Monthly Archives: February 2017

Regret A Paid Off Debt

Over the years, I’ve been indebted many times for one reason or another. Mostly car loans and a few mortgages, but sometimes personal loans too. After college, my parents lent me $5,500 to buy a used Mazda. The interest rate was better than a traditional car loan so I was grateful to take the deal. But I paid that thing off as fast as I could. I didn’t want it hanging over me. After traveling overseas for 14 months, I bought a brand new car with zero money down and a $221 monthly payment. I paid that 5.5-year loan off in 2.5 years. Then just last year, we eliminated our minivan loan in one big payoff chunk. It was suffocating our cash flow even though the interest rate was just 0.9%. Felt great.

I’ve had HELOC debt, short-term loans from the bank of Mom and Dad, and even some minor credit card debt after college. I paid each debt off early.

I’ve paid extra payments to our mortgages to optimize refinancing opportunities a few times too.

Each extra payment was a sacrifice. Money from our budget went to the debt instead of more beer, more stuff, more investing, or even more travel.

But you know what? I’ve never regretted one dime I put toward early debt payments. Not one.

Drink the Debt-Free Kool-Aid

Somewhere along the line, I drank the debt-free Kool-Aid. Partly because of something my Dad said when I was an impressionable teenager. Then before I found podcasts, I had a satellite radio. The only money talk show I could find was Dave Ramsey.

His argument for a debt-free lifestyle is so rehearsed and perfected that listeners are hypnotized to never borrow money again.

But math and spreadsheet wizardry are constant temptations to go against the debt-free lifestyle. Because the numbers work.

For example, two years ago my bank offered a 1-year home equity loan at 0.9%. At the time, I was earning more than 10% investing at Lending Club (now my returns are around 8.2%).

The math told me to take the deal and put the proceeds into peer to peer lending notes.

I didn’t.

Had I borrowed money and invested it in Lending Club notes or stocks, I’d be wealthier… albeit with more heartburn.

The same would likely hold true today. Right now I’m passively earning more than 8% on investments in both Fundrise and RealtyShares that are backed by real estate. Why not borrow low and invest?

Isn’t that what rich people do? Isn’t that what banks, corporations, and private equity firms do too?

Yeah, pretty much. But leveraging up to invest involves risk. And stress. So I resist.

When there’s a sustained bull market like the one we have today, it’s easy to forget about the risks of debt and investing.

Even if I borrow for something like a car, I always end up paying the loan off early because the debt makes me uncomfortable. Debt-free does not.

Paid Off Debt Regret

Debt repayment regret is real. I’ve discussed this with a number of friends who made early payments on low-rate student loans or mortgages, only to wish they’d invested the cash and let the debt ride.

These conversations always happen in good times when jobs are plentiful and the stock market is strong.

Over long periods of time, the math absolutely works in favor of keeping debt to term if the interest rate is low.

Stretch a low-interest mortgage (less than 5%) over 30 years and earn 9-10% in the stock market, and the advantage looks obvious. Then consider the tax benefit of mortgage interest and it’s even better.

Same with low rates on student loan debt.

However, 30 years is a long time. Plans change. I’ll be 70-something when our mortgage term ends. I don’t expect to be 100% in stocks at that age. My risk appetite will decrease, so my average returns should decrease in exchange for stability. 5%-6% is more realistic target return when I reach 60-years-old.

If my mortgage rate is 4%, I’d be putting money at risk to earn an extra 1%-2%. While paying down the debt is a guaranteed 4% return.

And that’s a super-low rate. In previous decades, rates were much higher. Those rates may very well return.

Imagine your mortgage rate is 8%. Would you be as eager to risk your money to earn 9-10% from stocks?

My goal to retire at age 55 assumes I’ll be debt-free, including the mortgage. We’re a long way away from that, but I’m confident I won’t want that payment. I’ll already have enough recurring payments with health insurance and property taxes.

There’s a correlation between debt and stress. To truly reach financial freedom, the handcuffs need to go. For me, at least.

If I regret it, I can always go back into debt.

Debt is a Tool and a Vice

Debt is a tool to accelerate building wealth. This is especially true in real estate and business. I use debt for my rental property.

But it must be used strategically to build wealth.

Probably 90%+ of Americans don’t think about debt strategically. They use it to buy things they want now instead of waiting to pay cash. Cars, stuff, a bigger house, education etc. It can become a vice when you over-borrow.

Debt carries a few burdens that can create discomfort in your life.

The borrower is slave to the lender; this holds true as a tool or vice
Debt requires recurring payments, i.e. money obligations from you to someone else
Debt causes bankruptcy and epic stress when economic conditions sour
Debt inhibits cash flow
This is all fine if you’re in control of your money and life and borrow conservatively. Us finance nerds pay close attention. The vast majority of people do not.

A paid off debt is one less thing to worry about. Who doesn’t want that?

Problems happen when using debt as a tool too often becomes a thorn in your side. Then a dagger.

Used correctly and you can build solid and stable wealth. However, for a long as you hold the debt, you’ll always be on the hook, regardless of your net worth. Being on the hook for anything is not my idea of freedom or retirement

Perform A 30-Day Financial Cleanse

Ever tried a detox diet? The medical benefits of “cleansing” your body of toxins might be dubious, but temporarily limiting your diet to liquids or fruits for a few days is still a good way to become more mindful of what you’re putting into your body.
A financial cleanse works the same way.
If a cleanse diet aims to cut out the bad stuff you consume—sugar, fat or alcohol, for example—in a financial cleanse you look to eliminate ‘toxic spending’. Such spending could be emotionally-charged, wasteful, or just mindless. Whatever the cause, the purpose of a financial cleanse is to reset how you make spending decisions so that you think more carefully about every one going forward.
If you’ve found yourself creeping into bad money habits like spending more than you make, not saving enough, or buying things you can’t afford, it might be time for a cleanse. Even if you’ve got it together financially, a cleanse can help you take your money habits to the next level.
How can I do a financial cleanse this month?

When you go on a juicing fast to cleanse your body, it’s painful for about the first week. Going through a financial cleanse will be no different. The first week or so is going to be rough.
To make it more manageable for you, I’ve given you the option of several different challenges to tackle this month. Don’t try to do all of them in a single month if you’re not comfortable. Like dieting, if you try to go too far too fast, you’ll end up failing and ultimately giving up.
The purpose of this is to set you up for sustainable success, not have you go for 30 days and stop. Just remember to keep at it—it’ll be worth it in the long run.
Challenge #1—Start a spending fast

Instead of starting off nice and slow, you’re going to do something to shock your financial system. You’re going to stop spending money on anything that isn’t a need.
A perfect example of this is when Anna Newell Jones did her Spending Fast. She determined exactly what was a need and what wasn’t, then stopped spending on everything that wasn’t.
Anna did this for a year. For now, I’m asking you to try it for a month.
Be aggressive with your decisions—don’t let yourself off the hook. For example, you might think something like clothes, bed linens, and haircuts are needs. But Anna Newell Jones was able to go without them for a long time, and so can you.
Challenge #2—Stop using credit cards (even if you pay in full)

This one is going to be hard for those of you that buy everything on credit and pay it off in full each month. While normally that’s a great strategy, psychologically we spend more money when we use plastic versus when we pay with cash.
By ditching your credit cards for a month, you’ll force yourself to use cash (yes, that funky green paper you never see anymore) and start to physically see your money leave your hands as you buy things.
One of the best things about cash is that it’s finite. Meaning, once it’s gone, it’s gone. Take a page out of Dave Ramsey’s envelope system method and budget all of your major categories into physical envelopes.
Things like your debt payments, rent, and utilities don’t have to be done with cash, but anything that you’ll actually be buying should. So groceries and gas will all be cash this month.
Challenge #3—Give every dollar a job (and track your spending)

Now this one is going to be grueling for most of you, but it’ll put your dedication to the test.
To make it easy for yourself, head over to and sign up for a free trial.
One of the things YNAB harps on is to give every dollar a job. Basically this means every dollar you earn gets allocated somewhere, so you know what you’re spending and where it’s going. It also helps you plan for the month and help you create a solid financial game plan.
Once you’ve signed up for an account, follow the YNAB Quick Start Tutorial to get your budget up and running. Since you’re using cash this month, it’ll be an extra challenge for you to track what you’re spending (they have a simple app to help you).
Challenge #4—Increase your savings rate by 5-10 percent (and automate it)

Recent data shows that the median savings for American families is $5,000. Read that again – $5,000. It gets even worse for families with members between 32 and 37—the median savings in those groups is less than $500.
The reality is, we’re not saving like we used to. We live above our means as the cost of living increases and wages don’t always follow the same pattern.
So the challenge I present to you is to increase your rate of (pre-tax) savings by five to ten percent.
The other piece of this challenge is to ensure your savings is automated – pay yourself first. We’ve said it thousands of times on Money Under 30, but that’s because it’s critical if you want to have any success saving money.
Paying yourself first means that you’re taking money out of your paycheck before you even see it and putting it into savings. The most common example is a 401(k) contribution, which gets taken out pre-tax before you’re paid.
But that doesn’t have to be the only way. You can set up a recurring deposit from your checking account to a savings or Betterment account. The point is—just increase your rate of savings immediately. With an increase as little as five percent, you may not even realize it’s gone.
Challenge #5—Get a grip on your debt

The average amount of credit card debt is nearly $17,000. As I said above, we’re also saving next to nothing. Combine that with this kind of debt, and we’re not exactly setting ourselves up for success.
And that number doesn’t even include things like car loans, mortgages, personal loans, and student debt. When you factor in all the other types of debt you have, it can easily become overwhelming. Which is why we often do nothing about it.
Well now is your chance to change. I’m not asking you to pay off all of your debt right away – you don’t have the money to do that yet. I’m just asking you to get a grip on your debt.
What do I mean by that? I mean getting a hold of what you owe, how much your monthly payments are, and what your interest rates are. As simple as it sounds, we often don’t take the time to do a check-in on our debt to create a plan.
Which is the next part of this goal. After you’ve taken some time to write down your balances, interest rates, and payments, write down the customer service number for every single account.
With the exception of your mortgage, you may be able to easily get a lower interest rate just by calling and talking to someone. Call the customer service numbers for each account and see if you can get a lower rate.
The worst thing that will happen is they’ll tell you no, and you’re in no different place than you are right now. So what do you have to lose?
You can use the traditional method of working toward the highest interest rate first, or try the Snowball Method that Dave Ramsey made so popular years ago.
With the Snowball Method, you’re paying off your smallest balances first – ignoring the interest rate. Mathematically, this makes no sense, but psychologically, it gives you quick wins (paying off an account).
That doesn’t mean stop paying your balances on your other debt, but set them up to automatically pay the minimum while you focus on putting every extra dollar you can toward one account at a time.
Challenge #6—Reconsider your eating habits

Are you someone who goes out all the time on weekends? Do you go to bars, restaurants, and movies with your friends? Much of these activities lead to everyone’s spending arch-nemesis —food.
In fact, American households are now spending over $7,000 a year on food alone. That’s nearly $600 a month! If you spent just ten percent less on food each year, that’d give you about $700 you could sock away into a savings account.
Not only are we spending way too much money on food, but we’re also wasting it. The average person wastes about 20 pounds of food per month. Think about that—20 pounds!
This is a completely unnecessary waste. And we’re all guilty. It’s impacting your wallet as well as our environment—up to 40 percent of landfills are now organic waste (food).

Doing a financial cleanse this month will help you reboot and recharge your financial life.
Try a couple of these challenges and try to hang on to them indefinitely if you see progress. Also, get creative with these challenges.
How many types of sub-challenges can you come up with? For instance, if you try Challenge #5 (cutting back on food spending and waste), you could take this one step further and place a ban on all coffee or takeout purchases for the month.
Get creative, have fun, and most importantly—improve your financial habits forever

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Should You Know About Finance Tips When You Was 20

Full disclosure: I’m not a financial expert. I’m a regular human being, one who once sailed off on a work trip after whispering to her boss that she didn’t have enough cash to pay for her cab ride to the airport. I’ve figured out some shit the hard way and learned a few things I wish my younger self had known. I hope this list helps the financially ambitious young ladies out there take some chances and learn to make friends with the green stuff.

Be Patient, Grasshopper

When you get your first Adult Job, you may suddenly be immersed in the world of People with Money. These people may have the following: ski equipment, Apple Watches, cars with four-wheel drive, garages, or other sundry items that you could not comprehend affording. You, on the other hand, are suddenly feeling less cool about upgrading from store-brand hand soap to the fancy kind that smells like lavender rhubarb. Your next logical question might be, where is MY money that I need to join the echelons of those around me? The thing is, you are, say 22, and they are probably older than 22. Your salary might be low now, but it will increase, hopefully substantially, every year of your life for at least the next couple decades. It sucks to stress about money, but it WILL get easier every year.

But Also, Don’t Be a Doormat

That said, you don’t deserve to struggle just because you’re young. If your salary is so low that you say, freak out about basic gyno bills or ask your parents for a loan just to buy frozen pizzas, your work isn’t paying you enough. Either ask for a raise or consider finding a different job. Look up how much people with your title typically make at your age, and if you’re not making that, talk to your boss.

Asking for The Money You Deserve Gets Easier Every Time You Do It

Asking for a raise for the first time is one of the scariest things you’ll ever do. That might sound like hyperbole, but it’s quite likely that you won’t get much sleep the night before. It takes a lot of energy to anticipate all the ways your boss could say no, and to rehearse a response for them. To prepare yourself psychologically, create an empowerment playlist to listen to on the way to work, even if it’s mostly Spice Girls and Christina Aguilera.

Take a breath, talk to your boss in person, and know that you’re developing a very important skill. No one is noticing the splotches on your neck, ok! Once you’ve done this once, you’ll have climbed a huge mountain of bravery that will help you succeed in life. (Oh, and don’t say you need a raise to pay your bills. Say you deserve a raise because your salary isn’t competitive, considering all you’re contributing to the company. Be prepared to prove how much that is. Your boss might not know!)

Realize No One is Going to Reward You for Quietly Doing a Great Job in the Corner

It may be tempting to reassure yourself that those squeaky wheels making a fuss at work are going to cause more trouble than they’re worth, and it’s your quiet devotion that will win in the end. Unfortunately, that isn’t true. Bosses are happy to continue paying you a lower salary if you seem perfectly content with it. You’re going to have to speak up for yourself, sooner rather than later.

Talk About Money with Everyone

There’s still an old assumption that money is an indelicate matter, one that precious and innocent women need not deal with! Continue toppling this phenomenon. Tell your friends outside of your company what you make. Learn what they make. Ask older people for advice. Just tread carefully when it comes to telling your co-workers what you make. That can get messy.

You’ll Never Make the Money You Want if You Don’t Take Chances

Permit me to sound like your dad for a moment. Sometimes to go up a tax bracket, you have to make a lateral move. That may mean switching companies or even industries. Sure, there’s a chance that your entry-level desk job will allow you to slowly climb the ladder to upper management. But there’s more of a chance you’ll strike it rich if you take chances, get out of your comfort zone and expand your network. That doesn’t mean you have to show up at countless corny networking conferences. It just means your hidden skill or hobby might open huge doors for you if you dust it off and show it to the world. You just need to have the confidence to believe – you really are good enough to succeed at whatever it is you truly want to do. Once you open that door, opportunities will crawl out of the woodwork, I promise.

You Can Invest, Even if You’re Not Rich

This is actually something I was aware of at 20. A couple friends and I started a mini “investing club” during the height of the recession and bought some dirt-cheap stocks. At the end of the day, we all made close to a thousand dollars after only putting in a couple hundred. That doesn’t sound like much to fancy adults, but it was incredible to me at 21. To invest on a small-scale, just sign up for a site like E*TRADE and buy a few shares of companies you truly believe in. Just know that you will have to pay taxes on your earnings, so prepare for that in advance before the IRS comes knocking at your door. The skills you build investing on a small scale will help you prepare to invest at a much larger scale once you have some serious funds (and that day will come). Let’s get more ladies investing in 2017!

Inventory Your Interest Rates

After college, I started making the minimum payments on my college loans, feeling like a very responsible adult all the while. Then, a couple years later, I bought a new car. This car came with a shiny interest rate of .9%, courtesy of our friends at Honda. This rate got me curious— how did it compare to the rate of my state and federal college loans? I looked it up and was shocked to find out that my college loans had a much higher rate than my Honda Fit (around 6.5%). If only Honda could have financed my education! Once you inventory your interest rates, from your car to your loans to your credit cards, you can figure out which debts to pay off first. Oh, and you can also look into consolidation if that’s your bag.

Don’t Put Off the Retirement Account, No Matter How Boring and Irrelevant it Sounds

I know what you’re thinking. I’m 20-whatever, the epitome of health and also broke as $%^&. Not only can I down six vodka Red Bulls a night, but I can also approach bankruptcy just by having an unexpected cavity! I feel you. But the truth is, the younger you set up a 401k or Roth IRA, the richer you’ll be as a fabulously cool retired person, even if you barely put anything into it. Why? Something called compounded interest. This magical process can turn a little money into a lot over time. Conversely, a lot of money, over a little time, doesn’t have that same effect. Plus, you will be old as dirt sooner than you realize. Time seems to compound in a similar manner as interest, hate to break it to you. Talk to a financial advisor to figure out the best plan for you.

Credit Cards are Not Just for Shopaholics

This is a HUGE one. Remember how I said I ran off on a work trip with naught but a low-balance check card and a crumbled two-hundo that our CEO put into my sad little hand? You just cannot negotiate the finances of events like corporate business trips without a credit card, unless you have tons of cash in your bank account (which, if you do, why are you reading this?). Finally, a very nice co-worker sat me down and said, “You don’t have to front the 1k bill for your cabs, hotel and travel meals from your own bank account. Just get an airline miles credit card, pay it with that and then take all those free frequent flier miles and use them on your vacation!” This blew my mind. It was such insanely useful advice. Now I have like nine credit cards because I have become such a ninja at putting purchases on cards and using my rewards points. I have paid for a huge chunk of many vacations with these points. Also, my credit score is awesome.

I would recommend a Chase Sapphire card if you qualify, but I’m also a fan of my American Express Delta SkyMiles card. Do some research and find one that will work with the airline your work uses.

Aggressively Pay Those Fuckers Off

That said, I would be completely irresponsible if I told you to open a bunch of credit cards without reminding you of what kind of trouble you can get into if you don’t pay them regularly. If you have shopaholic tendencies, start with a credit card with a low credit line of, say $500. That should curb your spending. If you don’t have this problem, you may want a credit card with a higher limit. You can put your big life purchases on them, and then pay them off as soon as possible to reap major rewards. Just make it a habit to aggressively pay them off the second you have extra cash, or else you’re headed for trouble. Once you’ve inventoried the interest rates on all your debts, you’ll surely see that your cards have a much higher rate than say, your federal loans (around 13-18%, usually).

Actually Look at Your Account Balances, Even if It’s Scary

I am convinced that a huge percentage of people don’t deal with their finances because it causes acute anxiety to even log into accounts that aren’t pretty. That’s why I didn’t bother to look at my college loan interest rate for years. It’s often why I overdrafted on small purchases. Looking at a sadly stressful figure in an account that is not going well sucks. Can we have compassion for people who go through this regularly? It makes you feel powerless. That said, you have to bite your lip and just do it. Schedule a calendar event once a month reminding you to just LOOK at all your balances, from your bank accounts to your credit cards to your loans. Write down the numbers you see, and you’ll have taken the first step to dealing with them.

Avoid Comparing Yourself to Friends. You Don’t Know Their Whole Situation

One friend has paid off $60,000 of student debt by the time she’s 25. Another friend just bought a flat-screen TV that you saw was $1400 at Best Buy. What the hell? How is everyone so RICH? Before you start resenting your friends or trying to Sherlock Holmes-style puzzle together how the hell they pulled off that financial feat, take a breath. Almost everyone’s financial situation is different. That friend who bought the TV? She could have inherited money from a family member who may have gone too soon. The friend who has been to Europe 18 times by the time she’s 25? Her parents may be paying for her cell phone bill, her insurance, her car, her rent and her groceries. (Is she also Hannah Horvath?) People are often not very transparent about these things, so you’re unlikely to be getting the whole picture. Don’t compare yourself to your friends, if you can help it. Give it some time, and some finessing, and you just may be the one going on all the annoyingly fancy trips yourself in a couple years.

Don’t Be Too Hard on Yourself

Finally, have some compassion for yourself. Almost everyone is a financial mess in their 20’s. After all, our generation was robbed of countless opportunities thanks to people on Wall Street played by Steve Carrell in a fake nose. Once you lose the pressure to have it all figured out, you can gain the bravery it takes to look hard at your actual situation. Do this, and it will get so much easier to take some major steps forward. Good luck!