Author: Johnny Moneyseed


A box of Krispy Kreme donuts and a yard sale taught me the basic exchange of money for labor. After conquering our block, my sister and I branched into an under-the-table venture to take care of neighborhood pets during the summer. We netted around $400 apiece, which to an 11-year-old and an 8-year-old translated to innumerable ice creams at Family Mart. Almost a decade later, I discovered I’d have to pay money to acquire work experience through unpaid internships in order to graduate college. Something about the work-equals-money system suddenly seemed broken.

Early on in my college career I did a few short unpaid internships. During these internships I could live at home or with relatives in order to negate living costs. The summer before my senior year I received the opportunity to intern for one of the biggest names in news. In order to accept the position I would have to find housing in Atlanta, pay for gas, groceries and other living expenses and forgo seeing a single penny go back into my back account.

I didn’t even hesitate and immediately accepted. I figured the money I put in newsweek-internships-01would yield a high ROI from networking opportunities and having a “brand name” media outlet on my resume. Fortunately for me a New York Times article in April of 2010 scared a few employers into paying interns. I ended up getting paid minimum wage while working 40 hour weeks. Many of my peers weren’t so lucky, even after college.

After graduation, countless millennials take unpaid internships in the vain hopes of finding a “real job,” but 3 months, 6 months, a year later they still pay to work for someone else. We do it for the almighty networking opportunities. Networking isn’t to be undervalued, all of my paying jobs have been a direct result of networking. But even with networking advantages, at what point do we stop working for free?

If anyone truly knows, I’d love to hear the answer. Until someone comes up with a definitive conclusion about when to stop working for free, try answering these questions:

  1. Are you still learning and being challenged?
  2. Is this situation financially viable or are you just incurring debt?
  3. Is there real potential to move up in the organization or begin getting paid for your work?
  4. Who is your competition and how many spots may open?
  5. Do you want to be here in 5, 10 or 15 years?
  6. If you owned this company would you be paying someone to do your work?
  7. Are you consistently doing your best work?
  8. Have you “asked for the order”?

My mother always used to tell me to “ask for the order” if I complained about an injustice in my life. You’d be surprised how far you can get if you directly ask for the promotion you’ve earned or to be fairly compensated for your work. Of course you should do this tactfully and only if your performance truly merits a promotion or raise.

It isn’t just internships that require free labor. The creative community depends on the kindness of strangers. Blog posts wouldn’t be written, web serieswouldn’t be created, plays wouldn’t be staged if it weren’t for people willing to put in unpaid hours. But even when it’s your friends, co-workers or heavy-hitters in your industry asking for your time, consider how long you are willing to work for free.

Some of the best professional advice I’ve ever received went something like this: “When you graduate take a job, any job, but know exactly how long you are going to stay there.” Even if you’re happy with your job, always be planning your next move and figuring out how to get there.

Don’t get caught up in investment analysis paralysis

After Mrs. Moneyseed and I got married (about three years ago), we started aggressively paying off our debts. We owed about $60,000 between student loans, car loans, etc. We carefully mapped out a debt repayment plan, and figured out, pretty accurately, the date that we’d be debt-free. Once our debts were almost completely paid off I had a mini-meltdown, because I knew I wanted to, but didn’t know how to invest money. I understood the concept of investing, but I didn’t understand what the actual process entailed.

I was in a state of “investment analysis paralysis” that so many people are affected by, that leaves them penniless after long careers, because they didn’t know how to invest. What causes this state of do-nothing-ness? Confusion, for one. You’ll hear people throw around investment options like 401k, 403b, Roth IRA, Traditional IRA, 529 College Plan. You’ll hear other jargon like “Tax-Deferred” or “Tax-Advantaged”, and you’re supposed to know what any of this crap means? It’s about as confusing as trying to figure out the Matrix first-hand.

Investment analysis paralysis begins when you know you want to, or should be, investing money, but the sheer amount of investment options keep you from purchasing anything. What’s the best investment option for you? Who the hell knows! You could talk to 10 financial advisers and they’d tell you 10 different things. Though, there would be one similarity between all of these so-called experts, they’d all be trying to sell you something. They may want to help you succeed, but they want to line their pockets in the process.

There are also people who haven’t started investing yet, because they’re “too young to think about retirement”. I’m talking primarily about 20 and 30 somethings. Did you know that if you don’t invest your money when you’re in your 20s or 30s you’ll miss out on one of the most amazing mathematical phenomena in existence? I’m referring to compound interest, of course.

The younger you start investing, the less you’ll have to invest in your lifetime to “become rich”. Older folks in their 40s and 50s, in contrast, have to dump significant amounts of money into their investment accounts to play catch-up. Would you rather invest $100/month starting in your 20s or $1000/month starting in your 40s? The crazy thing is that you’ll end up with the same amount in the long-run, so why not take the path of least-resistance?

The two biggest misconceptions about investing are that it’s hard, and that you have to have tons of money to do it. Investing money is probably the easiest thing in the world. You log onto your investment account, click “buy” and select an amount of money to contribute. Boom. That’s seriously it. And you don’t need to be rich to invest, but it’s a good possibility you could become rich from your investments, you just need to start.

Primarily, I am an index mutual fund investor. What that means is that I don’t buy shares of companies like Apple, IBM, or Exxon individually. Instead, I’ll buy shares of a fund that may be comprised of a thousand different companies. Essentially, with mutual funds, I can invest in thousands of companies easily and pain free through one single transaction. All you have to do is figure out what sector you want to invest in, whether it be Energy, Health Care, Growth, or the S&P 500. It’s pretty standard for there to be minimum investment for purchasing a mutual fund, usually around $3,000. After that you can contribute as much or as little as you want. Pretty sweet right? It only takes $3,000 to be an investor. But, what if you don’t have $3,000?

What’s the bottom line to all of this? Doing something is better than doing nothing. You don’t need to know everything to start investing (you can learn as you go!), and you don’t need to have very much money to be an investor ($100/month). There are so many paralyzing factors that could make you hesitant to start investing, but when you realize how easy it is, you’re going to wonder why you didn’t start sooner.I can understand that most people don’t have $3,000 to put into an investment right now, so here’s something even better:

With Betterment, all you need to do is pick your risk tolerance, then you can start investing with as little as $100 a month. I was pretty skeptical at first, but we opened a Betterment account to see what it was all about and so far it’s been pretty awesome. It’s completely hands-free and they barely charge anything (which is surprising for such a great service). I don’t care who you are, you can afford $100 a month. Even if you have debt, it’s a good idea to start investing, so you can take advantage of compound interest. The reason I say this is because debt isn’t affected by compound interest, but your investments are, which makes investing a much more powerful tool than debt payoff (even though you should pay down your debts as well).

If you have $3,000 to start investing today check out Vanguard. They have some of the lowest fees for mutual funds in the industry. If you don’t have $3,000 either save for a few months until you do, or head over to Betterment and set up an account.

Empower yourself through goal-orientation

Whether you’d like to believe it or not, I think that most people are generally pretty good about setting and completing goals. However, these “goals” that people are so good at don’t really deal with improving their finances, relationships, or physical fitness (ie, things that actually matter). They’re typically more like shopping lists, or “to-do” lists.

More times than not we’re creating to-do lists that help us complete mundane tasks that have little to no long-term impact on our lives. We’re really good at filling our nights, weekends and even our time at work with B.S. that could be spent on productive activities. For example, people spend more time complaining to people about being broke than actually doing something about it. You know those people who love to complain about their lives to anyone who will listen? What if they could re-direct their energies into creating a strategy to remove themselves from their pit of hopeless despair (their words, not mine). These people simply need a little goal-orientation in their lives.

So how do you set a meaningful goal and follow it through to completion? You create a mission statement which will act as the blueprints for success. It’s pretty easy to write “become a millionaire” as a goal. It’s a pretty meaningless line item when you write it like that. How does this sound instead: I plan to become a millionaire within the next ten years by creating a rigid savings plan. I will put $x into these funds every month, re-assessing my strategy every three months. Who do you think is going to be more successful in their attempts? My bet is on the more thorough goal-creator.

It’s imperative that you understand the difference between goals and to-do lists. A to-do list will contain very short-term items that don’t usually have a very significant impact on your life. Grocery shopping would go on this list. Grocery shopping is important, but will a single shopping trip change the course of your future? Meh, I wouldn’t count on it. You don’t need a mission statement to convince yourself that you need to go shopping. You know how to do it; you know you’ll do it. You can add things like buying stamps, or mowing the lawn to a to-do list as well as their impact is almost nil.

In contrast, a goal is by definition “something that somebody wants to achieve”. Do you feel a sense of achievement when you walk out of Safeway every weekend with your Doritos and a tub of Ben and Jerry’s? Probably not. But, would you feel a sense of achievement if you paid off all of your debt? Hell yes you would! Would you feel a sense of achievement if you knew that you’d successfully rekindled a personal relationship? Of course, sucka! Goals are big. They’re something to base your life around and something to live for. Without clear and concise goals people get caught up fussing over the mindless and the mundane. Without big goals, insignificant things seems important. These petty things are distractions and they shouldn’t be the focus of your day.

I would recommend that you take about 30 minutes each week to devote yourself (and your significant other) to planning your future. Choose whatever frequency works for you, but make it a regular part of your life. My wife and I tend to re-write our goals out whenever we’ve completed all of our short-term goals (about once a month).

After you’ve written out a solid list of short-, mid-, and long-term goals you’ll want to set priority levels for each individual item. This can be accomplished by setting deadlines for each goal. A proper goal shouldn’t say that “you want to become a millionaire eventually”, you’d say that you “will become a millionaire in ten years”. With these words, you can literally trick yourself into completing goals, just by writing your goal statement the way a lawyer would: with no loopholes. Using words like “will” and “by” empower you to complete your goals. Psychologically, you might feel a need to follow-through on your goals when you say that you “will” accomplish them.

Once you’ve written all of your goals out you’ll want to see how your day-to-day activities either help or prohibit you from achieving them. You might reconsider spending your entire night after work watching TV if you have greater plans to accomplish something. Maybe you want to have a deeper connection with your family? You could have a family dinner then go for a walk every night. Maybe you want to learn a new hobby or skill? Maybe you want to be able to run 3 miles in under 24 minutes? You’ll never regret spending 1 hour a day working out (unless you’re mauled by a wild animal during your work out). The point is: Are the things that don’t really matter taking up more of your time than your goals?

Not every goal that you set has to be completed. Your life could change before the completion of a goal, and make the goal seem either pointless or redundant. Here’s a personal example: After we bought our house we were planning on renovating the crap out of it. It was brand new when we bought it, but there were a few touches that we wanted to add. It was our goal to change out the hardwood, add a stone patio and a fourth bedroom, along with some other things. Then, we decided to rent our house out. All renovations took a backseat, because it no longer made sense for them to be a priority.

Life changes constantly. The things you want today, you may not want tomorrow. That’s why I stress that goals should be written and re-written every 3 months. That’s a significant enough amount of time to say either “Yes, I still want to do this” or “No, let’s modify or remove this from our list of goals”. Here’s a financial example: If you were investing money heavily into an industry that was on the verge of becoming obsolete, you probably wouldn’t keep dumping your money into it, would you? No, because the priorities have shifted in the market, and so should yours.

The bottom line is that setting and actively pursuing goals will help you become a more productive and more well-rounded person, employee, husband/wife/parent, etc. A goal-oriented person will have a better chance at success in their industry, leading to higher compensation and a more comfortable office chair. At home, you’ll have better relationships with your family and friends. You’ll eat better and be in better shape if those are the things that you care about, or want to start caring about. And all it takes is about 30 minutes per month.

Pay yourself first and keep MORE money

Here’s an obvious yet terrifying fact: Nobody’s going to save money for you. So, if you’re not willing to save then you’re kind of shit outta luck with no one to blame (besides yourself). The government may be saving money for you too, but who really wants to rely on that?

While it doesn’t hurt to wish that you had a few extra zeros in your bank account, wishing won’t actually make the zeros appear. A magic genie might, but I wouldn’t hold my breath.

It’s all up to you, and it looks like you’ve decided to save, and that’s great! Yay, I’m so happy for you. Alright that’s enough of a congratulations, because you haven’t actually done anything yet. I hesitate to offer a sincere congratulation because so many people faulter on their goals. If you’re going to be in the Moneyseed camp you have to start packing a little bit of stick-to-it-ivenss or you’re going to be in the same situation you’re in now. For those that have started saving already, kudos.

I’ve cracked the surface on how to save money, but now it’s time to explain what it means to “pay yourself first”. It’s a really simple concept really. Basically you should just treat your monthly savings like it’s a bill.

You know that you have fixed monthly expenses that you wouldn’t even think about not paying ie., mortgage, student loans, cell phone service. Why shouldn’t savings become a fixed expense as well? If you didn’t pay your mortgage you’d get hit with a huge interest charge, right? Well if you skimp on your savings you’ll get hit with another form of interest charge: No interest (and I’m talking about the good kind)!!

You should already have an idea of the exact amount you make after-tax every month and the frequency of your paychecks. This will help you in setting a realistic goal for yourself. It isn’t realistic to say “I’m gonna save $10,000 this month” when you only make $3,000. It just wouldn’t make sense, unless you’re doing some crazy math I’ve never heard of.

When you know the amount you earn, and you want to pay yourself first, you can then decide whether you want to save a percentage of your income, or a fixed amount. For example if you make $2,000 every month, you could “pay yourself” 5% of that money into a savings account which means you’ll have $100 unspent. Alternatively, you could have just said “I want to save $100 a month” regardless of what the actual percentage is. I would recommend saving as much as you can, but not too much if you’re just starting. If you’re just overcoming a shopping addiction, you should be taking baby steps or you’ll end up back in the mall carrying bags from a myriad stores.

Make sure to set a goal for your savings. Saving just to save is stupid. I personally save for retirement, emergencies, vehicles, appliances, home purchases, etc. I know why I’m saving. I don’t care why you’re saving, but you should. Having a mental image of what your end result will be will keep you on track and not make that saved money look so pointless.

Johnny, wouldn’t it make sense to pay yourself at the end of the month instead, since you don’t know what your other monthly expenses are going to be? Short answer: No. The long answer is still no but here’s the reasoning behind my reasoning: If you pay yourself first, you’re set, the money is saved and you can wipe your hands clean. You can go ahead with the rest of your month knowing exactly what your bank account looks like and you can know that you’ve already achieved your savings goal. If you misfire, and you spend too much then oops you have to either cut back or you have to set a more reasonable goal for yourself.

If you were to pay yourself at the end of the month instead, you’ll pretty much always find that you spent too much throughout the month. You’ll have scraps left, because you nickle-and-dimed yourself like so many people do. I can attest to this, because for a while I was paying myself at the end of the month with whatever was left and it was always dismal compared to what I was anticipating.

Give yourself a high-five if you pay yourself first, or if you’re going to start now. And guess what? If you’ve already achieved your savings goal for the month, the rest of the money in your checking account is yours to spend (after paying your bills of course). For now anyway. We’ll try to cut back the money you spend on random crap and refocus it toward the things you actually care about in the next post of this series.

You really, really can save money. Here’s how.

We all know by now that the only reason that we aren’t all rich is because most people spend more money than they make. Since you’re reading a personal finance blog, and I’m writing one, I think it’s safe to say that we don’t want to be the type of people that have steady paychecks but little to no savings (and mountains of debt). Saving money can be a painful process, but it really doesn’t need to be.

As a wage-earning adult there are a few things you should know about yourself  before you try to save money. None of what I’m about to suggest to you is very abrasive. It’s all relatively easy as long as you take a few minutes each month to understand your finances. A lot of what I’m about to say is going to sound like a budget, but it’s not. I believe in the anti-budget and feel that real budgeting is as impossible as dieting.

You should have a general idea of the amount of money you make within a one-month period. If you’re a freelance employee, or you work on commission, it might be hard to figure out the exact amount you earn every month, but you should be able to come up with a decent average by basing this number off a “normal” month. Not the month where you had 1 billion sales and broke company records, and not the month where you had writer’s block and couldn’t get anything published. This isn’t really an issue for most people, because most people generally make the same amount every month, but surprisingly a lot of people don’t know what that amount is.

Whenever I talk about income I’m referring to the after-tax amount that hits your bank account.

Once you know how much you make you should calculate the amount you spend every month in fixed expenses (mortgage, rent, cell phone, utilities, car insurance etc). This information is important to know, because it equates to money that’s already spent. Most of the time you can reduce these costs, but focus first on figuring out the exact amount you’re being robbed by paying these bills every month.

When you subtract your fixed expenses from your income you’re left with discretionary money. This is the money you spend on stuff whether it’s lattes or a Netflix subscription. The problem is that most people are spending ALL of their discretionary money and then some, so they never contribute anything toward savings or retirement. You should be saving something, though, right?!

I would never tell someone to save money just to save money. How dumb would that be? That doesn’t really answer the question “Why should you save?” I’m obviously not you, so I don’t know what your plans are in life, but if you set financial goals it’s easier to achieve them than just deciding that you want to “be a millionaire” or something crazy like that. I would ask you “Why do you want to be a millionaire?” and “Just ’cause” isn’t a good enough response.

If you’re a total noob when it comes to saving you should start small. You’ll fail if you go from spending 120% of your income to only spending 20%. Gradual life modification is the only way to go. Set a manageable and realistic goal that you can achieve within the first 3 months of saving. That will give you confidence that you can actually accomplish something financially, and you’ll be able to increase the lofty-ness of your future goals.

Having a savings account titled “House down payment” and setting a time frame of when you want to have the account fully funded will give you the exact dollar amount that you’ll need to contribute every month to meet your goal by the “deadline”. The cool thing about this is that once your account hits the magic number, you may not be interested in whatever you were originally saving for and decide that you have bigger goals you’d rather tackle.

You may have realized by now that if you’re going to save anything it’s going to have to cut into your discretionary money. That’s just life, take it or leave it. You won’t have as much money every month to spend on Hair Gel or Girl Scout Cookies, but you shouldn’t try to completely change your lifestyle overnight or you’ll fail. Think: Small changes. If this is your first financial savings goal ever, you’re going to want to decide on a  time-frame (I’m giving you 3 months), a dollar amount (No more than $500) and whatever the hell you actually want. A new cell phone? To buy yourself out of a cell phone contract? Whatever.

The next step (after you’ve decided your goal and time-frame) is to set up an automatic transfer from your checking account to your savings account for every time you get paid. I’ll use myself as an example: Let’s say I make $2,000 a month and I want to save $100 a month to buy a new lawnmower in 3 months. I would log into my bank account online (or if I was old-fashioned I’d call the bank) and set up a recurring transfer of $50 every pay period, since I’m paid twice a month. Doing this will make it so I don’t even have to think about the cost of the lawnmower. I know the money is moving itself magically, and when I look at the balance of my checking account I know that I can actually spend that money while my goal is accomplishing itself.

This is the basic idea behind the concept of “paying yourself first”.

Do you have an emergency fund?

When you’re living a fast-paced lifestyle, or just a regular one like me, you may come across some out of the ordinary expenses that can impact your financial world pretty substantially. Especially when you aren’t prepared. But, guess what. Being prepared isn’t difficult whatsoever, it takes almost no mental effort and hopefully no physical effort. You just need a plan.

Lately we’ve had to throw money around like it’s cool to pay for things like a home inspection, vehicle repair, and a trip to Rhode Island for my sister’s college graduation. Ahh! Too many non-standard expenses! What is a JM to do? I’d say that I’m fortunate to have a savings account to dip into to pay for these expenses, but then I wouldn’t be giving myself the credit I deserve. The bottom line is: None of these expenses made me accrue debt, because I am always prepared for “out of the ordinary” expenses.

It’s become conventional wisdom that you should have an emergency fund or a rainy day fund. While an emergency fund may be a great thing to have, I think it can seem either intimidating or pointless by those people who may still have debt. Some of the finance gurus recommend 3-6 months of expenses in an emergency fund which sounds like the most daunting task on Earth.

If you’re under the impression you don’t need any savings, you’re wrong. Plain and simple. I think that developing a small nest egg is even more important than paying off debt, because being prepared is the best way to thwart off an increase in your debt. While I don’t think you need 3-6 months worth, I think you should reasonably calculate all of the things that could go wrong in your life and how much they would cost you. I like to imagine all of the bad stuff happening in one instance, that way my savings would cover anything short of a nuclear holocaust.

Car owners should have enough put away to pay their insurance deductibles, as well as any standard non-cosmetic repairs. Anyone who works a job without paid vacation days should have enough money saved to pay for unexpected days out of work, like in the case of a family member dying, or becoming hospitalized. We don’t like to think about stuff like this happening, but fortunately we can provide a little financial control in situations that really suck emotionally.

Once your emergency savings passes whatever threshold you determine is necessary to prevent yourself from letting Murphy’s Law push you into debt you can start saving to build wealth.

The oversimplified equation that I personally use for emergency savings is: The deductible on my home owner’s insurance policy + The deductibles on both of our vehicles + One thousand dollars for incidentals. The total is around $13,000, and our account never strays very far from that amount. My job is very generous with paid annual and emergency leave, so thank you taxpayers.

Peace of mind can be a powerful force, and if it’s the key factor that’s driving you to save and payoff debt then having money readily available can only help to ease your mind. Personally I think that having cash on hand for emergencies trumps the necessity to pay down debt. There are so many uncertainties in life, and there’s a clear reason why emergency funds are so heavily advocated. I’m not saying that you shouldn’t pay your debts, but you can stick to a “minimum balance only” plan until you have enough cash on hand to make you feel warm and fuzzy.

Once you hit your “magic number”, as far as emergency savings goes, then you either go down one of two roads: If you’re in debt, you start paying them off (highest interest rate to lowest). If you’re debt-free, you start investing. Use the time when you’re building up your emergency fund and paying down debt to learn how to invest.

For those that are completely lost with their finances and wouldn’t know where to begin with setting up an account like this here are the basics that you need to know: Call your bank, or log onto your bank account through their website and open up a Savings account. Typically, banks will let you name your accounts whatever you want to call them. In this case call the account “Emergency fund”. I would then set up an automatic transfer (either monthly, weekly, or whatever frequency you feel comfortable with) to move money from your checking account to the Savings account, so you don’t forget and end up being behind. Boom, that’s it!

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Only use your emergency fund if it’s an absolute emergency, but whatever you do don’t put yourself into debt because you don’t want to touch your precious savings. You may get pretty hooked on the fact that you have all these extra zeros in your bank account and you don’t want to lose them, but that’s what that money’s there for. Either way, you now have a spiffy new emergency fund (or are on the right track to getting one) and you’re one step closer to Financial Independence.

Having a high income doesn’t make you “rich”

One thing that drives me absolutely mental is the current American cultural definition of the word “rich”.

Back in the day if you were rich you owned cities, or huge areas of land, maybe an island or two. You at least had your own skyscraper or oil mine. Today, a family that has a gross income of $150,000 might be referred to as “rich”. Hardly Vanderbilt status.

I don’t have anything against the families that take home over six figures a year, considering that I’m part of one myself. But it does irk me when someone’s income level is brought up in conversation and people tend to determine whether they are rich or poor just by knowing what their salaries are.

Celebrities and athletes could be considered “rich” because of the significant paychecks they earn, but if they were truly rich there wouldn’t be such a high number of athletes going bankrupt (Why the Hell don’t cars/houses fall into lifestyle on GQ’s pie-chart?!).

If I’ve said it once, I’ve said it a million times: It isn’t how much you make, it’s how much you keep. If a family earning $200k also has a $200k lifestyle, then they aren’t rich. By definition “rich” means that you have an abundance of money or assets. It doesn’t mean you have a big paycheck. It doesn’t mean that you have a Mercedes or a McMansion. Lottery winners can be considered “rich” (until they hit the five year mark and end up filing Chapter 11).

In most instances spending and income are directly related to each other. The more money you make, the more you have to spend. For most people, this equates to mindless lifestyle inflation. More money? New car. Bigger house. Shopping without looking at price tags. Daily Starbucks trips. Although many rich people do all of these things, there’s one key thing they’re doing first: Investing at least some of their income. Either that, or they are earning so much money that their accounts continue to grow even with heavy, careless spending (usually this leads to bankruptcy once the source of income is removed).

I work in an industry where I occasionally brush shoulders with people who generally do the same work as me yet they make double or three times what I make. Wow, they must be rich!! While they have the potential and way more capital than I do, in most cases I’m keeping way more of my money every month that I put to work for me.

So why aren’t my co-workers saying that Johnny Moneyseed is rich? First of all I’m not rich, but I do have considerable amount of money saved, and magically that amount grows every month.  My co-workers know basically how much I earn from my job (military and government pay is public information), so they assume that my disposable income could never be enough to launch someone into the “rich” category. The concept of saving/investing is almost non-existent to so many people, so it’s hard for them to imagine the process of money growing passively.

The same people that tend to think that people who have high salaries are “rich” also confuse the concept of wanting and wanting to spend. What I mean by this is that, whenever someone is curious about my portfolio I’ll show them what it looks like. I swear it’s word-for-word the same exact reaction every single time, “Holy shit, I want that much money”. I feel like it’s pretty healthy to want a lot of money, but what these non-savers are really saying is: “I would love to take that much money to the mall with me”.

While I never want to be the chef-on-hand and latte-a-day kind of rich person, I will be rich someday. And it won’t be due to the fact that I make an incredible amount either (because I don’t). I just have foresight to tell me that saving money is the right thing to do. While my co-workers, and the better portion of Americans fail to plan ahead. It’s okay though, because you and I will be saving as much of our incomes as possible and becoming rich. It’s a way more reasonable plan than planning for a Millionaire’s salary or to win the damned lottery.

Our job now is to correct this social issue that’s bastardizing the word that describes what we should all be striving for. The next time you hear someone refer to someone else as being rich solely based on the fact that they are high income earners, stop the conversation and tell them: “Being rich isn’t about making a shit-ton of money. It’s about having a shit-ton of money.” Of course you can interpret the message in a curse-free manner, if that suits you. Eventually, we can change the meaning of the word “rich” or perhaps create a new word for high-income/high-spenders.

Paying off your mortgage early is silly

My initial introduction to the world of personal finance was through a friend turning me on to a gentleman named Dave Ramsey. You’ve probably heard his name thrown around. You might have seen him on TV or maybe you even listen to his radio show. I personally take everything he says with a grain of salt. It’s kind of hard to trust multi-millionaires, who have already made their millions, trying to tell you how to save a few bucks at the grocery store.

His vision is for everyone to have financial “peace of mind”. I interpret that to mean having no debt, and money laying around in case of disaster. And I totally agree. He touts a 7-step plan that will get you out of debt and into the black that he refers to as “The Baby Steps”.

When we were still in debt, Mr. Ramsey’s Baby Steps were an incredible tool that ultimately helped us get into the right mindset to eliminate debt completely. It wasn’t the Baby Steps themselves that made us save, but they did help us form a plan to become a debt-free family. So, thanks Dave.

A few months after discovering his site, we were a debt-free family. We graduated from the Baby Steps program and that’s when I think we outgrew his philosophy.

I consider my family to be debt-free, however, we carry a 30-year mortgage on our house. The interest rate is so low (3.25%) that after the mortgage interest tax deduction, we are essentially paying a rate LESS than inflation for our house. Why in the world would I want to pay off our mortgage early? Why would I ever even make a larger than normal mortgage payment?People all over America and beyond flock to him to learn the power of being debt-free. His anti-debt message is so strong that he even encourages people to pay off their mortgages as fast as possible. In some cases, he’s encouraged people to pay off their entire 30-year mortgages within 5-10 years. Amazing right? Well, I for one, think it’s silly.

Since we only spend about 50% of our income, we could take the other 50% and dump it on our house every month for about 5 years and pay it off completely. Then I wouldn’t have a mortgage payment any more. “Yay!”, right?

Well I’m not “Yay”-ing, because I just wasted 5 years of investing so I could pay into a liability. Yes, a house is a liability, because it doesn’t produce any income. It could, but only if you’re in the market to sell, and your home’s value has appreciated (or if the property is a rental). Remember that home values mean nothing unless you plan on selling**.

Over that same 5 year period, I could tuck away that other 50% of my income into savings and other investments instead. 5 years later I’ll have a bunch of money in the bank (like a baller), which would be great padding were we to have another recession in the near future.

The people who choose to put all that extra money into the house will just owe less on their principle balance. It won’t change their monthly payment, and in a financial pinch they’ll still have to keep making payments without that sweet cushion.

The good thing about paying my mortgage off as fast as possible would be the guaranteedreturn on investment. When you have a debt that is negatively impacted by interest like a mortgage, personal loan or credit card it’s like having a portfolio with a negative rate of return.

Every dollar applied against your “portfolio’s” principle balance early is guaranteed to grow at whatever the interest rate the debt is set at. If you make all of your payments when they’re due (instead of early) you’ll end up paying all of the interest as well. This is no bueno.

Basically, any pre-payments on my mortgage will grow at a rate slightly better than CDs. Abysmal. For you this may not be the case.

I don’t worry much about paying off my mortgage early since it has such a low interest rate and because the house should hold it’s value. That means, if someday I want to sell the house, I can sell it at a break-even price (enough to pay off the mortgage) and I would have only lost what I paid into interest.

People always seem to be worried about the possibility of losing money, but with interest rates for mortgages being so low right now the risk is almost negligible. Just remember that risk is never “negligible” for someone that can’t pay their bills on time.

As long as you aren’t buying more house than you can afford, and you aren’t paying PMI (mortgage insurance) then I think a house is a pretty solid investment. If you end up with an interest rate of 4% or less and you let someone convince you that paying off your mortgage early will grant you “peace of mind”, don’t buy what they’re selling. Your money is worth a lot more than 4% annually.

If you are paying PMI on your house, I would get on the Ramsey program and dump a shitload of your money onto your mortgage until you get to the point when you’re PMI-free, then continue paying your mortgage like I do: Minimum balance due. PMI is a good way of flushing money down the toilet. You’ll never see it again.

Obviously none of this applies to people who are being crushed by 6%+ interest rates. -6% is a pretty significant weight in your portfolio. If you’re able to, contact the bank and see if you’re eligible for a streamline refinance. After owning our house for one year we were able to do a streamline refi through Wells Fargo. No credit check. No appraisal. We had to re-pay closing costs, but it was worth it financially for us, especially because we are going to be renting the house out. The less we owe every month = The more profit we can generate.

Owning a home can be pretty sweet, but it takes a lot more work and caring than renting does. All a renter needs to worry about is paying the rent, and maybe mowing the lawn. A homeowner needs to worry about the mortgage, the lawn, maintenance, the roof, safety, random house-related-bills, etc. If you’re a renter and you knock a hole in the wall, you might just let the landlord eat your security deposit. If you’re a homeowner you gotta fix that shit on your own (or at least hire someone to). Either way, the responsibility is yours.

While Dave Ramsey isn’t a bad guy and I love anyone that tries to help people financially, I can’t and won’t trust anyone who is out of touch with common folk like you and I. His cookie cutter plan is a “you can’t fuck this up” kinda thing and that’s why it resonates with such a broad audience. It’s a message for the masses, not for people who have figured out personal finance. Let me know if you’re ready for the next steps, the Big Boy Steps.

**Home values also matter for tax purposes. Appraisals may be necessary for some refinancing programs.

**I’m sure this post will be debated like crazy and I’m open for the challenge!

Buying a second house and prepping our first for rental

In the past few months we’ve really started to dread our morning commute. Enough to the point that we’ve thought about buying a second house closer to work so we could get some of our personal time (and money) back.

Instead of just dealing with it, we decided to do something about it. So, I contacted a realtor and my wife contacted the bank. We wanted to keep our costs and our commute time low. $270k maximum home price. 7 miles maximum distance from work.

We were able to meet with a realtor that weekend. Fortunately for us, my mom was in town, and able to watch the kids (thanks Mom!). We had one full day to see as many properties that the realtor would show us. We were scheduled to see five.

Luckily, right before we met up with the realtor, the bank came back to us and said we were approved for the full loan amount, so our search wouldn’t be for naught.

The first house we looked at was perfect. It was completely modernized, had all new appliances and a beautiful deck. There really weren’t any updates that we’d need to have done before moving into it. The problem, though, was that it was listed as a 3-bedroom house, but it only ended up having 2. Deal-breaker. We already have two kids and are planning on having a 3rd in the near future.

With that house being stricken from the list, we started to look through the other properties. 3 of which were either terrible, way overpriced, or just nothing special.

Then there was the fifth house.

The fifth house was beautiful. It had amazing curb appeal, and a gorgeous inside to match. The best things about it were that it was way under our max price and it would reduce our daily commute by at least 15-20 minutes in each direction.

We put in an offer a little under asking price and asked for full seller’s assist (if they accepted this would mean that they would pay all closing costs). Shortly after, they accepted our offer. With the rate we locked-in with the mortgage company (3.25%), our monthly payment would be around $1300 ($650 less than our primary mortgage).

We’ve been spending the past week creating a plan of how to maximize our current home’s rentability factor. It still needs a few rooms painted, and our lawn has been more or less destroyed by our dogs. There are minor cracks from the house settling as well. All of our issues can be easily fixed, but we’re finding ourselves on a time budget at this point. We need to have this house completely rentable by the time we move into our new house. That gives us about 60 days total.

Usually the home buying process is a huge pain in the ass filled with offers, counteroffers, bidding wars, or general dissatisfaction with the available properties. We didn’t have any of those issues. It was all smooth sailing really. It’s the work that we’re going to have to do to get out of this house and get someone else into it that is daunting.Our current house is gorgeous though (exterior and interior). It also offers something that a lot of rental homes can’t: Extreme energy efficiency. We installed solar panels last year and they have saved us almost $1400 in the first year alone. With a monthly energy bill of about $50/month (the house is 100% electric), how could a renter pass that up?

Property management? Becoming a landlord? These things are foreign to us, but at least we have two months to learn what we’re getting into. Does anybody have advice for a couple who is in the process of buying their second home with an intention of renting their other house out?

Financial illiteracy breeds financial idiocy

From the time you’re sucking your thumb in daycare until the time you receive your diploma from high school or college you’re provided with an education to make you a well-rounded and hirable person. A person who has the skillz to pay da billz skills to achieve success in the workforce. When you’re in school and you think to yourself, “Why do I need to know this crap?” It’s because the people that have come before you believe that this is the knowledge that will help you land a career.

You already know what the point of being successful in the workforce is: Money, Money, and more Money. Typically, the more well-educated you are, the more money you will make. Yet some of the highest earners in the country (and the world) are in debt. Mo money, mo problems, right? A family making $30k annually, who are in debt, might look at a family who brings in $500k annually, who are also in debt, and think “If we made that much there’s no way we would have debt”.

What this family doesn’t understand is how people are affected by lifestyle inflation. To bring those people up to speed, lifestyle inflation is basically the increase in your expensesas your income increases. This essentially negates any pay raises. People that are affected by lifestyle inflation can go from making $1,000/year to $1,000,000/year and still be in the same financial shape. These people will be followed by a life in debt, as most people’s spending habits are only accentuated with increases in income.

How do you combat lifestyle inflation in our consumer-driven economy? Is it possible? Is there hope for the younger generations?!

Financial education (whether self-taught or classroom-style) is the most effective way to avoid lifestyle inflation, and more importantly to learn how to build wealth. Would you go into a job interview without the appropriate skills for the job they’re hiring for? Hell no, sucka! So, why would you start earning an income without knowing how money actually works? I don’t care what you’ve heard, or what you’ve learned in the past. Personal finance can’t be learned in 5-minutes, because it’s a lifelong lesson and it’s the most important information that no one ever teaches you.

I don’t know what the exact reason was that I got into personal finance myself, but it’s something that I’ve been passionate about for a few years now and I can honestly say that I know almost nothing about the topic. I know enough to write about it, and share some of my experiences, but there is just so much to know and understand that I don’t think anyone could ever know it all. Including me. Not even the big finance gurus that you may have seen on TV know everything.

There was something that happened, though, when I started to care about my financial self-education. My debts started to disappear, and eventually I had almost $100,000 between investments and savings. That wouldn’t have happened if I had remained financially illiterate. I probably would have continued my trend of living paycheck to paycheck, buying luxury items, and eating/drinking the rest of my money away. Financial idiocy made me spend all of my money while I lived my life in-the-moment. “I’ll start saving for my future tomorrow”. Yeah right..

I wouldn’t expect anyone who just started caring about their finances to become immediately financially literate. Maybe “financially aware” would be a better term for those people who strive for financial literacy. The important thing is simply to want to strive for financial literacy, so you can truly understand where your money comes from, where it goes and more importantly how to make more of it.

I think it’s fair to say that most people look at financial awareness as the point where life is no longer fun. It’s the moment when you realize you have to make cutbacks, as you concede to a life of boring nothingness. I, on the other hand, look at all of the money that I’m saving by not going to the mall, by having paid off vehicles, by not having cable, as an investment for my future. The more money I save and invest when I’m younger, the more I’ll have to spend when I’m older. It’s that simple.

I’m going to get off my professorial soapbox and instead of teaching you directly how to become financially literate I will give you a few resources that will help you in your quest for the grail.. or financial knowledge, either way.

  • My blogroll — Check out all of these other blogs to learn a little bit about finances, tips on how to save money, how to invest, and how to generally improve your life. Some of these people are in the debt struggle. Some have retired early. Some have mastered their personal finances. They all offer their financial story from a different standpoint, and overall they have great stories to tell.
  • Your Money or Your Life — I can’t even explain how much this book has helped our family’s finances. You really think you know how money works, but you may realize that everything you’ve ever learned is wrong. Money equals time. Every hour of your life has a monetary value. This book changes lives!
  • Rich Dad, Poor Dad — Another amazing book that proves that high income earners aren’t always the smartest people when it comes to finances. The author tells the story about how he learned how money worked from a man, who from an outsiders perspective, looked poor, but was actually worth millions. He just knew how to make his money work for him. You can too.
  • Reddit r/personalfinance — This is where my desire for financial knowledge really took off. Sometimes I knew the answers to the questions that people were having, and sometimes I had questions that I couldn’t find answers for myself. If you’re not a fan of Reddit, you may be surprised by how friendly (most) people are in this community.
  • If you were a fan of this post, please check out this list of all of my previous posts. You may find the answers to some (or all) of your existing questions, or you may learn something you weren’t expecting to. Feel free to email me with any questions that may be too personal for the general public. Happy learning!