10 Ways to Stop Impulse Spending

10 Ways to Stop Impulse Spending

Do you know how easy it is to blow $10,000 in 1 year on useless crap? Easy! Just do $27.40 of mindless impulse spending each day for a year.

Everyone falls victim to some type of impulse buying. For me, it’s usually at the brewery right before I pay the bill and leave. I see those fancy branded pint glasses with the brewery logo on it… Suddenly I convince myself that it’s important to “support the brewery” (as if paying $9 per beer wasn’t already enough!) so I add a few little mementos to my purchase.

Then when I get home I realize I’ve somehow been tricked! My cabinet is already full of ~80 other impulse purchase beer glasses that are just sitting there collecting dust. 

Why do I keep doing this!!? How can I stop?

Some surveys show almost 90% of us make impulse purchases somewhere, somehow. And not just cheap stuff. Most people admit to buying things in the $100+ range for impulsive buying! Covid seems to have both helped and harmed our spending habits. While some people have become more frugal, others are increasing their online retail therapy. In the USA we are buying more video games, toys, home improvement stuff, and electronics.

What triggers impulse spending?

I always thought impulse spending was something you can control internally. But just when you think you’ve got your emotions under control, retailers come out with new marketing tricks, tactics, and methods that beat your internal programming. Those crafty buggers!

We have to be aware of both our own emotional spending habits as well as watch out for retailer trickery.

Personal triggers for impulse purchases

Our mood: Impulse spending mostly happens when we are extremely excited (~50%) or bored (~30%). Shopping while intoxicated doesn’t help! 🍻 And shopping while hungry doesn’t help either!

Our age: The younger you are, the more likely you are to make an unplanned purchase.

“Status awareness”: Those who notice what other people own or are doing tend to buy things quickly to feel included.

Instant gratification: This happens when you mix wants and needs with “right now!”

Subconscious habits: Grabbing a candy bar at the grocery store checkout is a common spending habit people do without realizing.

E-commerce vs. retail environment: Most impulse shopping used to happen in-person when the shopper was holding the physical product in their hands. However, our online buying is growing so the “thought of owning” is one of our spending triggers.

Retail trickery that encourages impulse buying

Store design or walking path: Physical shops are designed to make you walk near, past, through, under and over high demand items! They’re placed in areas easy to see and pick up. Things placed near the check-out lines are put there to trigger impulse buying. Online stores do this too, via a “virtual click path” while you are checking out!

Music, fragrance, and sexy signage: Stores will do anything to put you in a happy, relaxed and buying mood.

Time limits & urgency: When we read “promo ends in 12 hours” this triggers our fear of missing out on a deal. Also things like “Only 1 left in stock” makes us want it even more.

30-day money back guarantee: These offers make us think there’s no harm in buying, because we can easily return it if we decide later we don’t want it. Usually, we are too lazy to return things, even if we don’t need them.

“FREE shipping” or “Buy one get one FREE”:  Everyone likes the word FREE, even if we have to pay for it! 

Personalized and targeted ads: Almost all online advertisements are personalized via your location, internet search history, things you “like,” your demographics and more. It’s scary how much information is collected on you over time and used against you to encourage you to impulse buy. Don’t even get me started The Social Dilemma!

Tips on how to stop impulse spending (or at least reduce it!)

  1. Limit social media use! I’m not sure if you’ve heard of Facebook or Instagram… They are cool apps you can download on your phone that let you look at ads whenever you feel like it. 🤣 But seriously, social media is designed to excite you, then sell you stuff. Limiting usage limits your impulse buying.
  2. Log out of Amazon, or whatever online stores you regularly buy from. When you are forced to enter your Username and PW manually, it becomes less convenient to buy things and gives you time to second guess your purchases. The “1-click-buy” buttons encourage impulsive spending!
  3. Carry cash or a debit card instead of credit cards. I know, this seems so inconvenient! But, a bunch of research proves credit cards make you spend more, and makes unplanned spending less painful. Using cash or a debit card makes you think of the immediate impact on your savings account.
  4. Use apps and plugins to help limit spending! Icebox by Finder.com is a Chrome extension that changes the “Buy” button to a “Put it on Ice” button. This gives you time to re-think your purchase and stops impulse shopping. Another cool chrome extension is Amazon Contemplate that ads a 30-second wait time before you can go through with a purchase. In this wait time you can think about if you really need it!
  5. Get a credit card sticker or decal. When you pull out your cc to make a purchase, you’ll be reminded by Joe Exotic, Terry Crews, or other fun messages that impulsive shopping is bad, and saving instead is good! You can also just write reminder messages with a sharpie all over your cards.

    Credit card decal to stop impulse spending
    Joe Exotic Credit Card Decal on Etsy!
  6. Get an accountability partner. You can share your budget with a friend, make commitments, and hold each other accountable. People do less spending when they are being watched. 🙂  (My wife and I share a Mint.com login – we see each other’s transactions and keep one another in check).
  7. For holiday shopping, go in with a list! Impulse purchases happen when you have no particular item in mind. Start a “gift ideas” list and keep it on your phone. Throughout the year when you see cool stuff that you want to buy others, jot it down in your list. When the holidays come around you will be more prepared for specific spending vs. unplanned spending.
  8. Calculate the cost of things in time or work-hours, instead of dollars. For example, if you earn $20 an hour and you see a $40 t-shirt you want to grab, that would cost you 2 hours at work to buy. Is it worth it? This method applies more logic to your decisions vs. emotional spending.
  9. Return stuff! Over half of people who do impulse shopping admit they feel regret or remorse when they get home. If you fall in this category, make yourself return the items. Many people feel embarrassed or are too lazy to go through the return process… Don’t be one of them! Return policies exist if you change your mind – take advantage of them.
  10. Start a good ol’ fashioned no-spending challenge. If these seem boring and hard to do – that’s because they are supposed to be! When I do a 60 day no alcohol challenge, my chances of buying excess crap at the brewery drop to zero. No spending challenges can be done with specific categories like clothes, fast food, or guilty pleasures, or try not spending anything at all!

How do you resist temptation and cut back on impulse buying?

from Finance https://www.budgetsaresexy.com/stop-impulse-spending/

Book review: The Story of Life in 10 1/2 Species

The Story of Life in 10 1/2 Species, by author, illustrator and photographer Marianne Taylor, must be the most interesting, beautifully designed and enlightening book about biology I’ve ever read. Packed with colourful illustrations, graphics and photos, it is also firmly rooted in rigorous science and doesn’t shun complexity.

The premise of the book is surprising: “If an alien visitor were to collect ten souvenir life forms to represent life on earth, which would they be?” Taylor uses soft-shelled turtle, Darwin’s finches, the giraffe and other living organisms as a springboard to survey the long evolution of life on Earth and break down the intricacies -and in some cases the subjectivity- of taxonomy.

The fern, for example, opens up observations about the formation of oxygen in the atmosphere, about chlorophyll and the fact that “before there was life there was chemistry.”

Nautiluses have changed very little over the past 500 million years. Taylor explains how these “living fossils” survived 5 catastrophic mass extinctions. And yet, today they need to be protected from human activities. Already threatened by pollution and climate change, the molluscs are also hunted for sale as live animals or for their shells.

Act Wild for Lord Howe Island Stick Insects

The chapter about humans is a humbling one. It comes after the chapter on sponges, animals that have no organs, no circulation, no digestive systems, no distinct body parts. The human species has all of the above, plus an impressive list of evils: it is hyper-predatory, obsessed with domestication and it thrives at the expense of all other living things. The section also rehabilitates Neanderthal men. They were great apes too and were as quick-thinking and as societally advanced as we are today.

The chapter on the stick insect of Lord Howe Island does restore a tiny bit of faith in humanity. The story of the massive insect offers lessons about Lazarus species (organisms thought extinct and rediscovered), life in ultra hostile environments and the phenomena of island gigantism and island dwarfism but it also shows that many surviving species are dependant on human conservation efforts. If we disappear the least adaptable will fall into the “evolutionary dead-en” category.

The giraffe (Latin name: Camelopardalis!) tells about the inbreeding depression. A low population is accompanied by a drop in genetic diversity which can concentrate harmful genetic mutations that further weakens the population as a whole and slows down its potential rate of evolution.


Roelant Savery, Edward’s Dodo, 1626

The author uses the dusky seaside sparrow and the many, unsuccessful programs put in place to save it from extinction, as an opportunity to look at cloning technologies, genetic engineering and other tools at the disposal of conservationists to “rebuild” a species that is extinct or about to be extinct.

The “half” species in the title is artificial intelligence. That section is a bit of an odd one. It crams together the “artificial selection” imposed on cultivated crops and domesticated animals, genetic engineering, cybernetics, the marriage of living tissue to non-living components, etc. Its conclusion suggests a planet in the throes of mass extinction and powered by flying robot pollinators and artificial photosynthesis. Nothing to be cheerful about but Taylor keeps such a good balance between reasons to despair and reasons to keep the hope alive that I almost forgot to be angry about what we’re doing to the other inhabitants of planet Earth.

from Finance https://we-make-money-not-art.com/book-review-the-story-of-life-in-10-1-2-species/

Kids and Money: “It All Starts With the Allowance”

Kids and Money: “It All Starts With the Allowance”

[Since last month’s post about teaching kids financial independence, I’ve received a TON of awesome comments and stories from parents sharing how they teach their kids about money at home. Today’s post is from a longtime Budgets reader, Shane H, who has implemented a weekly allowance for his kids and is teaching them how to budget, save, and give to charity!]

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Money is a powerful tool.  In fact, you could argue that money is the most powerful tool in the world if you know how to use it correctly. As adults we read finance blogs and books to increase our knowledge, but what about our children?

How do you teach kids about money?

That is the journey that my wife and I currently find ourselves on. Drawing heavily from the ideas laid out in The First National Bank of Dad, we have put together a system to begin the process of teaching our 5 and 6 year olds about personal finance at a young age.  It all starts with the allowance.

Why give kids an allowance?

I know, I know.  Allowances can be divisive in the FI community.  However, we have chosen to give our children weekly pocket money for one simple reason: It is the easiest way I can think of to begin giving them real interaction with money.  

Is the money linked to chores?

My kids’ allowance is not linked to doing chores at home.  That doesn’t mean that they don’t do chores in our household (they do).  It simply means that they aren’t paid to do chores around the house.  They do chores around the house because they are a part of our family and everyone is expected to chip in and help out around the house.  They also receive an allowance, given for the purpose of beginning to teach them how to think about and use money.  Those 2 things (chores and allowance) are not linked.  This will also keep them from deciding when they are older that they don’t think what they are being paid is worth it and refusing to do chores.  

How much allowance to give?

This was one of the trickiest questions about the whole process of teaching kids.  How much money is the appropriate amount to give to a child?  If you give them too much, you don’t teach them that money is a scarce resource.  But give them too little, and they will be frustrated because they can never afford to buy anything.  They should get enough that they can save up to purchase something that they would want in a reasonable amount of time.  Delayed gratification is good, but not too delayed!

What we have settled on is 1 quarter per week for each year of age, and since they are so close in age we just pay them both at the rate of the younger child .

So, how does this work exactly?

We give our kids their allowance once a week.  Monthly seemed to be too long to make them wait for it at their age, and doing it every week allows us to have small conversations about money management more frequently.  We have chosen to do the allowance every Sunday morning for two reasons:

  1. Every Sunday morning I cook a special breakfast (egg in a hole), so it was easy to stack the money habit of an allowance on top of an already existing habit of a special breakfast.
  2. An important component of handling money in our family is generosity, so getting their weekly allowance right before we go to church gives them an easy pathway to be generous with it.

The kids have three different things that they can do with their money once it is given to them.

  1. Put at least 1 quarter in their church bag to give to the church.  This is the only thing that I tell them they have to do.  
  2. Put quarters into the spending piggy bank
  3. Put quarters into their savings piggy bank

How they divide their money between their spending  and savings accounts is up to them.  Money they put into their savings piggy bank (an M&M minis container that holds quarters in a perfect stack) is earmarked for a special savings goal that they select.  Once they pick a goal, they are told which line on the piggy bank they have to save up to before they can reap the reward.  

A few example savings goals they have chosen so far:

  • Dinner at Sonic – $5
  • Going to the movies – $20
  • Zoo trip – $20
  • Mini-golf – $20
  • Getting nails done – $10

To encourage saving, every quarter the kids put into their savings piggy bank is matched by a quarter from me.  This is to help reinforce the idea that saved money is worth more than spent money.  

You might have guessed that going to the movies costs more than $20 for a family, and you would be right.  And that is fine.  What is important is that they are saving money for a tangible reward.  Once they reach any financial goals, we try to celebrate that same week if possible.  They don’t know this part yet, but the rewards are paid out of our pockets while the money they saved is deposited into a bank account in their name for later in life.

Meanwhile, any money that they choose to put into the spending bank is theirs to spend on whatever they would like.  This bank stays in their room so they know that they have full ownership of it.  Thus far I haven’t had to step in and overrule any of their purchases, but I do reserve the right to do so in certain rare situations.  But for the most part, this money is theirs to spend as they please.

An allowance opens the door to teach kids about money

Handling money this way has opened the door to lots of conversations about money with my children.  It turns requests to buy candy at the grocery store into a money lesson about how many quarters it costs.  It turns that dollar store toy that they just had to have, purchased with their own money, and broke before they got home experience into a valuable lesson about saving a little longer to buy quality things.  

As they get older, the system will go through changes as they begin to learn about investing, debt, compound interest and other elements of financial responsibility.  But for now this approach has begun to teach them about work ethic, saving, spending, and generosity, and that is good enough for me.

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Shane is married and has three young children. He is a public school teacher in Oklahoma and is passionate about teaching and, you guessed it, personal finance!  Shane and his wife have adopted two children internationally and are very engaged in the adoption community. In his spare time, Shane enjoys reading, playing video games, and covering the Philadelphia Eagles for The Painted Lines.

from Finance https://www.budgetsaresexy.com/kids-and-money-it-all-starts-with-the-allowance/

You Don’t Have to Be Good at Math to Be Good at Personal Finance

You Don’t Have to Be Good at Math to Be Good at Personal Finance

Happy Friday! Who’s looking forward to an awesome weekend!? 🙋‍♂️🙋‍♀️

Today I’m gonna share something a little embarrassing… It’s the final report card from my graduating year at high school. Check this out:

A bad Math report card doesn't mean no early financial independence

As you can see, Math was my worst subject. 29 out of 100… I’ve never scored lower than 29% on anything in my entire life! This class was the rock bottom of my formal education.

But, before you label me a complete idiot, you should know a few things about Australian high school vs. American high school:

  • Australia has wicked high standards for curriculum. For example, this high school Math class “1S PES” included Applied Calculus – stuff most Americans usually don’t get taught until later in college. No wonder I sucked at it, I was only 17!
  • The grading system is wacky down under. For example, I received the highest Art Design score in the whole school (and still only got 87%). In the US, many schools give the highest person 100%, then grade the entire class based on a curve.
  • In the USA you must pass every class to graduate from high school. For AUS they go based on weighted averages. You can suck really bad in 1 subject and make it up by overachieving in others. This is how I passed high school.

Anyway, no matter which way you look at it, I was labelled “bad at Math.” All my teachers, my peers, and my grades told me that I would never be a numbers expert. I received merits in every other subject.

This report card is from 18 years ago. Today, I have a job writing about finances, of which some stuff has a heavy math focus. How can a guy who barely scraped through high school get a job writing about numbers? How can a guy like that become financially independent and be able retire early in life?

Here are a few things I’ve realized about math and personal finance. I hope these insights encourage others who may have been (or currently are) a similar type of student as me.

1. You don’t have to be good at math to be good with money

Many people think becoming a millionaire is complicated and you have to have advanced knowledge in investing, economics and complex math. This simply isn’t true.

Kicking ass in personal finance is a simple and repeatable process, no matter your level of education. It’s based on proven principles and habits…

  • Work as hard and smart as you can
  • Earn as much money as you can
  • Spend less than you earn
  • Save and invest the difference
  • Repeat this for many years

After high school I jumped straight into the workforce while my ‘smart’ friends went to college. I always felt bad about this, like they were getting smarter and smarter, and I had given up on education. I hate to admit it, but I let my high school report card define who I was for a long time. Big mistake.

Then somewhere around my late 20’s, I looked around and realized I had more money than most other people my age. I realized that my growing wealth wasn’t because of my academics, or lack thereof… It was due to my subtle daily habits and following the basic money principles.

You can be the smartest math genius in the world and still be flat broke later in life. And you can be a high school dropout and become financially independent in your 30s. Don’t ever let bad math grades convince you that you’re bad at money or will never be wealthy! If you’re not convinced, just read The Millionaire Next Door and learn what most true wealthy people are like. 🙂

2. Formal education vs. self education

School while you’re young is important. Your mind is a sponge, you have unlimited spare time, and education is packaged nicely into 1 hour classroom learning sessions.

Learning as an adult is much harder. And inconvenient! It requires self motivation, discipline, and time to acquire knowledge. Many young kids think that when college is over, the learning stops. This isn’t the case at all!

The reason I’m better at math today and can comprehend finance stuff is because I slowly built up knowledge over time. Books, podcasts, blogs, independent courses and asking good questions all contributed to my education. And, I’ve still got a loooong way to go!

If I could go back in time and give advice to my high school self, it would be:

  • Just because you’re not great at something today, it doesn’t mean you will never be good at it. Learning never stops.
  • If you didn’t learn something in school, or from your parents at home, that’s OK. There are a ton of places you can pick up knowledge and learn as an adult.
  • In school, a report card tells you how well you’re doing. In personal finance, your net worth is your report card. It is the single best tool that tells you if you’re on the right track, or need to study harder! Your school report card goes away in your 20’s. Your net worth report card never goes away.

3. There’s a calculator for that!

My grandpa once sat me down and said, “Joel, if you ever don’t know how to do something in life, that’s OK. Because there’s someone else out there who knows how to do it – and you can always hire them to do it for you.” 

As a kid I was self-conscious about my education (still am a bit I guess). But Grandpa helped me realize that it’s OK not knowing everything. As long as I know where or how to find the information when I need it, I’ll be fine.

  • Don’t know how mortgages work? That’s what mortgage brokers are for! They do it all day, every day.
  • Not good at spreadsheets or calculating formulas? There are a TON of free resources online where people have created stuff and simplified it down for beginners.
  • Can’t calculate your effective tax rate based on your AGI or determine how much capital gains harvesting is best for your 2020 filing? Don’t stress! There are calculators to help you with all that stuff. CPAs, tax professionals, and random enthusiasts can point you in the right direction. It’s OK that you don’t know.

Giving up on improving your finances because “math is too confusing” is like slashing your other 3 tires because you have 1 flat. Just call in an expert for help and get back on the road 🙂

Have an awesome weekend, all! Stay safe out there!

– Joel

Friends on FIRE financial independence podcastPS: I was a guest this week on a fun podcast called Friends on FIRE! We chat about habits, happiness, and hard work 🙂 Check the show out here, or wherever you regularly get your podcasts from. Cheers to the hosts Maggie and Mike for having me!

 

from Finance https://www.budgetsaresexy.com/math-personal-finance/

The 1% Rule Explained, Using Malibu Mansions!

The 1% Rule Explained, Using Malibu Mansions!

Do we really need another blog post explaining the 1% rule for real estate investing?

Yes! Because I’m gonna explain it using examples with ridiculously expensive, multimillion-dollar beach houses that famous people live in. 

The 1 percent rule can be used in any city or state you are planning to invest in. It’s a general guide to quickly identify whether a potential investment property will generate enough cash flow to cover its own expenses.

When to Use the 1% Rule in Real Estate Investing

Let’s say you just won the Powerball lottery and have a cool $80 million burning a hole in your pocket. You want to buy a few high-end rental properties for passive income and think that Malibu, California, is a great place to look.

The typical lottery winner loses all of their money on bad investment property — but you’re smarter than that — so you’re very careful about your search criteria. You want to make sure the mansions you buy will bring in enough rental income to cover all of the ongoing expenses, especially the monstrous mortgage payments!

After reaching out to a Malibu realtor, you realize a few problems:

  • First, there are over 600 beach houses listed for sale in Malibu! It will take way too long to look at and carefully analyze each potential property.
  • Next, these mansions range between $4 million all the way up to a $125 million purchase price! There’s too much variety… How do you know which ones will be a good investment for positive cash flow?
  • Every time you look at the beautiful photos for luxury real estate listings, you fall in love. 😍  It’s hard to separate your emotions from your logical investment brain!

Hmmm … If only there were a quick way to narrow the search down, identify the best candidates for positive cash flow, and do it all in a mathematical way with no emotions …

The 1 Percent Rule … A Quick Math Guideline

Using the 1 percent rule, you can analyze a potential investment property in less than 60 seconds. All you need is 2 data points: the purchase price and the expected monthly rent. The rule states that if the monthly rent is at least 1 percent of the purchase price, the property will likely be a good investment.

Monthly rent / purchase price = (%).  

If this number is higher than 1%, this investment property has good potential! This property should be further investigated.

If the number is lower than 1%, skip over this for now as the incoming rent might not be high enough to cover all the mortgage and maintenance costs.

Keep in mind, this is not an exact rule. It’s more of a guideline. There are a ton of different factors that make a real estate investment profitable or a failure. The 1 percent rule is just a quick tool any investor can use to sift through 600 houses (or mansions) for sale and narrow it down to a select few that have the highest probability for success.

Let’s look at some real life examples and calculate whether they meet the 1% rule.

Example #1: Matthew Perry’s $15 million “Kick Ass Malibu House” (His Words)

Matthew Perry just listed his beach house for sale for $14,950,000. This has 4 bedrooms and 4 bathrooms, and is located on Malibu Road in Malibu, CA.

using 1 percent rule for Matt Perry House

If we buy Matthew Perry’s house, how much can we rent it for?

Well, just a few houses down on Malibu Road, there is this comparable mansion for rent. It is also beachfront, has 4 bedrooms and 4 bathrooms. It can be leased for $45,000 per month… 

Rent ratio comparison

Let’s use these figures to see if Matt’s house will meet the 1 percent rule…

Purchase Price:  $14,950,000

Monthly Rent:  $45,000

Rent / Purchase = 0.3%

Unfortunately, it looks like Matt Perry’s house doesn’t meet our minimum 1 percent rent to price ratio. In fact, the $45k per month rental income wouldn’t even cover the $65k per month mortgage payment 😦  This property would have negative cash flow.

Example #2: Malibu Colony $12 Million Beachfront Condo

Check out this listing on Malibu Colony Road. (I don’t know who the current property owner is, but this section of Malibu beach is the oldest and is a favorite place for celebrities. Tom Hanks, Bette Midler and Woody Harrelson all lived on this street back in the day, but now the younger famous peeps have taken it over.)

The purchase price is $11,950,000.

Malibu Colony

Let’s see what a place like this would rent for…

malibu colony rental

Holy moley! Just 8 doors down, there’s this place below … same beachfront and condo size. They are asking a whopping $175,000 per month in rent.

Let’s plug in the purchase price and estimated rent figures to see if it’s a good real estate investment…

Purchase Price:  $11,950,000

Monthly Rent:  $175,000

Rent / Purchase = 1.46%

Woohoo! This property meets the 1 percent rule! The incoming monthly rent will not only cover the mortgage payment, but it’ll probably also cover property tax, insurance, and all the ridiculous maintenance costs that luxury homes come with. 

We’d better schedule a tour of the place and meet the neighbors. Also we should do a thorough rental property analysis before putting in an offer.

Let’s Check Some Other Malibu Homes for Sale …

  • Kristen Stewart’s house: Asking price: $9.5 million. Would rent for $55,000/m = 0.6% 
  • James Cameron’s compound: Asking $25 million. Rent both houses for $75,000/m each =  0.6% 
  • 28926 Cliffside Dr: Purchase price $11.9 million, rents for $65,000/m = 0.5%
  • 30370 Morning View Dr: Purchase price: $4.2 million, rents for $35,000/m = 0.8%
  • 27348 Pacific Coast Hwy: Purchase price: $7.62 million, rents for $85,000/m = 1.1%  Woohoo!!
  • 26940 Malibu Cove Colony Dr: Purchase price $7.3 million, rents for $75,000/m = 1.0%  Sweet!!

Using this method we can quickly sift through the 600 listings and narrow it down to about 20 of the best mansions worth looking at closely.

You’re on your way to becoming a successful landlord … and might even attract a fancy celebrity tenant! 🙂

Remember, Rules Are More Like Guidelines

If you are an existing homeowner or real estate investor, you might already be wondering, “Hey, my current home doesn’t meet the 1% rule … does that mean I made a bad investment?”

Don’t worry. The 1% rule is just a quick guideline for cash flow investors. It was made way back in the day when interest rates were higher and purchase prices were low. There are hundreds of different factors that determine whether you’ll be successful at rental property investing.

I know from experience. Take my TX rental property for example: When I bought it, the incoming rent was $1,800 per month, and I paid $189k for it.  (0.95% price ratio).  But although it didn’t meet the 1% rule, I can safely say the incoming rent covers the mortgage loan, tax, insurance, property management expense, AND provides me a positive cash return each year!

What If None of the Places in Your Search Area Meet the 1 Percent Rule?

There will always be some markets that have high real estate prices and much lower rent ratios. Typically these are in high cost of living cities and areas like Boston, New York, Bay Area, Seattle, etc. (actually Los Angeles and Malibu typically don’t have real estate properties that meet the 1% rule … the addresses I found above are extreme outlier examples only!).

Here are a few things you can do if you can’t find any properties that meet the 1 percent rule in your area:

First off, you can invest in a different market! That’s why I started investing in Texas properties, because I couldn’t find anything in my search criteria where I live in California. Fair warning — managing a rental property while living in another state has a number of challenges associated, and certainly isn’t for the faint-hearted.

Another option is, you might be able to force the 1 percent rule by offering a lower purchase price. Take for example, this place here at 7221 Birdview Ave, Malibu.

They are asking $15.5 million …

$15 million mansion in malibu

A similar place on this street will rent for about $130,000 per month. (0.8%) So unfortunately, it doesn’t meet the 1 percent rule with these numbers.

BUT… What if we could buy this mansion for $13 million, instead of $15.5 million? At a $13 million price point, the ratio would increase to (1.0%). Thus, meeting the 1 percent rule.

Do you think the owner will give us a $2.5 million discount on the purchase price? It certainly doesn’t hurt to ask! Depending on how hot or cold the market is, you might get lucky and be able to force a better price to meet the 1 percent rule.

One last option is to knowingly break the 1 percent rule. If there are no properties that make the cut, there’s probably a reason why. Typically higher cost of living areas have faster property value appreciation. The yearly income that you are knowingly giving up in rent could be made up for in other areas. This is a risky strategy and needs to be carefully calculated!

What If You Know the Property Value But Don’t Know How Much It’ll Rent For?

This scenario happens a lot. You might want to buy a house but have no idea what it will rent out for. Where can you get reliable rental data?

First off, your realtor might have a general idea. But, remember they are trying to sell you the home, so they may be tempted to inflate the “potential rent” numbers just to get you more excited. Expect their estimate to be on the high end!

Next, call a few property management companies in the area. Tell them the address of the house you are looking to buy, and ask what they could rent it out for. In my experience, property management companies are more knowledgeable about gross rent rates because they sign the leases with tenants. That’s their full time job, so they know exactly how much a tenant would pay.

Also, check online sites and advertisements. Craigslist is a favorite of mine! Be sure to check out Map View when looking at Craigslist postings — it’s the quickest and easiest way to gauge the rental market. Zillow is decent (I used it in the Malibu examples above) and Rentometer is great, too. Whatever you use, it doesn’t hurt to cross-reference multiple reputable sources.

Get Out There and Find Some Deals!

Searching for the right rental property can be exhausting and overwhelming. That’s why these types of tools like the 1% rule exist — so you can save time and effort identifying the best rental properties.

Obviously my Malibu examples are ridiculous, but the 1 percent rule is the same no matter which area you are researching. Time to get out there and find some deals!

For you real estate experts out there, do you use the 1% rule currently? If not, what is your investment criteria? How would you spend your $80 million lottery money? 🙂

from Finance https://www.budgetsaresexy.com/the-1-rule-explained/

Is Health Insurance Worth the Cost? Because Daaaaaang, It’s Expensive!

Is Health Insurance Worth the Cost? Because Daaaaaang, It’s Expensive!

When I mentioned a few months back that my wife and I haven’t had health insurance for the past couple years, some of you thought I had lost my marbles. Thank you to everyone who emailed me their thoughts and were concerned about my family’s well-being.

Some good news — starting October 1, I am now eligible for employer sponsored health insurance. As a new employee, I don’t even have to wait for open enrollment. 

But, it’s not all roses … health insurance is expensive!

Is health insurance worth the cost?

Hard question, because everyone values health insurance differently.

Some people with chronic health issues absolutely depend on insurance to cover medical expenses. Others haven’t visited a doctor in decades and see little value in insurance. Some people enroll in health insurance only because they get a hefty discount (or get it free) from their employer. And sadly, many people out there simply can’t afford health insurance.

It’s a crazy landscape. Everyone’s health situation is different. Everyone’s risk tolerance and attitude toward insurance is different.

Let’s take a look at my new health insurance options and run some medical issues and cost scenarios. You might see how hard and crappy it is for young and healthy couples to make a decision on health insurance. I’ll also share some of my experiences paying for health care out of pocket the past few years.

My New Health Insurance Benefits — Plan Options

As a California resident, I get to choose between Kaiser or Anthem insurance. Both providers offer only 2 plans each through my employer. Here are the monthly costs …

Are these health insurance prices worth it?

The Anthem HDHP 4500 plan is recommended to me and my wife based on our health profile. It’s also the cheapest monthly cost to cover us both. Circled in red, this is $700 per month, or $8,400 per year. Ouch.

HDHP stands for High Deductible Health Plan. The reason the deductible is “high” is because this $700 monthly premium is considered “low”. 😥

Now let’s take a look at the deductible and what health coverage these plans include…

Health insurance coverage options HDHP plans

Looks like this Anthem plan has a $4,500 deductible. The deductible is the amount paid out of pocket by the policyholder before an insurance provider will pay ANY expenses.

So on top of the $8,400 annual plan cost, I am responsible for paying the first $4,500 (Or $9,000 for me AND my wife) in care costs before I see any financial benefit from this insurance plan. Actually, that’s not completely true … This plan will throw me a few free preventive care visits or “check-ups” each year. Apart from that, it’s $12,900 in total before the insurance company chips in a single cent.

So Is Health Insurance Worth the Cost?

Well, everyone defines “worth it” differently. Let’s just look simply at the financial calculations for a moment …

For me to realize any financial value from this health insurance policy, I would need to spend $12,900 in care in a single year (either me OR my wife). Or, $17,400 if we both wanted to see value from the plan.

Will I need more than ~$13k in medical service in the next 12 months? I have no clue! (and I certainly hope not!). It depends on what goes wrong throughout the year. Let’s run 3 different health care scenarios for the upcoming year and compare my out of pocket costs of having insurance vs not having insurance.

*Quick note: In the great state of California, they issue a fine for people without a health insurance policy for 2020. This fine is a maximum of $750 per person, so I’ll be including $1,500 in annual fees in calculations for the non-insurance examples.

Scenario #1: A “National Average Year” (Not Much Health Care Needed)

According to the calculator on my benefits website, the national average for a married couple like me and my wife would come to 10 x doctors visits, 9 prescriptions, 0 emergency room visits and 0 surgeries.
Typical annual healthcare costs

The total cost would be $2,588 in medical costs for the year.

Now because this is less than the $4,500 plan deductible, I would be responsible for paying this cost out of pocket whether I had insurance or not.

Annual Cost with insurance: $10,988   ($8,400 annual premium + $2,588 in care)

Annual Cost NO insurance: $4,088   ($2,588 in care + $1,500 no-insurance fines)

In an average low-health-issue year like this, my wife and I would be better off without family coverage, even if we took on a $1,500 fine. This is how we have gotten by the past couple of years, which I’ll explain more below.

Scenario #2: An “Unusually High Year” (Getting Sick and Hurt A LOT)

In this scenario, I added 4 x trips to the emergency room, 2 same-day surgeries, and doubled the amount of doctor visits to 20.

expensive healthcare example

Even though a year like this has low probability, it could happen. Disaster strikes at any time and health problems affect everyone.

Annual Cost with insurance: $14,400 ($8,400 annual premium + $4,500 deductible, + $1500 in additional 20% of co-pay. $6k is the plan max out-of pocket)**

Annual Cost NO insurance: $13,943 ($12,443 in care + $1,500 no insurance fines)

Hmmm … I didn’t expect this outcome. Looks like having no insurance still works out financially better in this scenario.

**This calc is based on either myself OR my wife having all the health issues. If we split these doctor and emergency room visits between us, we’d have to cover our family deductible ($9k), so the cost would actually be just over to $18,000 total.

OK, now let’s add a horrible in-patient surgery to the mix …

Scenario #3: “Horrible Year” (Major Surgery Needed)

Here I’ve added an in-patient surgery or major event staying overnight at the hospital. This is on top of the unusually high year scenario we just reviewed…

expensive healthcare costs

I wouldn’t wish this scenario on anyone. But unfortunately, it happens every year to people around the world. Insurance not only provides financial coverage, but also peace of mind in traumatic times.

Annual Cost with insurance: $20,400 ($8,400 annual premium + $12,000 out of pocket family max)

Annual Cost NO insurance: $30,437 ($28,937 in care + $1,500 no insurance fines)

For a horrible year like this, insurance would save us an additional $10,000 medical bill. It would still be an expensive year out of pocket ($20k) but we could rest well knowing that this is the worst it would get financially. Insurance pays off financially when extensive care is needed.

Covered California Options

Another option I have is to decline medical coverage through my employer and look for a cheaper health plan elsewhere. Covered California is a program under the Patient Protection and Affordable Care Act. It provides tax credits to offset private health insurance costs depending on your income level. My household size (2) is eligible for some credits, as long as our income is under ~$100k.

Using their quote tool and an example income of $70k per year, here are the HDHP options available for my family coverage …

Covered California options for health insurance

Although two of these plans have a lower monthly health insurance premium than my new work options, the deductible is much higher… $6,900 per person, or $13,800 for our family max. Saving a few thousand in one area seems to just cost us more in the other.

Surviving Without a Health Insurance Plan

Health care is a sensitive subject. So before going on I want to acknowledge how lucky and blessed my wife and I are to have not had any major health or financial problems the past few years. It’s unfair that some people are born healthy, while others have continuous medical problems. Our decision to be uninsured was one based on our personal risk tolerance and financial situation, not because we think we are immune to health issues. Our chances of unexpected health disasters are the same as everyone else our age/sex/race etc.

When I quit my corporate job in March 2018, I got a letter shortly afterwards explaining my options for COBRA (Consolidated Omnibus Budget Reconciliation Act). This was basically an option to continue paying for coverage at my old employer’s insurance rates for up to 18 months. The problem was, this rate was $1,600 per month and had more coverage than what we needed! I never realized how much my employer covered while I was working there — something I will pay attention to next time for sure!

My wife and I declined the expensive COBRA option and planned to look at cheaper alternatives, and possibly short term health insurance to cover us for a few months in case we started work again. After searching around a little bit, it became a lower and lower priority. Weeks turned into months, and we realized we could probably stay without insurance for another year. Paying out of pocket was just easier and proved to be cheaper.

Out of Pocket Costs

Since mid-2018, we’ve paid a total of $1,190 for medical services and care. (We’ll also pay an additional $2,890 total in fines for having no health insurance in 2018 and 2020). So about $4k total so far.

Believe it or not, the $1,190 in care included a 1-day out-patient surgery for my wife, about 10 clinic and doctor visits, and a few physical therapy sessions. While traveling in Africa I got pretty sick with a fever, but thankfully recovered naturally by staying in bed for 2 days. My wife and I also both got bad bronchitis while traveling in Australia — but thanks to the awesome clinics down there we recovered with antibiotics that cost less than $20, and a lot of rest. We’ve been extremely lucky.

Local clinics and student medical facilities were pretty easy to find in Los Angeles. We didn’t qualify for Medicaid … Even though we were unemployed most of 2018-19, our income exceeded the Medicaid limit  (Max of ~$22k for household of 2). But, since our income was still considered “low”, we qualified for other financial discounts and programs. I didn’t know these even existed. This is how we got my wife’s surgery so cheap. Our local clinic referred us to a hospital that had crazy cheap financial plans and offered discounts to lower income households and people without insurance.

I was a little skeptical at first about the level of care at small clinics but quickly found that the services were on par, or better, than regular physician offices I’ve been to in the past.

Healthcare Blue Book is an awesome website that shows typical and “fair” medical costs for all types of procedures, lab tests, and medicines. Check it out if you find yourself wanting to estimate your out of pocket costs, or want information to negotiate a ridiculous medical bill.

Health Care and Retiring Early: What Should We Budget for the Future?

Our lack of insurance can’t go on forever. As my wife and I get older, our health risks increase, and insurance will become more and more valuable. Having no insurance was always a temporary decision. Same with dental insurance, and vision insurance (and maybe pet insurance for Cooper!)

What will the costs be in the future? What do I put in my future budget and how do I calculate my FIRE number to cover my future needs?

Health care is my biggest unknown. As a placeholder, I put in $10,000 per year for health care just so I could have a line item in the budget. Now I’m thinking this number is horribly low. Even if we do get cheap or subsidized care during retirement via Medicare or Medicaid, there’s still a lot of costs involved and potential disasters.

I haven’t figured it all out yet. I’m no expert. My wife and I will be working for at least the next 5 years, so we have time to make changes and adjust the budget as needed. Our FIRE number is a work in progress.

Important Considerations I Didn’t Cover Fully in This Post

  • HDHP plans allow you to contribute to an HSA account (Health Savings Account). HSAs are probably the most tax efficient investment vehicle, available only to those with HDHP plans. So if I utilized an HSA, my overall “costs” for insurance could be lower.
  • If I went with my employer-sponsored health insurance, the premium would come out of my paycheck on a pre-tax basis. So in my comparisons above, the annual premium would be slightly lower because it’s not counted in my taxable income. Actual savings depend on your tax rate, and ours will be probably pretty small in 2020.
  • No matter if you have insurance or not, a large emergency fund<span style=”font-weight: 400;”> is necessary to cover out of pocket costs and deductibles. I’m calling this out because even if you have insurance, you can still have huge medical bills just meeting the deductible.
  • Care costs included in my examples were all estimates provided by my benefits website. In reality, prices are different from doctor to doctor, provider to provider, and sometimes “cash” prices are cheaper or more expensive vs. pre negotiated insurance rates. Many costs are even negotiable. Healthcare Blue Book is a wicked resource for specific cost estimates!

TLDR & Summary

  • Woohoo, I qualify for health insurance through my work!
  • But it’s still expensive … family coverage will cost $8,400 per year, with a $4,500 deductible each. Boooo.
  • Medical insurance might not be worth the cost if you are young, healthy, or have low income.
  • Wife and I survived on no insurance for a few years for ~$4k. We are lucky.
  • Health care is tough to figure out for early retirees. More to come one this!!!

from Finance https://www.budgetsaresexy.com/health-insurance-worth-it/

The Sustainable Darkroom Project

Who knew that a printed photograph could be so damaging to the environment? Hannah Fletcher does. A photographic artist and member of the London Alternative Photography Collective, Fletcher is concerned about the litres of water necessary to wash films and prints, the resin-coated paper going to landfill, the harsh development and fixing chemicals as well as the heavy metals polluting soils and aquatic systems, the bovine gelatine coating paper and films, etc.


Hannah Fletcher, What Remains: The Root and The Radical, 2018

Her own artistic work demonstrates that this toxic assault on ecosystems is not unavoidable. Fletcher is a photographer without a camera who combines techniques from the past and experiments to innovate and improve photographic processes. Instead of the usual image-making tools, she uses light, paper, chemicals but also organic materials such as soils, algae, mushrooms and roots. She even set up The Sustainable Darkroom Project, a research, training and mutual learning programme to equip cultural practitioners with skills and knowledge that will help them develop an environmentally friendly photographic practice.


Hannah Fletcher, Algology: The Art of Scientific Curiosity, 2016


Hannah Fletcher, Algology: The Art of Scientific Curiosity, 2016

Hi Hannah! I was shocked when I read the description of The Sustainable Darkroom Project, the “artists run research, training and mutual learning programme aims to equip cultural practitioners with new skills and knowledge to develop a more environmentally friendly analogue photography / darkroom practice.” I am very interested in looking at the ecological footprint of pretty much everything but I had never considered the footprint of analogue photography. Could you give us an idea of the impact that analogue photography / darkroom practice have on the environment?

I find that the material impact we have as artists is often left by the wayside. We are taught that ‘art has no boundaries’, but if we want to keep working with these processes and materials, then, at some point we need to realise that the planet has limitations and we need to take better care not to overstep those boundaries. If the materials and processes we are using are not sustainable longterm then we need to rethink the way we are doing things.

In Analogue photography some of the issues include the toxicity of the chemicals, the unsustainable silver mining, the gelatine being an animal derived product and therefore helping to fuel the meat industry, the high volumes of water that are used for washing films and prints, the resin coating on papers – deeming them un-recyclable and therefore going to landfill… etc.. I could go on.

What would you say to someone who tells you that if analogue photography has such an impact on the environment, then we should all switch to digital photography and a large part of the problem would be solved? Surely, it is more complicated than that?

We aren’t going to solve the worlds problems by just moving everything digital. Digital photography has its own set of environmental issues and these are actually a very similar set of problems to analogue photography, only the materials are slightly different. Concerns of pollution, toxicity, exploitation, disposal, etc. caused by regular upgrades and the lack of safe disposal of old models; constant unsustainable mining of the rare earth minerals that make up the components of the camera; storing all of the files and images on cloud storage systems, etc. These devour vast quantities of energy and emit enough heat to melt themselves. Cooling systems, using more energy, are used to combat this waste heat. Even when data is not being accessed, they sit idle, ready and waiting for a surge in activity. Consequently, these centres can waste 90% or more of the electricity they pull off the grid.

All these issues and more are just as important to consider in the material relationships that make possible the existence of digital cameras/smartphones.

How did you get into cameraless photographic processes?

At school, when I first started studying photography we had access to a tiny cupboard like-darkroom. Only 1 person could use it at a time, so there was never anyone else there to tell you that you were not dong things the ‘correct’ way. This was where I would spend a lot of my spare time. It was here that I started to play around with the process of developing prints. One afternoon, I noticed a few prints in the bin that had been thrown away before being fully fixed. In their wet state, they had stuck to the plastic lining of the bin, causing an impression of crumpled plastic to be left on the prints as they continued to absorb light and react to their environment. I was so intrigued by the relationship between the photographic surface and this plastic bin bag; a non-photographic material. From there, gradually more and more my practice moved away from taking photographs with a camera.

Some of the techniques you work with (photograms, chemigrams, cyanotype, lumen prints, anthotype, Xerograph, pinhole camera, etc.) are not new. Does this automatically mean that there is no innovation, no research in the processes and material you work with? That if you want to be environmentally-friendly you are bound to look towards the past?

Amongst the techniques and processes I play around with, there is always something new. Many of the processes are near impossible to get the same results twice, it is an unpredictable method of making images. Often the result is haphazard and unsuccessful, as I attempt to control and dictate the outcome, it becomes a collaboration between the materials and me. I am continually thinking about new materials and ways to integrate those materials into the process of photographic print making. I do not see these techniques as individual methods of working, but as a set of knowledge, that I can combine and alter, adapt and morph according to my needs. techniques flow into one another, there is not always a need to categorise and label the way you are making work.


Hannah Fletcher, Circles: A Record of Our Time, 2017


Hannah Fletcher, Circles: A Record of Our Time, 2017


Hannah Fletcher, Circles: A Record of Our Time, 2017

Circles: A Record of Our Time illustrates (as far as I can tell) the mix of old techniques and current scientific research that characterises much of your work. The series is a visual recording of the Anthropocene in tree rings. The work is based on chromatography but you added layers of meaning and modified the traditional technique. Could you explain to us the research process behind the series?

The research for this project started, as you mention, with the Anthropocene. I was researching and considering the visual traces and images that will be left in our environment after we are gone. There are 3 ways in which human behaviour during this time will be visible in years to come: through rocks, ice and trees. Sedimentary rocks layered with indecomposable debris. Chemicals and toxins, we have dumped, absorbed into roots and captured in tree rings. Permanent scarring on rocks showing deforestation and the elimination and disruption to species. CO2 absorbed into freezing waters leaving ice cores; murky and grey.

I choose to focus on the visual representation of tree rings, and began investigating wood and tree rings both in my research and in my practice. Cross sections of wood became my photographic material and image making device. Not only working with chromatography, but also with chemigrams, luminograms, photograms etc.

The chromatographic works in this series were made from soil samples collected from beneath different trees around London. Using filter paper and silver nitrate, I am able to create a photographic record of the components held in the soil, which, if unremoved, would have been absorbed by the tree and influenced the growth of the outer tree ring. Most of the minerals held within the soil are invisible without the use of silver nitrate. By drawing the solution through a central hole in the filter paper, the minerals form concentric circles according to the speeds they are transported at. This organic banding of the soil components imitates the aesthetic of the tree rings, bringing the work in a loop.


Hannah Fletcher, What Remains: The Root and The Radical, 2018


Hannah Fletcher, What Remains: The Root and The Radical, 2018


Hannah Fletcher, What Remains: The Root and The Radical, 2018

What Remains: The Root and The Radical explores the fascinating scientific field that studies the cognitive abilities of plants. Could you tell us how the images you created for this series illustrate or comment on plant intelligence?

Recently, more and more, plants are being described as ‘intelligent bodies’ and ‘social organisms’. In the late 1800s, Charles Darwin was the first to suggest that the tip of the roots in plants is akin to the brain of some animals. Since then, the possibility of mental capacities and cognitive abilities of plants has become an exciting field of research. In his book, The Hidden Life of Trees, Peter Wohlleben states that the roots of a tree ‘is where the tree equivalent of a brain is located’. The root network is in control of all chemical activity in the plant, they absorb and release essential substances. In a similar way, our own internal processes are too controlled by chemical messengers.

Working in a pseudo-scientific manner, I subjected plants to photographic chemicals, to try and understand what, if any, of the photographic material can be processed. Aiming to some how visualise the unobserved and unseen information contained within the roots. Roots were submerged into photographic chemistry and then reapplied to photographic surfaces, allowing the uptake of the plant to dictate the form of the image. The movement of the roots marking themselves along the paper.

In other works in this series I scored the surface of the paper, as if it was the surface of the earth, encouraging the chemistry to penetrate bellow the resin coated surface, searching for the structure; the root of the paper.


Hannah Fletcher, The Mushroom Book, 2015


Hannah Fletcher, The Mushroom Book, 2015

Has your practice and more generally your interest in the environment altered the way you look at photography? Can you still enjoy a photography exhibition in a museum or gallery and forget what those images cost the earth?

It’s important to be able to look at photography and art in general without preconceived ideas and judgements. I am not thinking about environmental concerns all the time, otherwise I would really struggle to enjoy life. Everything we do has an impact and a consequence on the environment, but that does not mean we should not enjoy what is out there or sit back and watch the fire burn.

This is why I started The Sustainable Darkroom Project, I recognise the importance to empower individuals to make different choices. The more the individual consciousness grows, the more collective power we have. The closer we get to pulling down some of these barriers and opening up the flood gates.

The project is designed to build collective power within and opposing the current photographic industry. I want to encourage and empower you, as makers, as thinkers and as doers to have the knowledge and awareness of the materials and processes you are using. To understand the relationship between the things you use and the planet you live on.

The Sustainable Darkroom is an international project designed to educate, to learn through sharing and collaborative research. To encourage mistakes to be made and crazy ideas and ideals to be tested. With each new residency, workshop, talk or event, we get a little bit closer to understanding this word sustainable and the role it plays in every aspect of the photographic industry and beyond.

I recognise that we still have a long way to go and that a lot of the ideas, recipes and suggestions are not yet rigorously tested or scrutinised. This initiative is open for all to be involved with, all to learn from, all to add to and all to question. We will continue to experiment and adapt as we learn.

Thanks Hannah!

from Finance https://we-make-money-not-art.com/the-sustainable-darkroom-project/

Rental Property vs Stocks – Tracking Experiment Continued …

Rental Property vs Stocks – Tracking Experiment Continued …

Post image for Rental Property vs Stocks – Tracking Experiment Continued …

A couple months ago I talked about comparing rental property vs stocks, using 2 of my personal assets as examples we can track over time. One is a personal IRA account (backstory here) which is invested in a total stock market index fund. The other is a duplex rental property located in Texas (backstory here).

On July 1st of this year, both of these assets were worth almost exactly the same amount… ~$109,600. Now, just 60 days later, there’s a huge difference in value between them.

My goal with tracking these two investments side-by-side is to see which one outperforms the other, both short-term and long-term.

I know it’s unfair to compare the growth of a physical rental property vs a stock portfolio because they are contrasting investment strategies. But, I’m gonna compare them anyway because I’m a weirdo and I think it’s fun! This experiment is kind of like racing a dog against a horse. (😂 I just got a funny image in my head). Each has unique strengths and weaknesses so it’ll be interesting to juxtapose them over time and debate about which is the better investment.

Rental property vs stocks: Updates July & Aug 2020

As of September 1, here are the current values for each asset:

IRA account value:  $124,117  (has grown +$14,515 since July 1)

Holy cow! Nobody could have predicted the recent stock market return and sharp bounce back after the crash earlier this year. As a reminder, this account is 100% invested in FSKAX, a Fidelity mutual fund that replicates the Dow Jones U.S. Total Stock Market Index. In March, this account went as low as $77k — what a fascinating recovery.

graph showing 1 year growth of IRA account

While I’d love for this crazy growth to continue, good times like this can’t go on forever. But unless there’s a sudden correction, it’s safe to say this IRA will be worth more than the rental property investment for a long while…

Rental property value:  $111,623  (has grown +$1,997 since July 1)

Buy and hold real estate is a much slower and steadier investing game. I don’t think I’ll ever see a massive sudden surge in value (or dramatic downturn 🤞) for this property. For me, volatility is neither a good thing or a bad thing, because I’m invested for the long term regardless.

Here’s the rental property value breakdown, including the float account and reserve fund:

chart calculating rental property value. Total asset value minus outstanding mortgage

All in all, the value increased $1,997 over 2 months. The outstanding mortgage shrunk by $473 thanks to principal pay down, and the remaining $1,524 came from positive cash flow.

Cash reserves for real estate

I get a lot of questions about my cash reserve or “float account” for this rental property. Feel free to shoot me an email or comment for specifics, and I’ll address a few common questions here:

Why do you have so much cash in the reserve account?… At minimum, I like to keep about 6 month PITI (mortgage payment + tax + insurance) in the reserve account. Also, I pay property taxes (~$5k) and insurance (~$1k) out of this account in a lump sum. Having a large balance also covers expensive emergencies like blown A/C units or sudden loss of rental income.

Is this reserve account separate from your personal bank account?… Yes, I have separate checking accounts for each investment property I own. All mortgage payments are auto-deducted from their respective accounts, and rental income from each place is deposited into them. Although this sounds like a headache (managing multiple checking accounts), it’s actually all on auto-pilot, and it makes calculating individual ROI very easy.

Why do you include cash reserves as part of the asset value?… In my mind, the property can’t exist without the reserve fund. And the reserve wouldn’t exist without the property. So I count them as a single investment asset and count the reserve cash as part of the overall equity. 

Rental property vs stocks: Active management vs. “passive income”!

In addition to looking at the money growth of these assets, I want to also be transparent about the time and energy that goes into maintaining these accounts.

For the IRA, I have spent zero hours managing or even thinking about this account. (OK, that’s a lie – I check the Stocks app on my iPhone about once every 5 minutes – a habit I need to break 🙄). But the point is that as an investor in the overall stock market I don’t need to touch anything to ensure account growth over time. It truly is passive investing.

The rental property, however, is a slightly different story. Some months involve a ton of headaches, others are relatively light. Either way, rental property income is not passive income in my opinion.

I’ve been lucky these past few months, having no major repairs or tenant issues. But, I’ve still spent about 3-4 hours on this investment property. It took about 1-2 hours evaluating refinance options, about 30 mins reviewing monthly P&L statements and talking with my property manager, and maybe 1-2 hours ordering and reviewing a CMA (Comparative Market Analysis) for the property. Not a huge amount of time spent, but time spent nonetheless.

Now you could argue that I didn’t need to do these activities. But I would argue right back that if I didn’t constantly look at options to reduce expenses or increase cash flow, I would miss opportunities to boost my returns. For as long as I own this property I will need to continually analyze it as well as stay on top of what’s happening with the local housing market. It’s the burden of being a responsible real estate investor.

*Quick side note: Not ALL real estate investing involves personal management and effort. A publicly traded REIT (real estate investment trust) is a passive investment and can cover both residential real estate as well as commercial real estate. Personally I don’t do any REIT investing – it’s an investment strategy too advanced for my tiny brain 🙂

Future returns and predictions

As of Sept 1st, my IRA is outpacing the duplex by more than $12k. What will happen in the next few months? I have no clue. I have a feeling this is going to be a tortoise and the hare kind of story. Ultimately, I don’t really care which grows faster or slower, because I own them both already and plan to hold them for a long while.

Would love to hear your thoughts and predictions!

TLDR & summary

  • Since July, my IRA has grown by $14,515. Booyah! 🐇
  • In comparison, my rental property’s value only increased $1,997. 🐢  (no complaints!)
  • The rental had 3-4 hours of management work… The IRA required zero.
  • Nobody knows what the future holds. We’ll check back in and compare these again in a few months. 🙂

from Finance https://www.budgetsaresexy.com/rental-property-vs-stocks-tracking-experiment-continued/

A Dog’s Guide to Personal Finance 🐕

A Dog’s Guide to Personal Finance 🐕

Post image for A Dog’s Guide to Personal Finance 🐕

Happy Friday, you stunningly beautiful and handsome people! (I don’t know what you actually look like in real life, but when I close my eyes and imagine, you’re all gorgeous!)

Today’s guest poster — Jesse from the Best Interest blog — learned all his personal finance knowledge from his dog! Just kidding — Jesse has a natural gift for breaking down complex personal finance concepts and explaining them in simple (and funny) ways! I think you’ll enjoy this post that explains necessary personal finance practices … using stories any pet owner can relate to 🙂

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A Dog’s Guide to Personal Finance

This is Sadie. Like all dogs, she’s the best dog — apologies to the logicians out there. Sadie is going to show us a dog’s guide to personal finance. It’s gimmicky, but there will be plenty of dog pictures. And even I was surprised by some of the obvious corollaries. Let’s embark! (Get it?)

Legendary personal finance dog posing for the camera!

Bury It For Later

Dogs like treats. About a quarter of the time, Sadie will take her treat, her bone, her new shiny toy, and bury it. She does it in stealth mode. I don’t catch her in the act. All I find is a dog’s attempt at refilling a hole, and zero attempt at actually fixing the landscaping — c’mon Sadie!

For humans, burying cash in the ground isn’t smart. And neither is burying food (unless you’re hoping to let some seeds flourish). But what is smart is proverbially burying your cash into an emergency fund, or saving for later in life via a long-term investment.

Emergency funds and long-term investing are two different ways of saying, “I don’t need this bone money today, but I think I’ll need it someday in the future.” Sadie is smart!

So, what’s the difference between an emergency fund and long-term investing? Liquidity. That’s a fancy way of describing how quickly you can get your money when you need it.

Dog demonstrating saving money

An emergency fund should be highly liquid, meaning you could access it right away if needed. That’s why many people keep their emergency fund in a high-yield savings account (HYSA). This is most similar to Sadie’s buried bone. It’s ready for retrieval at a moment’s notice.

But long-term investing is a choice designed for 10, 20, or even 30+ years in the future. Some long-term accounts — like a 401(k) — might actually penalize you if you try to access your money before a certain age. Before you bury that long-term bone, you’ve got to be sure you don’t want it anytime soon.

I know life is short — memento mori — but saving money for later is a worthwhile safety net.

Automation

Sadie’s habits are second nature. She eats breakfast and dinner at regular times. She has her afternoon nap. And her morning nap, her late morning nap, and her post-dinner nap. The same regularity applies to high-energy playtime and nature’s calls.

Suffice to say, Sadie’s routine is pretty automated. Not electronically automated, but naturally automated. She doesn’t have to think twice about her essentials.

 two dogs on a bed

For us humans, electronic automation in your finances has been proven (by science!) to be beneficial for your bottom line. Richard Thaler won a Nobel Prize for his work on this topic.

What are some simple examples of personal finance automation?

  • Bill pay. Every month, I pay my mortgage, utilities, and a few other smaller bills automatically.
  • Investment contributions. I deduct 401(k) contributions from my paycheck automatically. I contribute to my Roth IRA and brokerage account automatically. Don’t think twice, it’s alright.
  • Funding my “future spending” accounts. I’ve got a few different “future expenditures” that I’m saving up for. Vacations, Christmas gifts, the undeniable truth that my beloved Toyota will eventually eat the dust and be replaced. I use my budget to automatically set aside money every month to fund these eventual expenditures.

Don’t let the stress of finances affect your nap time. Sadie sure doesn’t. Just automate.

Identify Mistakes, Then Learn From Them

We already covered that Sadie is the best dog. But, sometimes the best dog is a bad dog! Bad dog!

Thankfully, Sadie is very aware when she’s been a bad dog. She reads human body language like a blaring neon sign. OWNER UPSET, OWNER UPSET, RED ALEERRRRRTTT!!

Where Sadie shines in this regard is that she learns from those mistakes. Her emotional if-then circuitry is on-point. IF poop on floor makes owner upset, THEN no poop on floor makes owner happy.

Unfortunately, we humans like to muddle up this simple logic when it comes to our personal finance. IF buying speaker system leads to credit card debt, THEN buying new Corvette is good investment.

Wait…huh?!

Half the battle is simply learning what’s smart and what isn’t. I’ve written before that personal finance is a dense jungle, but the trail through the jungle is well-defined. If you’re unsure about the smart path through your personal finance jungle, odds are that the right answers are already out there. You just have to go find them a.k.a. use Google.

And then once you find the right answers, you’ve got to execute! Take your knowledge and put it into action.

Sadie has thousands of years of “human = master” evolution guiding her to better behaviors. Your psychology is much more complex. It might take some practice to re-wire your brain towards the best financial behaviors. That re-wiring, my friend, is what learning is all about.

Keep on Smelling. Stay Curious.

Every hole. Every pole. Dead moles and stale rolls. Sadie will smell anything and everything. And once in a while, that persistence pays off. Last week she found a piece of hamburger in the yard, fallen off a plate the night prior. Jackpot! Even when she hits a cold streak of olfactory failure, she keeps on smelling.

dog smelling tree

I see two corollaries to personal finance. And no, it doesn’t involve sniffing fresh $100 bills for that “new money scent.”

The first lesson is to keep searching until you find what works for you.

I started budgeting right when I entered professional life. I used an Excel spreadsheet, but found it clunky. After some sputtering, I eventually found Mint. I enjoyed Mint more than my spreadsheet, but found Mint’s automatic categorization inconsistent. And so Mint fell by the wayside too.

Yet my budgeting itch still tingled. I didn’t enjoy being unaware of where my dollars were going. Like Sadie, I kept on sniffing for success. What are other people using, I wondered.

And then I found YNAB. Queue the angelic music. YNAB isn’t for everyone, but it’s certainly for me. All the app asks is that you follow a few simple rules — which turn out to be great habits. And the result is that you receive full knowledge of where every dollar you own is going. You can easily track your net worth. I credit YNAB with saving me hundreds of dollars every month, especially when I first started using it.

And the second lesson from Sadie’s sniffs is simply to remain curious. For you, it’s more about your personal finance education than holes in the ground.

For example: just Google “Buy vs. Rent.” It’s a classic question for the young professional. Do I buy a home, or rent an apartment?

The answers you find will be diverse, conflicting, educational, confusing (and confused), simple, complex, etc. A thousand bloggers — and even a couple experts! — have their opinions whether renting or buying is best and why. And within all those opinions, you’ll find some kernels of truth that apply directly to you.

Sticking with the first answer you find is unlikely to lead you to the best answer. Stay curious, keep learning, and understand why certain answers are what they are.

Don’t Binge Your Resources

Ok, Sadie is still working on this one. Left to her own devices, Sadie will eat a cup of kibble in about 17 seconds, and then promptly look at me for more. Since I want her to maintain her sleek build, I resist her puppy eyes. But it’s tough.

In a way, Sadie’s consumption reminds me of a common financial cautionary tale. Maybe you’re already familiar with it. The trope involves someone spending the majority of their paycheck as soon as they get paid, only to then look elsewhere — presumably with puppy eyes — in need of more money.

Don’t spend all your money in one fell swoop. In food, we’d call that rationing. In money, it’s called budgeting.

I don’t really need to explain it any further. You get it.

Give When You Can, Take When There’s Enough

Note: This is just one stranger’s (a.k.a my) opinion. Don’t take it as gospel. And don’t feel like you need to listen to a dog nor a biased dog-owner.

We first got Sadie as a foster in May 2020 (yeah, we “foster failed,” adopting her ourselves). She was a stray in Houston, found on the street along with her three 6-week old puppies. We (and Sadie) took care of those puppies for another two weeks until they all got adopted out. Yay!

puppies on a step

When Sadie arrived, she weighed 26 pounds. This (still) makes me sad.

Sadie’s food intake (a.k.a. street scraps) and energy stores went towards feeding her kids. Not enough was left for Sadie. She was just following her natural hormonal protocol — feed the babies. It probably wasn’t what humans would consider a “conscious choice.” Nevertheless, Sadie gave a lot.

And then she came to our home. We were able to give her plenty of dog kibble, but also eggs, sweet potato, pumpkin, cottage cheese … lots of high-calorie foods that are recommended to help dogs add weight. And Sadie took advantage.

She’s now a healthy 41 pounds. Her fur looks great. She goes on boat rides and camps in the woods. Her name-tag petitions readers to “Rub My Belly!”– it’s her favorite! She’s a long way from the streets of Houston. Great success!

happy dog on a hike

A lot of us (you know, humans) find ourselves on both sides of this story at one time or another.

Sometimes we’ve got enough resources to give them away freely. To lend a hand. To volunteer. Helping others. To give to charity. To rub a belly in need.

At other times, we’re the underweight momma dog looking for any port (pork?) in the storm. And if there are enough eggs and cottage cheese to go around, there’s nothing wrong with taking full advantage of that meal.

Even a dog knows to pay it forward.

The Tail End

It’s nap time for me. This dog’s guide to personal finance is exhausted. 

Hopefully Sadie’s adventures will remind you to:

  • Bury some money for later
  • Automate your personal finances, like instinct
  • Know when you’ve f’d up and learn new tricks
  • Stay curious — sniff new smells
  • Don’t consume all your resources in 17 seconds
  • Give when you can

If you’d like to see more dog pics or read more interesting articles (let’s face it…it’s the dog pics), I publish weekly at my own blog, the Best Interest.

Have a great weekend!

from Finance https://www.budgetsaresexy.com/a-dogs-guide-to-personal-finance-%f0%9f%90%95/

What Is Net Worth? (Plus How to Calculate Yours!)

What Is Net Worth? (Plus How to Calculate Yours!)

Who wants to be a millionaire? Everybody, right? But how exactly do you get there? For starters, you need to keep track of your money to see where you stand! Your net worth is one way to measure how much money you have at any given time.

When you change your saving and spending habits, your net worth changes, too. It’s important to keep track of your net worth over time so you understand whether you’re on track to reach $1 million — or whatever your big financial goal is.

[Check out J Money’s story — he tracked his net worth over 11+ years on his journey to becoming a millionaire and he shows you exactly how he did it!]

Here, we’ll show you how to track your personal net worth.

What Is Net Worth?

Your net worth is the difference between what you own and what you owe.

Things you own are called assets. Things you owe are called liabilities.

What Is a Financial Asset?

Again, an asset is something you own. These are all examples of assets:

  • The money in your bank account and savings account
  • The current market value of your retirement account
  • The current market value of anything in your investment accounts
  • Your home (aka your primary residence), if you own it
  • Your car, if you own it
  • Valuable antiques, jewelry, heirlooms, etc

What Is a Liability?

Liabilities, on the other hand, are things you owe someone else — anything that takes cash away from you. Some examples:

  • Your mortgage loan
  • Your auto loan
  • Your student loans
  • Credit card debt

Together, the difference between your total assets and your total liabilities makes up your net worth.

Your number will either be positive or negative, depending on your financial situation. For example, if you have a lot of student loan debt, you’ll probably have a negative net worth until those loans are paid off. And if you have little to no debt, you’re more likely to have a positive net worth.

How Do I Calculate Net Worth?

To figure out your current net worth, you need to gather up all the information about your current assets and current liabilities. From there, you’ll have a starting figure to begin tracking your net worth for the years to come! (Remember, net worth changes over time, so this is a calculation you’ll have to do often if you want an up-to-date picture of your total net worth.)

There are a few different ways to calculate your wealth. For one, you can bust out some paper and a pencil and make lists of your assets and liabilities. When you’re done, subtract your total liabilities from your total assets to arrive at your final number — the total amount is your net worth.

Although it’s easy enough for a one-time calculation, the paper-and-pencil method isn’t the most sustainable way to track your net worth over time. An alternative to writing it out is to create a net worth statement using an Excel spreadsheet, which will do all the math for you and neatly organize your numbers into rows and columns. The spreadsheet method also sets you up for tracking your net worth in the future — more on that in a minute.

[Here’s the exact Excel template J Money uses — download it and start your own net worth tracking:  J’s Financial Snapshot]

How to Use Personal Capital and Mint to Calculate Net Worth

If you’re not really into spreadsheets or math, several apps and tools will do the net worth calculation for you. 

Two of the most popular options are Personal Capital and Mint.

Personal Capital is a free app that does many things, including calculating net worth through a tool called the Net Worth Calculator. The app allows you to connect to your financial accounts, which provides the numbers needed to do the calculation. 

Personal Capital will let you compare your net worth with the average net worth in your tax bracket or age group, which is great if you want to see where you stand.

[See our review of Personal Capital]

Another free app is Mint, which calculates net worth and contextualizes it with other factors like your credit score and budget. If you allow Mint to link up to your financial accounts, it determines your net worth and tracks its changes in a section of the app.

Mint’s “all in one place” model lays out all your assets and liabilities, allowing you to clearly view what’s helping you — and what’s holding you back — in your personal finance journey. 

Both apps tap into your financial information to calculate your net worth, but remember that this number is bound to change over time, so you’ll have to check the apps frequently to see your changes over time. No matter where your starting point is, tracking your net worth lets you understand these changes.

Why Should I Bother Tracking It?

So, now you know your net worth. Having your number is a huge step in the right direction! Now it’s time to track it, like J Money did.

Why would anyone bother tracking his net worth over 11 years? Easy: It shows your progress as you work to increase your assets and decrease your liabilities. Financial independence takes time and is a work-in-progress journey … monitoring your numbers shows your commitment to the journey.

It also exposes the strengths and weaknesses of your personal finance habits. You can see if your too-big car loan is holding you back from boosting your Roth IRA or retirement savings, for example. And you can see how making specific changes to your assets and liabilities affects your financial health.

How to Track Net Worth

Tracking your net worth might seem daunting, especially if you’re not a numbers person or don’t have much experience in personal finance.

But there’s no need to be afraid — because tracking your net worth is easier than ever thanks to all the finance apps out there.

There’s an overlap with apps that calculate your net worth and the ones that track it; most apps do both and integrate your bank accounts, investments, loan information and more to create a comprehensive look at your financial situation.

The best apps for both tracking and calculating net worth are Personal Capital and Mint.

Personal Capital has a dashboard of information that displays net worth tracking along with several other features, complete with visuals that clearly outline your finances and compare them with your peers’. Seeing all this information in one place is excellent for measuring your progress and putting it into context.

The portfolio tracker tool within the app is another way to evaluate your personal finance journey. Since the assets portion of net worth includes investments like stocks and mutual funds, this tool enables you to view all your investments over time and make informed choices based on these trends. The better your investments do, the more assets you acquire; this progress can potentially improve net worth.

Mint prides itself on including all your information in one place, and net worth tracking is just one of the services it provides. Its budget trackers also make seeing your day-to-day spending very clear. Because spending and savings both play a part in your net worth, understanding your regular spending habits can give you insight into what you can adjust to improve your overall wealth.

Mint also has a tracking tool for bill payments. With credit card debt plaguing so many people, keeping track of (and paying!) your credit card bills is one way to reduce your liabilities and to visualize the changes you may need to make to improve your financial situation.

The Bottom Line

Knowing your net worth is key to understanding your financial health and making smarter financial choices in the future. With so many apps and tools on the market, there’s a net worth calculator and tracker for everyone.

It might be hard to get started, but it’s absolutely worth it to get clarity about what’s building up your finances and what’s bringing them down.

What are you waiting for? Go get started. Here’s to your wealth!

from Finance https://www.budgetsaresexy.com/what-is-net-worth-plus-how-to-calculate-yours/