrise only requires a $1,000 minimum investment for several of its eREITs. In doing so, Fundrise has essentially put their money where their mouth is, so to speak, and ensured alignment with their initial goals:

So, we started Fundrise with a simple idea: give everyone the opportunity to invest directly in high quality real estate, without the middlemen. Our idea definitely had its skeptics. Industry professionals told us that it was impossible. Well, they were wrong.

The Fundrise Advantage: Superior Performance

According to Fundrise,

Historically, investors with roughly 20% allocated to real estate have outperformed those who only own stocks and bonds. However, the best opportunities require minimums of $100,000 or more, making them inaccessible unless you’re very wealthy. The only other option is to go through unnecessary middlemen who charge high fees, negatively impacting returns.

Outperforming stocks and bonds sounds great to me, but as a would-be investor who currently lacks $100,000 in liquidity, I would naturally have to bow out.

Fortunately, Fundrise makes it possible to invest in real estate with very little money. But how can an average investor invest in real estate with such limited funds? After all, we are talking about investing in substantially-valuable (multi-million dollar) properties, particularly when it comes to commercial real estate.

While many REITs focus upon investing in a small number of large assets on an annual basis, Fundrise utilizes state-of-the-art technology and a selective review process which leads to the approval of fewer than 1% of all reviewed projects in order to invest in a larger number of midsize assets. Following detailed examination of projects, approved investments are funded up front and in full by Fundrise before being offered to investors.

strategy-012916
I can understand that many investors, especially those who are inclined to invest strictly in index funds, may be skeptical. When I first learned about the growing eREIT movement, I was skeptical. However, numbers don’t lie (unless they are manipulated, of course): diversification in eREITs can certainly pay off, as it did in 2015, with an annualized return of 13.00%.

Options for Non-Accredited Investors

One of my favorite features of Fundrise is the option to buy into different eREITs. Offerings are changing month-by-month, and though there is often a waiting lis , it's a smart idea to sign-up now - it's FREE - and be among the first in line when a new eREIT opens.

These options must be appealing, as over 98,000 members have invested with Fundrise at the time of publication of this review. As an added benefit, Fundrise has pledged to charge $0 in management fees until December 31, 2017 unless an investor earns at least a 15% annualized return. Furthermore, I was surprised to learn that Fundrise has pledged to pay a penalty of up to $500,000 to investors if the Growth eREIT earns less than a 20% average non-compounded annual return!

While most investments, particularly those in real estate, are intended to be long-term in nature, Fundrise recognizes that some investors value financial flexibility more than anything. As a result, they have created a redemption option to allow investors the opportunity to sell back some or all of their eREIT shares on a quarterly basis, subject to certain limitations.

What’s Not to Love?

While it may seem like I am touting Fundrise as the latest and greatest thing since sliced bread, I have learned to approach all investments with a high degree of hesitation. And while Fundrise is a fine option for many investors, like all opportunities, there is a great deal of associated risk.

First and foremost, at the most basic level, Fundrise is real estate crowdsourcing. It is one of many different options available for would-be investors. There is a chance that real estate crowdsourcing is just one of the latest trends. Maybe its popularity will fizzle out. Personally, I don’t believe that is the case, but I have been wrong before.

Second, as a relatively new company, Fundrise does not have a long operating history, which they willfully disclose in their Offering Circular. This alone can contribute to uneasiness for the investor who prefers investments with long track records.

Third, many investors may prefer the option of investing in REITs through other portals, such as Vanguard, eTrade or Schwab. While this approach may be more “comfortable,” it should be known that comfort always comes with a cost; in this case, Fundrise offers approximately 90% lower fees than its the aforementioned REITs.

Final Thoughts

Investing in real estate can be a scary proposition, especially for those of us who remember the monumental collapse nearly a decade ago, but it’s important to remember that all investments carry risk. It is a well-known investment fundamental that diversification is one of the best protections against risk. For investors who are seeking new opportunities with potential for strong returns, Fundrise is a great opportunity with a very low barrier for entry.

Though there may be a waiting list as you’re reading this, there is no risk to signing-up with Fundrise now to examine your options. If you’re in position to invest without putting your family at risk, signing-up with Fundrise is a smart move.

Disclosure: Fundrise, LLC did not compensate FinanceSuperhero for writing this review; as always, FinanceSuperhero pledges to NEVER recommend products which we have not deemed responsible and valuable to readers.

All investments carry risk. Before investing, it is advisable to speak with a qualified financial professional. FinanceSuperhero assumes no liability for losses incurred by following this or any other investment advice contained within this website (www.financesuperhero.com). Information contained herein should be considered to be strictly informational and entertainment in nature.


Readers, tell us about your experience with real estate crowdsourcing. What level of returns have you experienced thus far? For those who have not yet participated in real estate crowdsourcing, what reservations are holding you back?

The SIMPLE Method to Achieving Financial Independence

Over the past year, I have spent many hours reading about personal finance and investing. The biggest takeaway from this experience:

I have learned just how much I don’t know about money and how it works.

While some financial bloggers might be upset about this, I am excited! Learning new things and sharing that knowledge with others is one of my greatest passions. As an educator, I have carefully cultivated an ability to teach difficult concepts – first in a simplified manner, and then in greater depth.

In this post, I will aim to simplify the complex pursuit of financial independence.

The educator within me developed the following acrostic, which is intended to remind you of the SIMPLE nature of financial independence:

Start as soon as possible
Invest in funds with strong track records and low fees
Manage risk wisely
Practice stealth wealth
Leverage your strengths
Enjoy the process

Achieving financial independence is a challenging and worthwhile goal. If you start investing early, invest in low fee funds, manage risk, practice stealth wealth, and leverage your strengths, you can enjoy every step of the journey!

Start 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 achieving financial freedom. I have used this illustration in the past, but it is so effective that it warrants repeating here:

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.

Invest in Funds with Strong Track Records and Low Fees

Recently, I was talking with Superhero 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 Superhero 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 re-balancing, and provides greater returns.

Open an IRA with Betterment today!

Manage Risk Wisely

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 achieving financial freedom.

Practice Stealth Wealth

While the past steps outlined within the above acrostic have been on the heavier-side, the recommendation to practice stealth wealth is less critical, even optional.

However, I recommend it for a variety of reasons. First, while many of your friends and family will be happy and desire to celebrate your financial successes, you will certainly have to deal with critics. Second, many people will seek you out for hand outs and contributions. Third, publicly-recognized wealth will make it difficult for you to evaluate the intentions of new friends who suddenly enter the picture.

For more on this topic, I advise you to check out Financial Samurai’s fantastic article on this subject, “The Rise of Stealth Wealth: Ways to Stay Invisible From Society If You Have Money.”

Leverage 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

Enjoy the Process

Lastly, while the pursuit of financial independence is marked with challenges, do not forget to enjoy the process. Perhaps the greatest example of this principle which comes to mind is ultramarathon Dean Karnazes, who launched his running career on his 30th birthday. As a runner who has run a 50k ultramarathon and aspires to soon run a 50 mile ultramarathon, I idolize Karnazes and remain in awe of his accomplishments.

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 financial independence may leave us with our fair share of scrapes and leave us worn out, but we would be wise to enjoy the process every step of the way.


Readers, in your experience, what are the keys to achieving financial independence?

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.

Afraid of investing?

It has never been easier to invest in tax-advantaged retirement accounts or real estate. Personal Capital is wealth management for the Internet Age. Their online platform combines digital technology with highly personalized service to provide a holistic view of your unique financial picture.

If you are looking for additional investment opportunities, including real estate, Fundrise is an accessible platform which can help you earn potential high-yield cash distributions through a diversified pool of commercial real estate assets. Thus far, Fundrise has delivered superior returns, as can be seen below. And with competitively-low fees and a $1,000 minimum investment, practically anyone can participate.

Fundrise returns 2015

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.

Afraid you will remain stuck in a job you have outgrown? Explore whether you might transition into a side hustle on full-time basis. Start a blog with Bluehost and share your knowledge and passion with others.

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?

What Are You Teaching Your Kids About Money?

A primary responsibility of parents is to teach kids how to manage money. Follow these 4 easy tips to raise financially-literate children!

Recently, in an effort to force myself to slow down a bit and actually relax, I started watching a few episodes of the hit-show The Goldbergs, which is set in 1980s Pennsylvania. Mrs. Superhero claims that I am really half-watching and half-working on my laptop, but that is a subject for another article.

In an episode I watched last week, Murray, the family patriarch, is sitting in his recliner, sans pants, and his wife, Beverly, is in the kitchen, when his oldest son, Barry, approaches and asks for money. Here is their conversation:

Barry:  What if I told you one day there’d be a piece of technology that can guarantee I play professional basketball? Well, that day has come. The Reebok Pump. A cushion of air around the foot that literally allows you to defy the laws of gravity. And the amazing part? It’s only $175. Don’t say no.

Murray: No.

Beverly: Honey, I’ve got a pair of Reeboks upstairs you can have.

Barry: Oh, really? Can I please borrow your beige mom sneakers? Listen! My dream is to be a basketball superstar, not a nurse!

Murray: Well, here’s the thing about your dream. It’s stupid.

Barry: You have the money. Just get your pants and give it to me.

Beverly: Barry, your father’s pants are not a bank.

Murray: Money comes from hard work, you moron. You really want those shoes, come down to the store and work for ‘em.

Barry: Fine! But when I get to the NBA, and you want my autograph, I’m signing it, “Worst wishes, Barry.”

As I watched this episode, all I could do was laugh–a lot. An hour later, as I lay in bed, my stupid brain could not stop thinking about this conversation and the events which followed.

Barry Goldberg begins working with his father at the local furniture store. Ironically, he is a natural salesman and does very well, but his success comes after some early struggles. When his first payday arrives, Barry is astonished to receive a paycheck for $33.

Barry: Is this some sick joke? Oh. You’re just busting balls, huh? This is a joke paycheck.

Murray: I wish I was busting balls. Welcome to the real world.

GoldbergsBarry: I know I made more than this. Why is it so low?

Murray: Taxes! You got federal, state, social security, F.I.C.A..

Barry: What are you talking about? Those aren’t real things.

Murray: Did you ever go to school? Taxes? Those are totally real things.

Tough Love and Tough Lessons

In these two brief scenes, Barry Goldberg’s words and behavior provide a glimpse into the American entitlement culture and the interconnected role of money.

-Barry is easily swayed by the power of advertising.

-Barry expects money to be given to him rather than earned.

-When Barry begins to work, he overvalues his contributions and expects unrealistic earnings.

-Barry is oblivious to the basics of federal and state taxes.

Fortunately, Murray Goldberg, while unconventional, is a good dad at heart and teaches Barry key lessons in a very short time.

-Money is easy to spend but difficult to earn.

-Money comes from hard work, moron!

-Taxes are a painful reality.

Early Money Lessons

Fortunately, Superhero Dad wasn’t too much like Murray Goldberg when I was growing up. He wore pants, most of the time, and didn’t call me and my siblings morons.

Like Murray, Dad worked hard to provide for our family, and he made sure that we did not go without anything which was truly a need.

On the other hand, we experienced our fair share of tough love, and I am grateful for that today.

Like Barry Goldberg, I used to ask Superhero Dad for money for many unnecessary things, like going to the movies with friends or baseball cards. I quickly learned a simple lesson:

Work and get paid; don’t work – don’t get paid.

When Dad opened up his wallet, I could be sure that I would soon be raking leaves, mowing the lawn, or climbing up on the roof to clean out the rain gutters in order to earn the money bestowed upon me.

The Finance Superhero Plan for Raising Financially-Literate Children

Mrs. Superhero and I do not yet have children of our own. However, between the two of us, we know a thing or two about teaching children as a result of our professional backgrounds. When we do have our own children, we will carefully implement the following techniques and teach  financial lessons:

We will let our children see how we manage our finances. We will be appropriately transparent, within obvious reason, so our kids learn the value of money.

We will implement commission rather than allowance. Our children will learn that those who work get paid and those who do not work do not get paid.

While the importance of work and the natural compensation which follows will be emphasized, we will teach our kids that not all work is for the purposes of getting paid. Sometimes, we will roll up sleeves and work to serve other people and support the community. Sometimes, we will work to care for our own household or personal belongings. Pay is not to be expected for all work.

We will guide our children to give, save, spend, and invest. Dave Ramsey touts the “give, save, and spend” mantra, in that order, and I don’t have a problem with it. We want our children to experience first-hand that that money is not meant for hoarding; rather, it is a tool to take care of both oneself and others, too.

As a result, some of our children’s savings will be in a liquid money market or savings account. This won’t be about earning interest, which will be low, but it will show our children the value of having money remaining and to teach them not to spend all they earn. When they want to spend all of their money and deplete their savings, we will let them from time to time (this will be SO painful for me!) and allow them to learn from their mistakes at an early age.

In addition to learning about spending and proper decision making, we will teach our children about the power of investing when their limited earnings permit it. We believe that children can learn the power of compound interest at an early age. If their earnings won’t support investing, we will involve them in the process of funding their ESA and 529 accounts when they are mature enough to understand.

Likewise, we will emphasize the importance of investing to instill a long-term mindset. We will start them early on this so they think investing is “just normal” and “what everyone else does.” They will be astonished when they look up as adults and see that their once small investment has grown due to time and compound interest.

Leaving a Legacy

As Mrs. Superhero and I get closer and closer to starting a family of our own, I have thought increasingly about the legacy we will leave behind. I have thought about all I have learned from my elders, including Superhero Grandpa (and Grandma) and Superhero Dad (and Mom). I know I will be like most parents and rarely have all the right answers.

In the ancient Book of Proverbs it is written, “A good man leaves an inheritance to his children’s children.” Through education and experience, we hope to leave this kind of inheritance, built upon a foundation of love, wisdom, and stewardship.




Readers with children, what have you taught your children about money? Do you provide an allowance? At what age do you believe children should begin learning about money?

Readers without children, how did your parents teach you about money? What lessons remain vivid in your memories today?

Kicking Sallie Mae to the Curb: Goodbye, Student Loans!

In my nearly two months as a member of the personal finance blogging community, I feel I have developed a good grasp on the different types of financial bloggers. Some aim to share a technical and sophisticated approach to personal finance, while others are more simplistic and inspirational in nature. Some are humorous and self-deprecating, while others think they know way more than they do (Brief digression: Visit BeardsandMoney for a great article which touches on this topic). No matter the financial state in which a reader my find herself, there exists several blogs which can help her navigate the twists and turns of personal finance.

In the past year, the community has exploded with a host of new bloggers who are advancing our niche and providing me with plenty of inspiration to improve my writing and provide articles which are accessible and thought-provoking for readers. Challenges like the Million Dollar Club launched by J. Money, the Yakezie Challenge launched by Financial Samurai, the Save the Savings Challenge launched by Andrew at FamilyMoneyPlan, and a somewhat-secret project (in which I will be participating) in the works to be announced next week by two to-be-named-later writers, have added to the atmosphere of collaboration, encouragement, and excitement in our community.

Related: See the Blogroll

While this is all very exciting, Mrs. Superhero and I hardly need additional things about which to be excited. Friday was a big day for us. We pulled the trigger and kicked Sallie Mae to the curb by paying off my graduate school student loans!

I wish this story were nothing but rainbows and butterflies, but good things rarely come without a grind.

The Story

In May 2014, I completed my Master of Arts degree. When I entered repayment that November, I faced these terms:

GS2

 

 

 

 

 

 

I read further and my the lump in my throat began to grow:

On your current repayment plan, including interest and capitalization, your total estimated amount to be repaid is $27,178.23.

While I was relieved to have completed my degree, I must admit that I felt a little clammy and my blood pressure rose a bit when looking at the previously mentioned figures. In that moment, I was determined to ensure that my $18,000 educational investment would not grow by over $9,000, or approximately $900 per year, over the standard 10-year repayment term.

The problem I faced at the time was that I still owed over $5,000 on my undergraduate student loans. Yes, I was stupid. The worst kind of stupid. The kind of stupid with several zeros and even a comma involved. I took on additional student loan debt without paying off my existing student loans.

As I approached repayment, I was nervous. But mostly I was angry at the guy in the mirror for digging myself into such a large hole.

Climbing Out of the Hole

There are two different ways to tell this story.

The Short Version

All in all, we paid off a total of $21,229.00 of graduate school student loan debt over the course of 19 months, or 1 year and 7 months. This is an average of $1,117.31 per month, which does not appear particularly impressive or sacrificial for two working professionals who also own and operate a small business and engage in side hustles.

As I reflect and experience the benefit of hindsight, I think we should have paid off the loans much sooner. Maybe we could have done so if we had cut back on dinners out with friends, took a staycation  in place of our modest vacation last summer, and kept driving Mrs. Superhero’s vehicle from college.

This version, while still happy, is vanilla, incomplete, and unsatisfying. It’s the financial success story equivalent of the How I Met Your Mother series finale.

Ted
No spoilers from this HIMYM super-fan

 

 

 

 

 

 

 

The Longer (Better) Version

While The Short Version is factually accurate, it misses some of the finer nuances of our journey toward freedom from student loans. Perhaps the biggest fault of The Short Version is that it is leaves out two other significant financial successes which occurred as recently as the previous 11 months.

In July 2015, Mrs. Superhero and I decided it was an opportune time to upgrade from our 2000 Mercury Sable. Our search led us to a 2013 Hyundai Sonata. We had planned to purchase a vehicle with cash in the ballpark of $8,000-$10,000, but the  we couldn’t shake the idea of the Sonata and drove it home two days after taking it for a test drive. This depleted our $10,000 car sinking fund (and led us to take out an $8,000 loan with a 36 month term at a very low interest rate to cover the difference).

Two months later, in October 2015, I had another sweaty, racing heart moment when I sat down and reviewed the spreadsheet of our total non-mortgage debt. As I mentioned earlier, we still owed just over $5,000 on my undergraduate student loans, in addition to $19,000 on my graduate school student loans and the $8,000 auto loan. This was a sobering realization.

The hole had gotten even deeper, and while we had a new-to-us vehicle to show for it, I knew that something needed to change. That month we paid just over $4,300 toward my undergrad loans and tacked on an additional $829.00 the following month to wipe out these loans for good!

Our momentum was halted a bit in December and January, but shortly after the calendar turned, another look at my Excel sheet sent me back into orbit. In addition to minimum payments on the Sonata and grad school loans, we paid an additional $2,338.79 on the grad school loans in February 2016. Following a similar plan, we paid minimum payments and an additional $1,100 in March and an additional $4,000 in April. It felt like we were on a roll in some respects, but the finish line still seemed like a faint mirage on the horizon.

In personal finance and investing, we all know the mantra: slow and steady wins the race. I was content to push slowly and steadily toward the finish line and rest in the comfort of this phrase. That is, until I snapped for a third time last week.

A quick look at our emergency fund and sinking funds revealed that we could make a final payment of $10,166.37 without exposing ourselves to the unnecessary risk of an underfunded emergency fund. Upon realizing this, I told Mrs. Superhero that this payment would be the best early birthday present I could receive. Without hesitation, she gave me the green light, and last Friday, I submitted the payment!

Reflections

I feel The Long Version shows that perhaps I am being a bit hard on us, as we paid $10,000 as a downpayment on a vehicle in July 2015 and paid off the final $5,168.83 on my undergraduate student loans in this same time period that we paid off my grad school loans. Over 19 months, the total student loan and car debt paid + car downpayment figure rises to $36,397.83, or $1,915.67 per month.

The averages get more fun when you consider that we really got intense beginning in July 2015. From July 2015 to the present, we paid a combined total of $28,889.37 on the aforementioned student loan and auto debts, or an average of $2,626.34 per month for 11 months.

Narrowing the focus further, I realize that we paid off $17,831.65 in the 54 days leading up to May 13, 2016. This averages out to $330.21 per day!

Why This Worked For Us

Among the reasons for our success, three reasons stand out in my mind:

Effort and maximization. As previously mentioned, Mrs. Superhero and I have worked a lot over the past 19 months to make the aforementioned accomplishments a reality. We could have whined and complained about the predicament that we I placed us in, but instead we took action and did something about our unhappiness.

Values identification. Mrs. Superhero and I loathe debt with a passion. While we could have used the aforementioned funds to significantly build our investment portfolio over the past 19 months, I am satisfied with our decision. Over this time frame, the S&P 500 and VFINX, two important benchmarks for investors, have produced underwhelming results, in my opinion. And even if they had produced steady and modest growth, our values still indicate a preference for eliminating debt at this stage.

Sacrifice. I am fairly convinced that many people who know me and Mrs. Superhero personally think we are weird due to our handling of our finances. Once they have read this article, they are sure to think we are even weirder! Going against the grain of today’s culture with regards to our finances has been a sacrifice at times, but a worthwhile sacrifice nonetheless.

Recommendations

  • Identify your values and establish a set of written financial goals as soon as possible. I know plenty of people, including fellow bloggers, whose values and goals have led them to defer paying off their debt in favor of growing an investment portfolio and developing passive income streams. I do not begrude or criticize them for their choices, as their pursuits are grounded by values and goals.
  • Do not stray from your established goals and timelines without good reason. You will be tempted to give up and spend, but you shouldn’t do so in order to impress people you don’t even know. Don’t do it!
  • If you are drowning in student loan debt or other debt, explore refinancing with SoFi. SoFi is an excellent option to reduce the total amount of interest paid over the lifetime of a loan and make the pursuit of debt freedom much more manaegable for money people. Check out your options for student loan refinancing  and personal loan options here. You will receive a $100 welcome bonus when you sign-up!
  • If possible, join me and Mrs. Superhero in freedom from student loan debt. It is truly a great feeling. We hope to replicate this feeling in a few more months when we pay off the Sonata; however, that will come after we build our opportunity fund and navigate the summer months ahead.

Disclaimer: All links to SoFi are affiliate links. While I cannot personally share a testimonial regarding the product because I no longer have student loans which could be refinanced, FinanceSuperhero will always recommend products that can help readers accomplish their goals in a faster and more cost-effective manner.


Readers, have you experienced any recent triumphs over debt? What were the keys to your success? How did you stay motivated? If you are still in debt, when do you plan to eliminate student loans or other debt?

Is $1 Million Really Enough? Redefining the Dream

Is $1 million really enough to retire? Not likely. Here's why you need to do everything you can to begin to chase your retirement dreams starting now!

As a child, I spent a lot of time with my Grandma and Grandpa. They reached retirement shortly after my birth, and both of my parents worked full-time jobs. During the summer months, I spent one day each week with my grandparents. I will forever cherish the memories of eating homemade toasted bread and strawberry jam by the morning sunrise, the countless mornings spent building utility trailers with grandpa, sunny afternoons at the park, late-afternoon naps, trips to the pool, and the unparalleled hearty dinners from Grandma’s kitchen. Life was good.

During the school year, Grandma and Grandpa picked me up at the bus stop until I was old enough to stay home alone for a few hours. Those afternoons, too, remain as poignant memories. Grandpa and I often drove to the lake to feed the ducks, roamed the Earth in search of free lumber, or took his hunting dogs for adventures in a nearby wooded area.

During one particular walk in the woods, Grandpa and I wandered off the beaten path and onto a narrow, single track trail. At the end of this trail, we discovered an old, junked out car which had been left in a large hole in the ground. To the adventurous mind of a little boy, we had just discovered the equivalent of the Lost City of Atlantis.

I recall spending the remainder of that day thinking about that old car. Who had owned the vehicle? How it had gotten to its final resting place? And how had it had managed to sit in the woods untouched, year after year?

Grandpa knew how to entertain me, teach me to think, and lead me to dream big. This all came naturally to Grandpa, because he was an entertainer, a thinker, and above all, a dreamer himself.

Grandpa’s Dream

As I grew older, my adventures with Grandpa became less-focused on the things of childhood and more focused on life lessons and my future. Ever a motivator and encourager, Grandpa believed in me and had big dreams for my future. He said that I could be a doctor, lawyer, or businessman if I studied hard and earned good grades. Grandpa knew a thing or two about hard work, but he was the first to admit that he never saw a good grade in his life.

When I reached my teenage years, Grandpa became less-mobile, and our time spent together grew more and more sedentary. We traded walks in the woods for visits over coffee and cookies in the three-seasons room of Grandpa and Grandma’s new condo. Since Grandpa passed away in 2013, my biggest regret remains that I did not record more of Grandpa’s stories and advice.

One story, however, is permanently etched in my mind. One afternoon, Grandpa the told story of how he get started in investing. He explained that he had seen his neighbor drive by and wave in a brand new car every spring. One year, in his typical, rather direct fashion, Grandpa asked the gentleman how he could afford new cars each year. Unembarrassed, the neighbor told him that he had high-performing stock investments and that dividends were the key to his annual car purchases. He also spoke glowingly about his financial advisor.

In an instant, Grandpa had hatched a new dream far bigger than new cars. He wanted a piece of the pie for himself and for his family. Later that week, Grandpa went down to the advisor and opened a new brokerage account. The rest is history.

Secret Millionaires?

I grew up hearing faint whispers about Grandma and Grandpa’s wealth. They were thorough practitioners of stealth wealth, and while they owned their modest home outright and drove nice vehicles, they lived a minimalist lifestyle. The watched evening television in the dark, did not have central air conditioning, and rarely spent money. At Grandpa’s funeral visitation, an old friend told me that he once saw a moth fly out of Grandpa’s wallet. Literally.

Only one memory lingers as an indication that Grandpa and Grandma had money. Grandpa and I had just sat down for lunch at the kitchen table, and Grandma walked in from getting the mail. She handed Grandpa a piece of paper, which in hindsight was an investment statement, and said, “Well, you’re half of a millionaire.”

Grandma probably didn’t know I was listening. Without knowing for sure, I suspect that Grandma was being modest. I am confident that their  investments represented only a portion of their assets. I was likely being thrown off the trail of two Secret Millionaires!

The Fruits of Their Labors

Among many the many benefits of their financial wisdom, Grandma and Grandpa were:

My grandparents' home - where I learned to think and dream
My grandparents’ home – where I learned to think and dream big

1. Financially Free. They had no debt, no obligations, and as a result, they could do virtually whatever they wanted when they wanted to do it.

2. Frequent Travelers. They vacationed a lot and visited every place which interested them.

 

3. Generous to Family. They provided weekly Sunday dinners for 20+ people, often took the entire family out to dinner, provided nice gifts for birthdays and Christmas, and gifted a one-time lump sum to each of their grandchildren one year in order to reduce their tax liability.

4. Proud Yet Humble. They knew they had earned everything they possessed, yet they never boasted.

A Contagious Dream

For years, I have desired to experience those fruits for myself. Ever since that afternoon at the kitchen table, my foremost financial goal has been to reach millionaire status. Not for vanity or bragging rights, but for the feeling of freedom, the ability to help other people, and to give away massive sums of money.

Today, as I write this article, I cannot help but wonder:

Will a cool million really be enough?

According to the life expectancy calculator at John Hancock, I can statistically expect a baseline life expectancy of 83 and a projected life expectancy of 93. Considering my goals of early retirement, it appears my nest egg will need to last upwards of 40 years! And what if I live to be 100?

Factoring in rising inflation and the decreased buying power of money as I continue to age does not increase my optimism that $1 million will be enough. Even if it were enough for me and Mrs. Superhero to live on, would it really permanently change our family tree? Would it benefit future generations of my family? Would it truly leave a lasting legacy?

I have few doubts that Mrs. Superhero and I will reach millionaire status, even though we are far from it at this point. But based upon the 4% Safe Withdrawal Rate, I question whether $40,000 per year will be sufficient.

Is $1 Million Really Enough?

While I am an advocate for specific written financial goals, my target retirement number is surprisingly fluid at this stage in my life. Mrs. Superhero and I are focused upon eliminating our non-mortgage debt over the next couple of months, and I find it too distracting to focus upon too many goals at one time.

In the meantime, I am still dreaming of my own retirement. My dream is simple at its core:

  1. Be free from the rat race–forever!

  2. Enjoy carefree experiences with Mrs. Superhero, our siblings, and our future children and grandchildren

  3. Work on my own terms in my future retirement, if I choose to do so, and answer to myself and no one else

  4. Give outrageously

  5. Change my family tree forever

  6. Never experience stress due to work or money issues ever again

Until my dream is redefined again, this is my motivation.


Readers, what are your dreams for retirement? What motivates you? If you are currently retired, are you living your dream as you had hoped?