Could This Little Haircut Doodad Increase Your Net Worth by 100K?

Attractiveness.

The way you style your hair can drastically upgrade to improve your overall sex appeal, attractiveness, and what I call put-togetherness. What if you could avoid long lines at the barber shop while adding 100K to your net worth over the next 40 years? You can!!

The perspective I have on this is from the male point of view and works best with buzz cuts – it would be wonderful if we had any of our great female personal finance bloggers to help put the puzzle together for the community! Interested? Let us know!

First – What is put-togetherness?

Leaders and aspiring leaders in Corporate America have to look the part, to be the part. We’re told to dress and tailor your looks to conform to the managers or executives at least two levels from where you currently land on the ladder. Am I saying you have to do this? No. Am I saying it could help your overall income by getting you promotions? Definitely.

Joshua Kennon has written about signaling theory, and MANY of thought leaders write about your personal brand and image. Your clothes and hairstyle put out signals to others in your organization radioing to them what kind of person you are based on how you look.

Are you on top of your tasks? Do you look like a leader? Do you have the mentality and look of one?

This is what I consider to be the metric of your “put-togetherness,” and I would posture that it’s important to back up the signal with excellent work, and strong work ethic!

Although we’re taught not to judge a book by its cover, reality proves people do.

James Bond is the epitome of being put together!!

James bond in black and white, leaning on his aston martin from one of the old james bond films.
Image is taken from https://3brothersfilm.com/blog/2015/04/james-bond-007-sean-connery-roundtable

Haircuts aka Time Sucks

Keeping the external appearance of your put-togetherness requires regular grooming, aka haircuts, aka TIME SUCK!

You can walk-in and risk sitting FOREVER before getting a seat, or you can make the call ahead of time for your spot. Either way, our time has been spent doing so. Next, you have to most likely drive or bike to the salon or barber shop – yes, even more time. Finally have to get your hair cut, describe what you would like and small talk for 30 minutes while the work is done by the barber. After this is all said you done, you pay, leave, and drive home.

Two hours later you are groomed and have your put-togetherness one point closer to 10/10! All of these steps are required on a regular pattern since our hair just keeps growing!

Wouldn’t it be great if we could get a haircut and keep stop our hair from growing until we were ready to switch styles? Don’t even get me started on shaving…

The Numbers

Cost and Frequency

Cost:

According to Square data – the average haircut in the US cost $28 for men and $44 for women. Averaging these two out, we get $36 per haircut.

This can really take a chunk out of a budget each month, or more depending on how often you go!

Frequency

Unable to find any available data on the average haircut frequency, I will use myself as the guinea pig.

Short haircut styles ->

I easily go to the barbershop. The haircuts are much quicker but still require a line-up, a process where the barber edges up the lines of your haircut with a trimmer and straight edge razor. We’ll say on the 1st and 3rd weeks of the month is when I get the full haircut (costing $25) and on the 2nd and 4th weeks, I get my hair shaped up ($15). Totalling to $80 a month!

Long haircut styles ->

My haircuts are much less frequent when rocking out the longer haircut styles or mohawk like J. Money. The difference is the need for a saloon versus a barber, meaning I spend more money per cut. Typically this will run up to the $40 amount and happen twice a month.

Both styles can total up to $80 dollars a month.

SN – I don’t actually follow this schedule because of my Great War of Debt, but my put-togetherness does decrease because of it. Part of the sacrifice!

Gas ->

For number’s sake, we will assume that heading to your barber shop cost you 1 gallon of gas per month – costing on average $2.50.

It isn’t much but hey every little bit counts!

Time ->

If you make at least $50,000 a year, your hourly rate will be at least around $25 / hr, not including taxes and/or commute expenses.

4 haircuts a month, each takes 2 hours of your time with travel included – 8 hours total.

In summary, in one month your haircuts cost the following:

With time factored in

$282.50 = $80 + $2.50 + (8*$25)

Without time factored

$82.50= $80 + $2.50

At least coffee makes you more productive right?

What’s the Alternative? Save + Invest!

Would you believe me that if you cut your own hair for 40 years instead of buying haircuts, you would have ~$100,000 more to your name????

A chart and report from bankrate.com showing the investment path getting to 98 thousand in 40 years.
Calculator used here: https://www.bankrate.com/calculators/retirement/investment-goal-calculator.aspx

Here’s how much could be saved even without investing it (no inflation factored in)

  • $80 a month
  • $960 a year
  • 19,200 in 10 years
  • 38, 400 in 20 years
  • 76,800 in 40 years

Chris! I’m interested – where do I start?

There are two required steps.

Step 1 (required): Buy haircut clippers, an interesting doodad

Here are clippers create for self-haircuts on Amazon:

Reminginton Clippers

Haircut clippers that fit in the palm of your hand - red and silver, with blades for the actual cut.

This gadget was created specifically for self haircuts and it is wonderful to use – Master Duke tested and approved!

Step 2 (required): Watch the How-To Cut My Own YouTube Videos

Here’s the link for searching:How to Cut my Own Hair on Youtube

Or here’s a video to make life easier for you:

That’s it. You’re Ready!

Did you use the article to save money? Post a comment with a picture of your new haircut!!

Let us know in the comments if you have any tips for saving money or if you cut your own hair! We’d love to hear from you.

Enjoy the article? Rate it and share it with your friends – this is an easy go-to for cutting out spending! Pun totally intended!!

Thanks for reading and have a great Thursday!!

DoD Health Savings Account (HSA) 101: What, How, and Why You Should Take Advantage

A white background with a doctor's silver stethoscope and heart charm.

Welcome fellow Dukes! Today’s the day we talk about our first step to fortify the kingdom with extra defenses!! Just to quickly catch up on what you’ve accomplished so far (celebrate this!) – let us review:

First things first, you laid down your foundation by filling your coffers with cash each month, creating a budget to track it, and made the commitment to financial stability. Following the foundations, you constructed the walls, roof, and windows for your kingdom through your company 401(k) match, emergency fund, credit card, and building yourself a milestone map.

Now it is time to put up your first defense (if you qualify), a Health Savings Account (HSA)!

A white castle's door with two large columns leading to stairs. Two cannons sit at the top right in front of the columns.
Let’s rock and roll!!

What in the world is a Health Savings Account?

Official Definition:

“A type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. A Health Savings Account can be used only if you have a High Deductible Health Plan (HDHP).”

Referenced from the HealthCare.gov website.

Duke of Dollars Definition

A savings account you can profit from by creating another pre-tax investing opportunity (3.4K for self-only HDHP coverage or 6.7K for family) to save tax mula.

HSA money grows tax-free until withdrawal after age 65, where it will be taxed at your income tax bracket, or, the same invested money can be used for qualified medical payments, without being charged the tax for use. Stated differently, a tax-free contribution and tax-free distribution to pay those expenses.

For us FIRE chasers, we can save on uncle sam’s tax bill while growing pre-tax money alongside your 401(k). For self-only HDHP covered individuals, this means almost $22,000 (maxed out HSA + 401(k)) can be reduced from your tax bill each year.

That’s $5,500 if you are in the 25% tax bracket!!

Add in another $5,500 from your a traditional IRA (if you choose to do so) and KAMBAM!

$6,827 saved on your tax bill!

Savings based only on a federal 25% tax rate.

An older gentleman smiling with money floating in air all around him.

We will go into more specific details on HSAs below.

A Bit of HSA History

Clinton Beginnings

The Clinton Healthcare Plan sparked a national debate over the government’s involvement in the medical profession. The debate continues even today with the question: “is health care a right or a good?” We are not going to get into the political debate here, only highlight it being part of the HSA’s history. Medical Savings Accounts came first from Clinton, leading to HSAs later from President Bush.

“Archer MSAs were created to help self-employed individuals and employees of certain small employers meet the medical care costs of the account holder, the account holder’s spouse, or the account holder’s dependent(s).” – From IRS Publication 969

Archer MSAs allowed eligible individuals (limited those meeting the following: didn’t have health insurance, were self-employed, or small employers with 2-50 employees) to save for future qualified medical expenses. The limited eligibility didn’t deter Americans, as they were widely used and accepted.

Bush’s Expansion

With President Bush promising to expand MSAs, he did just that through Medicare expansion. He changed the name from Medical to Health Savings Account and required them to be linked to High Deductible Health Insurance Plans. MSAs still exist today for small employers or self-employed individuals with an HDHP.

Both MSAs and HSAs mixed capitalism with socialism within the US medical profession. The HSA was officially Approved by Congress in 2003 and became law in January 2004. For those in High Deductible Health Plans, the opportunity to take advantage of the new accounts began!

How can you qualify for an HSA?

Straight from the IRS:

Qualifications

  • You are covered under a high deductible health plan (HDHP)
  • You have no other health coverage except the following:
    • Liabilities incurred under workers’ compensation laws,
      tort liabilities, or liabilities related to ownership or use
      of property.
    • A specific disease or illness.
    • A fixed amount per day (or other periods) of hospitalization.
    • Coverage plans for the following:
      • Accidents.
      • Disability.
      • Dental care.
      • Vision care.
      • Long-term care.
  • You aren’t enrolled in Medicare.
  • You can’t be claimed as a dependent on someone
    else’s 2016 tax return.

What is a High Deductible Health Plan?

An HDHP has the following characteristics:

  • Higher annual deductible than typical health plans
  • A maximum limit on the sum of annual deductible and out-of-pocket medical expenses that you must pay for covered expenses.
    • Includes co-payments and other amounts, but not premiums

HSA Min/Max Amounts

 Self-only coverageFamily Coverage
Minimum annual deductible$1,300 $2,600
Maximum annual deductible and other out-of-pocket expenses (in-network)$6,550 $13,100

If you meet the minimum criteria here, and the qualifications above -> you are golden to open your HSA!

You still qualify for an HSA if your HDHP provides preventive care benefits without a deductible or with one less than the minimum annual deductible, such as periodic health evaluations (physicals).

Contribution limits?

  • Self-only plan? $3,400
  • Family plan? $6,750

For those who are of age 55 or older at the end of your tax year, you can contribute an additional $1,000 to your HSA.

What if I’m married and we have a family coverage from each employer?

The IRS states that if either spouse has family HDHP coverage, both are treated as having that coverage. This means that even if both spouses had family coverage qualifying for an HSA, the total that family can contribute is $6,750 total – even if both spouses have their own plans.

Can my employer contribute?

Yes! Employers can directly contribute to your HSA, your spouse can as well. The imperative point here is these contributions count towards the limit, unlike 401(k)s.

In other words, if your employer contributes $3,400 for the given year to your self-only HSA qualified plan, then you can’t contribute.

HSA providers require specific balances before you can use your HSA as an investment account vs a savings account. We will talk more about this in part 2.

Do I lose it if I don’t use it?

HSA account balances roll over each year. Further, if you were to change jobs and you opened your HSA through that employer, you are still in control of that account and your money. Similarly to 401(k)s.

A guy with a dumbfounded face with text "Huh, wait wut"

 

 

 

Even more awesome is that if you were to save receipts from your doctor visits starting today, even if you paid with after-tax money, you can utilize those receipts later with reimbursement coming from your HSA balance. Talk about an interesting emergency fund strategy if you wanted an extra backup plan (almost like plan Z?).

Concluding thoughts

HSAs can be a great vehicle to take advantage of pre-tax investing dollars and tax savings. We’ve only just hit the surface and will go into more details on opening an HSA, investing in an HSA, and utilizing it in your Kingdom’s plan in our next post.

Do you currently use an HSA? Have you found it useful? Let us know in the comments!

Thanks for reading and let us know if you have any questions!!

 

 

 

3 Reasons: Why We Should Say No to Emailing Personal Information to Companies!!

Our Fellow Dukes!

How is life? Jack and I have had quite the schedule the last few weeks, and hope to get back into the groove of writing as the summer weather ends. We aren’t giving up on the blog nor getting bored with, in actuality we still talk about it pretty much every other day lol!

With that being said, I’ve recently been thinking about refinancing my car loan to a better rate, and want to talk about why it is very important not to use email as your document exchange medium. I mean we all know about the Equihax – Jack wrote about it on the 19th.

It gives evidence that your personal data is your personal responsibility….since we can’t even trust the credit data aggregators (who we don’t even give permission to hold our data to secure it properly). Let’s jump into the reasons why email should be off your list when it comes to passing information that could be used in identity theft.

1. Email is insecure

Before getting into a few the risk of emails, I’d like to dive into how the Internet works at a high level when you send an email.

  1. You login to your email, write your message, and hit send to email blah@gmail.com
  2. The message travels across many routers, switches
  3. The message finally reaches your destination email server (like gmail).
    1. Servers are things that provide hosting on the Internet, for example Duke of Dollars is hosted on a server, which serves the content)
    2. While the Google email server is trusted, and uses SSL to encrypt traffic (the small lockbox you see on most browsers by the URL), it can’t guarantee that the multiple servers you go through to get there are. If you are on your work email, and send something to Google, that means it has to travel from the work email server to the Google server. The email travels through various routers and switches to get there.
  4. The message finally arrives to blah@gmail.com, with no idea whether or not that person has forwarded it to others or posted its contents on a black market site for identity theft

Here’s a nice visual representation from the Kavi Help Center

The whole process and protocol was developed years ago, near the dawn of Internet and has been a vital part of our communications once it took off. The problem with that time, security wasn’t in mind when the protocol was created. Yes, measures have been taken to improve it, but that doesn’t make it the best option.

Messages aren’t encrypted

Most of us don’t have encryption set up on our email clients (Outlook for example), so when we send an email, if that email found itself in the wrong hands, then they can easily read it. It is in plain text, no decryption key necessary.

Emails can be kept on servers for a long time (who knows how long Google keeps those emails in backups?)

If you’re using your ISP (Internet Service Providers) email service, and it is a small rural company – can you trust them the same way you trust Google? Probably not. They may have your plain text emails stored on servers for a very long time. If someone accesses them or intrudes their network, your emails are there for the taking. Add in the attachments you sent to your refinance company, and KABOOM -> ID THEFT RISK!

Many people don’t use 2-factor authentication

What in the world is 2-factor authentication? If you log into your email using your awesome secure password with 2-factor authentication enabled, then you will then be asked to authenticate another way in addition to the password. It could be authentication apps, email, or SMS. I recommend the authenticator app from Google or Microsoft.

By using these apps, if your password was compromised, your account has that extra level of security to keep you safe! You don’t want hackers emailing your family distribution list messages of profanity or other ridiculous spam.

Multiple platforms

How many different computers, tablets, and phones do you have logged in for your email? So does everyone else. Each one presents another risk to the security of those emails, as they again (broken record yet?), are in plain text for anyone who accesses any of those devices can easily read.

2. Secure Messaging Platforms are a Thing – Use Them or Lose The Company!

Many banks have secure messaging as part of their overall online experience. Have you ever received an email requesting you to login to view the secure message? Great!! That’s how it should be done.

Companies do this because they control the security of the message, make sure it is transferred over a secure encrypted Internet connection (the SSL lock), and require you to login to see it. It’s not transferred out and about, and not stored in plain text on their servers.

This is the way we should be communicating private information with regards to identity thefts with our bank, loan, etc companies. If they don’t have one…they shouldn’t have you as a customer :).

3. Companies should be held accountable

Like I mentioned above, refinancing my car loan has been on my mind. The main reason this post was written happened to be inspired from the process.

The Beginning

At the early staged of the process, personal information was requested from me and requested to be emailed back. I refused to do so, and gave some information on why this isn’t secure and shouldn’t be practiced at any company handling loans. They gave me the option to mail them instead. Like the real mail service, not electronic – I’m super old school.

The Middle

As the process continued, a secure message was sent to me requesting a few more documents. The documents were attached in the secure message – boy I was impressed and happy they did it. I was very appreciative of this as they contained information that I’d rather not be emailed.

The audacity

Hours later, a co-worker from the same company had sent me a new email. I open it, see the attachment, and couldn’t believe my eyes. THE SAME DOCUMENTS were sent to me over email. This was after asking not to have them emailed to me from the beginning! I wrote up a nice professional email stating to not send my document over email, recommended not sending any documents over email, and instead use their own secure messaging platform.

The takeaway I want to leave you with here…it is not only the companies responsibility, it is also on you to say no and scold them for doing such a thing! They shouldn’t request or send you any documents over email!

As my blood was boiling (it is still jittery with Equifax hax), I send the email over. And with an absolutely low climax ending, I went on with my day.

Conclusion

Have you ever been asked to email personal information? Have you did it in the past?

I have did both before learning it wasn’t the best method of doing so. Definitely hope this post inspires you to hold companies accountable with your information, at least with most companies you are volunteering your information to through applications (contrary to the darn credit companies).

Have a great week! Let us know what you think!

One Huge Step for Creating The FIRE Future You Desire! Create a Milestone Map P2

Milestone Map - A map of the world with a small business man with a briefcase standing on top of it.

Welcome to part two of creating your why, purpose, and milestones towards the financial future envisioned for you in the years to come!

In part one, we asked – “sacrificing instant gratification with the promise of a prosperous future – you begin to ask, why am I doing this?” From there, we answered the obvious question from a series on milestone map creation; why make a milestone map?

Where shall we go from here?

Prerequisites

Let’s begin with a few activities required to create a financial roadmap for you. We believe in you and know you can do what it takes to figure this out, as it requires a bit of work to begin!

State of the Kingdom

  1. List of all debt accounts with their interest rates
  2. List of all investment accounts
  3. List all other assets (cars, real estate, etc)
  4. Determine your net worth

Commit!

Read more on this important step in Committing to Financial Stability – Are You Brave Enough?

Strategies

  • Arresting Expenses
  • Increasing Income
    • Raises / Promotions
      • We’ve talked about a few skills that can boost your earning potential in step I of the roadmap: Build Consistent Income
    • Field
      • Are you in a great field or doing things you love? Awesome. We don’t mean to offend only to show that there are options for higher salaries based on switching your career field: 2017 25 Highest Paying Jobs
      • Some of the top jobs require years of service and career building, so if you are later in your career or just finishing a degree we don’t recommend going back to school (especially if taking on more debt) unless you truly think it makes sense for your situation
    • Side Hustles
  • The important thing to remember!
    • Whether it is through arresting expenses, increasing income, or maintaining your current state – the important number related to your financial independence is? Net worth!
    • We have two levers to change our net worth each month

Milestone map decision flowchart

To guide our fellow dukes on their positive personal monetary policy, we created a simple flowchart to use throughout the process outlined below. Where does it fit? It prioritizes the milestones to focus on as you continuously build your kingdom.

Milestone flowchart to determine which direction you will take for your financial kingdom.

The flow chart guides you to what we believe the most efficient approach from a pure numbers perspective towards financial independence. We have no quarrel if deviation happens for a compelling reason – comment or contact us for questions!

Create your map!

We are here to help, but only one person can do the work required in this part of the process. That person is you! I’ll be doing my best to guide you on the steps with the hope you will do your part too. By creating this map now, you can easily update it as life changes and with your “why am I doing this” in place, you have the motivations you need to stick to it. Build that kingdom!

Milestone Map Step 1: Walking through the flow chart

Emergency Fund:
  1. No emergency fund? -> Determine the requirements for reaching the recommended level
  2. Contributing to 401(k) match
  1. Your company has a match -> invest into your 401(k) to receive that match!
    1. Deciphering the 401(k)
    2. Do you like free 401(k) contribution money? Contribute to your company match and get yours!
    3. Choose funds for your 401(k)
Pay off high-interest debt

Three approaches:

  1. Snowball method
    • Starting with the lowest of your high-interest rate debt balances, begin paying off the one with the lowest balance. Once that account is paid off, then use the payment from it and begin paying off the next largest, then repeat until the snowball has wiped out all high-interest debt!
  2. Highest interest
    • By paying off accounts with the highest interest, you will save money by paying less interest on the lower balance. Rank your debt accounts highest interest to lowest, begin by paying off the highest!
  3. Loan Pool
    1. We’ve discussed this option here: Average Student Loan Debt in the US = 30K! Find your third alternative solution & pay it off intelligently!

Based on your chosen approach, create a milestone in the order of the approach for each high-interest account. We’ve chosen six percent as the cut-off based on the stock market earning 7% average returns in the past, meaning you can earn more on investing money than paying off the debt if the interest rate isn’t higher than the returns.

Maxing out your retirement accounts

Create a milestone for each retirement account with the clarification of (ANNUAL). These accounts can be different based on your employment type (self-employed, salaried, part-time, etc.). Yes, this means you will need to max them out each year! It is worth it.

Tax-advantaged accounts are quite helpful for pulling the “cash in” lever mentioned above. Whether it is dividend investments in your Roth or index funds in your 401(k). Appreciation or income both increase your net worth while saving you tax from the big man!

Consumer Debt

We are huge fans of removing consumer debt from your life before focusing on brokerage accounts if you have a debt free goal. Why? As you know from The Great War of Debt – it has a lot to with peace of mind.

Look, we know this can be debated and we understand why. I’m in the camp of peace of mind because accelerating my outside brokerage accounts once those required payments disappear looks appetizing, further it will be a much stress-free life when you know that losing your job doesn’t mean late payments on those debts.

Is mortgage included here? An Answer to the Timeless Question, Should you pay off your mortgage?

If in agreeance – your next milestones will be the highest interest consumer debt accounts in order -> with the overarching goal of debt free if you are including your mortgage.

Brokerage Accounts and/or Real Estate

The milestones for you depend on what you believe in and what you want to do from here. It can be $$ invested in specific accounts or a specific dividend income each month. We will rely on you to decide, with the end goal of increasing your net worth through asset building!

Create these milestones and you’re almost there!

Last Milestone:
  • Net worth target
    • Determining your required net worth (assuming it is generating income, for example, stock returns via growth or dividends), then you can do simple math at the early stages of your journey, increasing the evaluation and developing your strategy as you learn more. The simple math is based on a general rule of being able to withdraw 4% of your assets without losing them based on a > return from historical averages. This means a 40K income would require 1 million in investments. The simple math: income * 25 = required net worth or investments.
  • Passive Income target
    • Instead of a net worth to determine your retirement status, using passive income to generate the required inflow of cash into your bank accounts to live off of can be an alternative milestone for you

Milestone Map Step 2: Write down smaller milestones to celebrate

If you have 3 high-interest accounts, then please celebrate the pay off of each one! Reward yourself!  If you have the 1 million-dollar investment goal from the example above, then celebrate reaching 100K, 250K, 500K, and 750K. By the time you get to 1 mill, it will just be another small goal on the list!

Develop these mini goals for each of the milestones created in step two. They are your check-ins, your time to adapt, or time to see how much you’ve accomplished and where you are going. It assists in prioritizing your life and spending habits, and upgrades. These are not just goals on a piece of paper, they are your life – the future you want. Make them count!

Map - Many people letting balloons go on a beautiful blue sky filled day in celebration of life.

Milestone Map Step 3: Determine your timeline

For each of the milestones you created in steps one and two, give yourself deadlines to achieve them by – it is up to you to keep yourself on track and honest. Based on your current situation, will these goals take a long time? It’s OK. Why? You have changed your focus and your path. You can side hustle to beat deadlines, but “doing something” beats doing nothing every time!

We can’t walk you through creating the timeline based on your circumstances, only recommend you take a look at yourself, your position, and realistically determine the time you need to step into the life you want. The best part about having the map determined – being able to adapt and change it.

Personally, I don’t know when I’ll reach the net worth required for me to retire yet. I do know based on my current kingdom state that theres a great change in two-three years my consumer debt will vanish. Maxing out retirement accounts and vanquishing debt takes work and sacrifice – this is my current obsessed focus and when it is completed; my current state will change. The next step for me will then be brokerage account investing, and then I will develop the next part of the plan.

Like Warren Buffet and Bill Gates said from the documentary we recommended – the one word for their success throughout the years? Focus. By writing a map and dictating your next goal (in accordance to the long-term dream), you have the opportunity to focus and complete; then, move on to the next one. Begin by knocking out milestone #1, then #2, and watch your net worth grow before your eyes!

Milestone Map Step 4: Define your next steps!

Based on the milestones created in step one, you now have the order in which your next steps will be executed. We recommend Mint and Personal Capital for tracking your accounts, with the addition of Excel or another spreadsheet option to track your goals.

Print out your milestones and put them somewhere you see often – seeing is believing, and believing results in action! Focus on the next milestone and dog on it – get that thing completed :).

Stay on the path!

The last note we wanted to reiterate – the importance of celebration + reinforcement. We commented on My Sons Fath’s Post to give our humble opinion on why we truly believe it is the process, not the results that make financial independence and investing so much fun (not to mention challenging)!! The screenshot is below for your convenience (click to enlarge).

This is one reason we love being part of the personal finance community. Having others feeling, writing, and sharing with each other gives us all the opportunity to learn and support!

Start traveling today!!

Congrats on completing step VII of our Build Your Kingdom road! In the future, we will have posts on creating an investment plan, analyzing amortization schedules, and sharing spreadsheets to help. These can be utilized to track and adapt your milestones with more accurate timelines, giving you the full picture of when and where you need to be! You have the map for your future financial travels. Start traveling today!!

As always, thank you for reading and we look forward to hearing from you in the comments below! Subscribe to our Pigeon Service to get new posts directly in your inbox!

One Huge Step for Creating The FIRE Future You Desire! Create a Milestone Map P1

Milestone Map - A map of the world with a small business man with a briefcase standing on top of it.

You’ve walked down VI of the XIII steps of the roadmap. Your army of greenbacks continues to grow and budgeting flourishes as a habit. You were brave enough to make a commitment for a better tomorrow and began investing into your 401(k). Emergencies are easily affordable for you – your credit has begun to reach new heights. With your foundation set, walls constructed, and roofing placed, your queen continues asking when will we be able to see through the castle to the world beyond?

“My dear queen, we have reached stepped VII. The workers will begin installing windows at once!”

Answer your why

As an elite of the land – sacrificing instant gratification with the promise of a prosperous future – you begin to ask, why am I doing this?

  • Why am I saving so much now instead of buying the BMW I’ve always wanted?
  • Why am I biking to work when I could be riding in said BMW?
  • Why worry about investing now, retirement isn’t for 50 years!?
  • Why am I reading this blasted blog with a silly metaphor trying to build a financial kingdom?

What’s your why?

We can’t answer this one for you. Being financially smart now in order to be financially stable later requires sacrifice. To continue making decisions that favor your future, one must have a purpose for doing so.

I can tell you why my path has been chosen this way. In the future, I want to do the following:

  1. Provide for my family and children
  2. Be a dictator of my time for projects that impact the world
  3. Mentor and inspire the next generations of America to achieve anything they want in the world
    • One of the most important pieces of being a strong mentor? Time. Time is hard to find when 40+ hours are scheduled for you each week!
  4. Travel to various places around the world, opening my family’s mind to new perspectives
  5. Live a wealthy life. Wealthy in good company, new experiences, and great relationships

Before creating new milestones and a map – you must define this purpose. When your priorities are challenged by the UAWs (Under Accumulators of Wealth), remember your purpose, then answer with a resounding assertion as you bypass their consumerism! Live with patience. You are destined to be a PAW (Prodigious Accumulators of Wealth) Master Duke ranking instead!!

Why make a milestone map?

The road to building one’s financial kingdom takes many years of time. Writing down long-term goals with smaller milestones keep us on the right path; also, it provides evidence of accomplishing them!

Here are four reasons we feel taking the time to create a map uses time wisely:

Direction

We’ve talked about a direction in the past, and still believe in it is one of the biggest personal finance motivating factors. It gives you the why and also the rough timeline, pushing you towards your desired kingdom’s outcomes. It lends itself to providing ACTION, instead of wandering around earth hoping good will happen to you. An excellent article to add to this perspective comes from one of our favorite bloggers: If You Want To Be Miserable, Broke, and Unhappy, The World Won’t Stop You

“There is a saying that, “Until the pain of staying the same becomes greater than the pain of change, you will never improve.”  It is one of the most succinct explanations for what psychologists call “intrinsic motivation”.  Nobody else can do it for you.  The only thing that works in the long-term is changing your heart so that the you make decisions consistent with your goals.” – Joshua Kennon

Do you truly want financial independence or want to make sure you always have food on the table? Prove it. Make your map with deadlines. Keep yourself accountable and take it one small step at a time!

Clarity

Can you answer the following questions?

  • How much money do I need to live the lifestyle I envision?
  • What net worth will allow me to feel financially safe?
  • At what age do I want specific salaries or net worths?
  • What are the 2-3 main reasons I want financial independence?

Easily answer them all? Awesome!! You already have clarity towards the money goals in life.

Unable to answer? Please take some time to this weekend with notebook and pen in hand. Start with the following:

Starting with the 20 years from now mark

What monthly income would give you peace by looking into your bank account, knowing you can easily pay all of your bills and savings goals, then use extra to do anything you dream of in your life. The amount that when you see green text in Mint each month, lets you take a deep breath and say to yourself “I’ve done it!”

Move on to 10 years

Reasonably, what monthly income can you generate per month 10 years from now? Would you be able to double that to achieve #1? Will you still be working? What is the salary you can be paid based on the career you will achieve? Where will the other income come to hit that monthly goal?

You can estimate your salary in 10 years (3% average per year) and side hustle income (or business). Do you need to figure out how to make more? Do you need to arrest more expenses to lower your FIRE number?

5 Years from now

Are you certain that you will be promoted within the next 5 years due to the work you’re doing now? Can you estimate the salary you will have? Estimate investment account contributions such as 401(k), IRA, or outside brokers.  Create loan amortizations on your current debt – can you pay it off before the 5-year mark? Do it!

Five years seems so far, yet the decisions you make today will start showing up in time. Personal finance goals test our muscles that say no to instant gratification often. You can always help accelerate them by doing something awesome like living in a camper to pay off 50K of debt in 11 months!

The point here I’m trying to make – use the decision flowchart (in post 2 of the series) to plot out your next moves now, creating that envisioned future in 5 years! Planning + execution pays more dividends than Hershey over the years!

3 Years from now

This marks a great milestone check up year. Are you on target for the goals you set 2 years from now? What about in 7? We understand these estimates can change due to life – no biggie. Plans are always subject to change – use this 3 year from now mark to take stock of where you are.

Is the promotion prospect still looking good? How are your debt payments or student loan accounts looking?

Make the changes that are required to adjust your budget or side hustles to get where you need to. Turn on BEAST MODE and grind. Do what you have to do! Make your dreams happen!!

1 Year from Now

What can you do starting today that will make you reach your financial goals, build your kingdom, and fortify your personal monetary policy?

Chris’s example:

One year ago, around this same time, I had enough! Enough of the student loan payment and car payments consistently taking down my greenback reserves. It was time for a change!

Talking with Jack and making a plan, it was decided. My Great War of Debt would begin at the beginning of 2017. What did that entail? It meant finding an apartment in the proximity of work and developing my wardrobe to prep for a shopping ban. It meant making a 5+year investment plan to realistically determine (numbers don’t lie) when I could end the war. It meant that for the next two years+ I would be making many sacrifices, so I could enjoy debt-free life later. Here I am, 7 months in, with only 2 new pairs of shoes (wedding attire) and ahead of schedule by 5 months (update to come next week).

Without a plan or a way to track my progress, I wouldn’t be eyeing it each month like a hawk. The motivation to accelerate it would not be knocking on my budget’s door. Each month I see how debt payments cause me to put some of my goals on hold. Still, I must find the balance to enjoy the life I’m working towards. I’m comfortable and confident in the decision all because, in five years, the fruition of my future will begin to be realized. It’s all part of the plan!

Why am I sharing this? Because as even Tony Robbins mentioned in his book – anyone can do it! Anyone includes you! All we must do is define what we want with some type of map, then begin traveling towards the final destination!

In post two of the series, I’ll be posting the spreadsheets talked about in this post along with our flowchart :).

Celebrations + Reinforcement

We beckon you to join us in having both long-term (20 years) mixed in with short-term (1 year) goals for motivation. Celebrations for smaller milestones should definitely happen throughout the process. In part two of the series, we’ll talk through creating number based goals. For example, paying off debt by X year. This should be followed by “take the trip I’ve always wanted to the grand canyon.”

No one can sacrifice their whole life without rewards. Incentive bias in psychology proves over and over the importance of having it. Incentivize yourself with an award; watch your brain continue to make the right decisions to achieve it!

Milestone Map - A picture of the Grand Canyon with a blue sky.

Prioritizing

Last, but certainly not least, prioritizing decisions in your life becomes much easier when you have distinct decision factors. It’s much easier to say no to an expensive bar + gambling night when you know that money will make you miss a goal on the map. Sundays become food prep day with your family instead of Netflix and relax, easing the “no I can’t make it to lunch this week because I prepared all of my food” response to work lunches.

Every single money decision has a direct correlation to the goals on the milestone map; making each decision weighable against the milestones you’ve created. Becoming the executive of your life leads to great confidence; it is a great feeling indeed.

Concluding Thoughts

Thank you for reading. In part one we explained what and why we recommend our fellow dukes to create a milestone map. In part two, we will walk through creating one – resulting in a milestone map for your family! We truly believe in doing this as you travel down the road, and hope to help create this mindset for you!

As always, thank you for reading and we look forward to hearing from you in the comments below! Subscribe to our Pigeon Service to get new posts directly in your inbox!

 

Stupidly Simple Free Entertainment Resource? Your local library!

library - A drawing of a red dragon with a blak knight in armor riding on its spine.

Vivid pictures of dragons breathing burning red flames over the barracks you defend twist and turn in your mind – living the battle scene like it’s a fight for your home land. You look to the left and right, soldiers are fighting for their lives beside you. Smells of smoke and the feeling of sweat pouring out for your pores from the fire the dragon spews. The great dragon flies over with his rider. You look up visioning the shining bright red scales, light reflecting off them like mirrors – you imagine the feeling of the holding on the saddle as you ride over the abyss, taking in the view feeling exhilarated! Your favorite characters become friends as you root for them to succeed throughout the pages you flip, learning more and more about their story.

Hours upon hours of living in your imagination as authors transport your thoughts into a world they create through words. Entertainment all at a zero cost to you! How? My young grasshoppers, the forgotten library remains one of society’s greatest gifts for those on the path to building their financial kingdom.

The History of the Library

Time traveling back to the 1730s, books were affordable only to the rich clergy members and not easily borrowed by the public. Why not? There weren’t libraries for those living in the cities of America yet.

According to the ushistory.org, Ben Franklin and the order of Junto created an opportunity amongst them to share books:

“On July 1, 1731, Franklin and a group of members from the Junto, a philosophical association, drew up “Articles of Agreement” to form a library. The Junto was interested in a wide range of ideas, from economics to solving social woes to politics to science. But they could not turn to books to increase their knowledge or settle disputes, as between them they owned few tomes. But they recognized that via the Junto’s combined purchasing power, books could be made available to all members.

So it was that 50 subscribers invested 40 shillings each to start a library. Members also promised to invest 10 shillings more every year to buy additional books and to help maintain the library. They chose as their motto a Latin phrase which roughly translates as “To support the common good is divine.” Philip Syng, a silversmith who would one day create the inkstand with which the Declaration and Constitution were signed, designed the Company’s seal.”

Thus, the first library began and those on the path to FI/RE are grateful!

One of the best hobbies for FI/RE? Reading!

We’ve talked in the past about extreme dating and also how you can stop the madness to save more in your lives! Diving into a new book satisfies the bored mind. Interested in learning a new skill? Want to learn about Ben Franklin’s life? Do you need a break from real life and enjoy picturing characters in Shardplates fighting with their Shardblades? There’s a book for that!!

Stress Reliever

It’s Sunday evening again after a wonderful, yet busy, weekend. Work this week looks crazy and your mind needs a break before the week begins. You light a few candles, pour yourself a glass of wine, and make an appetizer fit for a Mediterranean diet: pita chips, olives, Greek yogurt, hummus, and feta cheese. Walking over in your light comfy clothes and sitting in your comfiest chair, you open the page marked by your bookmark, then flip on the classical music. The transportation process commences…

Huffington Post – not only can reading reduce stress, it may increase your life expectancy.

A study at Yale “revealed that adults who reported reading books for more than 3 ½ hours per week were 23 percent less likely to die over 12 years of follow-up, compared with those who did not read books”

Knowledge Gainers

People all over the world write books on any topic you have interest in, with a quick google search of reviews to verify their worth the reading time. Experts in productivity, or investing have kept their life’s legacy through the pages they write for us. Value investing has continued being practiced thanks to the Intelligent Investor book authored years ago by the great Benjamin Graham. This is an example of the power of just one book of hundreds of millions. Knowledge is power right? Level up your power with a new book!

“In my whole life, I have known no wise people who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads, and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.” — Charlie Munger

Frugal and comfortable date

A common respite for couples on rainy days is house imprisonment from bad weather in the form of snuggly movie days. Have you instead made the hot cocoa, each opened a new book, and read in the company of your other half? The comfortable silence and admiration for new knowledge creates a cheap date and increases the closeness of two people growing together.

This very simple yet relationship enhancing date can be one of your frugal days leading up to an extravagant experience you desire.

Concluding Thoughts

The library is the go-to resource for the frugal duke or duchess working to build his/her kingdom. We encourage you to head down to your local library (with proof of your address) to sign up today!!


	

Save Money by Doing Nothing: Stop the Madness!

We’re an action-oriented bunch, always looking to DO SOMETHING in order to achieve a goal. “What can I do to save money?” Try this: nothing! When it comes to money, the more important consideration can be what you’re not doing. As I survey the various habits and mindsets that I’ve developed, modified, and dropped over my years, I can see a pattern where halting an activity has been a massive boon to my overall well-being, including my balance sheet. In recent years, I’ve become the best version of myself (so far!), largely by ceasing some regular behaviors that were holding me back. I realize now how important it is to identify these problems and stop them.

Stop pining for the latest and greatest

I always wanted a super fast car. I’m a nerd at heart, and the hottest new video game always catches my attention. Seeing an amazing movie in the first week of its release was at one time a major source of excitement and anticipation in my life. The fastest, slimmest phone money could buy? Check. A graphics card that can render eyelash movement and still maintain 60fps? Yep. An eardrum bursting sound system? You bet. Anything to get my ooh’s and ahh’s!

One thing I’ve learned is that just by slipping a couple years behind, I can still have many of these things at a fraction of the cost. This realization started to sink in when I was broke but still wanted to play sports video games. I found Half.com  carried the last year’s versions for less than $5 shipped to my door, when Madden and 2K and (back in the day) NBA Live all wanted 10X that amount during the current season. The same concept applies to buying used cars, being a bit behind the times on cell phone tech, and waiting until movies come out on the streaming service I’m already buying. Sometimes, it’s good to let a few obsessions go entirely. Adios, Porsche 911. I can afford you now, but I don’t want you no mo’.

Hit the brake on reckless driving

Speaking of fast cars – I used to drive as if I had that Porsche, but I was blasting down the highway in an old hand-me-down granny car. Didn’t matter, still broke 100mph. Got a few tickets. Had a few close calls. Paid eye popping insurance rates. Ragged the hell out of anything I drove and failed to maintain it properly all at the same time. Driving with reckless abandon is a great way to triple your automobile expenses, and even worse, it’s the most likely way to become seriously injured or just plain dead at an early age. I’ve had too many friends and family fall victim to someone’s negligent driving – either their own or someone else’s. It’s just not worth the temporary thrill, and it eats huge holes in your budget simultaneously. There’s a Zen to driving at a reasonable speed, keeping a safe distance, and wearing your damn seatbelt all the while. Find it, live long, and profit.

Curtail alcohol consumption

Of everything on this list, quitting alcohol was the hardest. It took the most painful health scare of my life and a long hard look at myself for me to finally stop the madness. I was pouring liquor down my throat and flushing $100’s down the commode. It cost me, big time, and I almost paid the ultimate price. And so I stopped. I’ll elaborate on this story some other day, but for now, if this topic hits home for you, check out reddit.com/r/stopdrinking  for some support and ideas of how to quit.

Snuff out cigarette smoking

I smoked for three years and slowly built up to a pack-a-day habit. When a good job left little wiggle room for smoke breaks and offered opportunity for advancement, I decided that it’d be best to just stop entirely: to help my wallet and my professional image. In the many years since my final stogie, the cost of cigarettes has nearly tripled in my area, largely because of taxes. I know I was spending a lot then; I can’t imagine the weekly bill now! More than anything, I’m glad I quit because of how disgusting cigarette smoke is. Something you don’t fully realize until you quit is that if you smoke, you fuckin’ reek!!! I don’t plan to drop many F-bombs in my articles, but I can’t overemphasize how nasty a smoker smells: his clothes, his hair, his car, his house. It makes my normally-iron-stomach gag in revulsion.

Steer clear from recreational drugs

While we’re on the train of terrible health habits, I’ll briefly say that I’ve cut recreational drugs out my life as well. One concept I didn’t grasp in my youth was just how risky illegal drugs are. Whether you agree with the laws or not, violating them carries a true and tangible risk of ruining your life. And if you’re obtaining illegal substances, you’re probably getting your fix from less than savory individuals. I’ve read that the human brain doesn’t fully develop its risk analysis capabilities until age 25 or older, and my anecdotal evidence supports this theory. I simply cannot fathom the risks I took when I was younger, and I’m grateful to whatever mysterious force allowed me to escape my youth unscathed by the justice system. Oh and one more thing – drugs are expensive, yo.

Avoid convenient and impulsive consumption

Chances are, you have a sneaky, seemingly innocuous small spending habit. It could be a Reese’s here and there. Or maybe you like to get your coffee fix on the run. Perhaps a pack of gum won’t hurt the budget too much. Did somebody say McDonald’s? Ba-da-buh-bah-BAH! No, I haven’t had any Arby’s curly fries on a whim because they’re delicious and curly and the spiral ones are the best especially when you get a looong spiral crunchy savory and soft gem of a curly potato product – no, uh, I swear I never did that. Whatever it is, stopping in real quick at the gas station or the drive-thru can add up quickly.

Sometimes, that quick stop is mindless and you don’t even realize you’ve done it until the bottle, bag, or box is staring back at you empty and you ask, “Why did I do that??” And other times, you consciously make the decision as a little reward or pick-me-up or motivation. Fact is – these little habits that drip out of your wallet add up to an unrelenting leak that can sink your ship with all its treasure. Identifying and plugging my little leaks was one of the first tasks that I accomplished in the process of correcting my cashflow.

Stop binge eating

After being the chubby kid forever, I lost 50 lbs. Woohoo!! Not only did the aforementioned alcohol cessation help tremendously, but also I identified that I was eating way beyond my satiation point. I kept writing little notes in my savings idea list like, “The more you eat, the less money you have!” And it’s true, but what I failed to internalize was the idea of a stopping point. It takes a while for the stomach to send a telegraph to the brain saying, “Yep. Full. You can stop now.” So I made it a habit to consciously decide when I’ve had enough. I stop even though I’m not registering the full signal yet. Within 15-20 minutes, that satisfied feeling arrives, and I very rarely deal with the achy feeling having eaten a motherlode.

Control stress and anxiety

As evidenced by high blood pressure, I was once extremely stressed. I had chest pains. I couldn’t sleep. I felt overloaded and helpless, floundering under the weight of a busy personal life and a demanding job. So I stopped stressing. I make it sound so easy, right? But what I learned was that the stress was internal. Life is 5% what happens to you and 95% how you react to it. You choose to react with stress. Stress doesn’t occur externally; it’s entirely within your body and your brain. I’m not saying that I never experience stress, but I do react to its arrival with a few important steps:

  1. I recognize when stress building.
  2. I stop what I am doing.
  3. I leave the room.
  4. I either (A) meditate or (B) engage in physical activity.

This formula has worked wonders for me. I did a lot of reading and research to come to this routine. One of the key books I credit for my successful conquering of stress is Full Catastrophe Living by Jon Kabat-Zinn. This approach to handling stress has allowed me the peaceful mindset and the stockpile of willpower to make lasting improvements in my life. Some of these improvements have come from self-reflection to realize the bad habits that made my life more difficult and more expensive. I stopped doing those things.

What are you doing in your life that you think you should stop?

Average Student Loan Debt in the US = 30K! Find your third alternative solution & pay it off intelligently!

Student Loans - An empty class rooms filled with desk looking towards the teachers stand in the front.

Student Loan Debt in America

According to the Institute for College Access and Success, “Seven in 10 seniors (68%) who graduated from public and nonprofit colleges in 2015 had student loan debt, with an average of $30,100 per borrower. This represents a 4% increase from the average debt of 2014 graduates.”

Why the heck is it so high?

Student Loan Meme - Baby picture with funny face with text: "You mean to tell me we have to repay student loans?

 

More and more young adults are saying no to 4 year schools due to increase in cost! Is college debt good debt? Traditional knowledge says it’s so (doesn’t mean its true). For us Master Dukes, the investment definitely has paid off with strong careers. Is this the case for everyone? It really depends, what degree and how much do you make from the degree. Sure there is the “do what you love mantra,” but taking that approach can cost you a life of freedom if you’re not rational on how you pursue it.

Young adults (including us) had to take loans out to pay the cost of a college education, and let’s be honest, we really didn’t understand just how much it ends up costing, and/or it was the only choice. If you thought ahead instead, you are on the fast track! Thanks to the internet and financial blog world more people are aware at a younger age. Welcome to the FIRE/Debt free/Build Your Kingdom movements! As we build our kingdom, being debt free is a big piece of the construction pie. It reduces your retirement cost and also gives you the peace of mind that leads to the pursuit of happiness!!

Should higher education be free?

Warren Buffet in the 2016 Berkshire Annual Shareholders meeting talked entitlement when asked about the increasing cost of higher education in the U.S. One number he gave in his answer – our education bill for the federal government was $600 billion. We fact checked it over at NCES Fast Facts; specifically it was $620 billion in 2012-13, or $12,296 per public school. Basically this establishes that before Americans are even able to pay tax, they are granted free tuition to k-12 public schools, how awesome is that?

If this is the case, should we also get higher education for free? Are we entitled to it? There are people who do get it free based on the achievement demonstrated in high school and effort pursuing scholarships. And thanks to Pell Grants, low-income students sometimes catch a free or reduced-cost ride as well. Should people with low academic prowess be awarded free education? Will people take education as serious if its free? Let us know what you think!

We want to mention one other fact that Mr. Buffet relayed during the talk. He stated that he was on an advisory board for one university’s endowment fund. It grew from $8 million to $1 billion, but tuition cost continued to outpace the fund! Now that’s BONKERS!!

Our final thoughts – if Americans are entitled to free education (for 12+ years) in preparation for higher learning, paying for that learning can be somewhat justified. We struggle to reconcile ever-growing endowment funds with the fact that students struggle paying tuition. Should endowments award more and focus less on growth? An incentive/reward tendency comes into play here, as the endowment fund and its stakeholders have the job of increasing the fund each year. It’s much easier to fund-raise when one can cite the continually growing price of university admission. If a university’s coffers are prospering, its student body should benefit also. Without the students, there is no university!

One of Dukes’ student loan balances are asking for payments each month – how is he planning to pay them off?

Three Strategies for the Student Loan Indebted Duke

Student Loan Pooling:

Student loan pooling means to pool your money in a savings account until you’re able to pay the full student loan balance off at once. This strategy will cost you money in interest, but with a focus on paying off the loan, you will still be reducing the interest in the long run by paying it off early. The win here is that in the case of severe emergency, not only do you have an emergency fund, you have a loan pool if absolutely necessary to handle it effectively. The alternative would be making extra payments, meaning once that money is paid into that loan, you can’t get it back. If you run out of your emergency fund, you will not have the loan pool back up in the mean time. The main take away here is hold your cash until you can actually increase your cash flow by paying off the loan in totality.

A decision factor on using this strategy is time it will take to pay it off. A loan amortization schedule activity can help you determine this.

Student Loan Pool Flow:
  1. Open a new high interest savings account or use the cash flow budget strategy with a high income credit union checking account
  2. Each month save as much as you can into the loan pool
  3. When the loan pool > loan pay off amount from step 2 -> pay it off!
  4. Celebrate your new cash flow
function studentLoanPool(creditUnion, emergencyFund, monthlyPayment, studentLoan) {
    //check for emergency fund, log error if missing
    if (!emergencyFund.balance > 0) {
       throw '"Emergency fund is not funded - please fund before paying off debt";
    }

    // check for loan pool, create if missing
   if (!creditUnion.loanPool) {
      creditUnion.loanPool = new CreditUnionChecking('high-interest");
   }

   if (studentLoan && studentLoan.balance > 0)
      do {
         creditUnion.loanPool.balance += 500
         studentLoan.balance -= monthlyPayment;
      } while (creditUnion.loanPool.balance < studentLoan.balance);

      // pay off loan
      studentLoan.payOffBalance(creditUnion.loanPool.balance);
  }
}

Pros:

  • Peace of mind due to backup for severe emergencies
  • Increase your cash flow once the balance is repaid in full

Cons:

  • Paying more interest in long term
  • Savings can be accessed and used (sometimes not wisely), while extra payments can’t

Emergency Fund + Extra Payments:

This strategy will save you money on interest, but cost you an extra savings cushion when a crisis occurs – something unlikely for those just starting our careers. At the end of the day, you still have a Level 4 emergency fund to handle 6 months worth of emergency. Decide the best path for you!

Emergency Fund + Extra Payments Flow:
  1. Build your emergency fund
    • We recommend the Duke (Level 4) status in your emergency fund before doing this, preferably the 6 month savings range
  2. Begin making extra payments until loan amount === 0
    • Do { make extra payments} while loan amount > 0
  3. Enjoy your new cash flow!
function extraPayments(capitalOne360, emergencyFund, extraMonthlyPayment, minMonthlyPayment, studentLoan) {
   // check for emergency fund, log error if missing
   if (!emergencyFund.balance> 0) {
      throw '"Emergency fund is not funded - please fund before paying off debt";
   }

   // check for student loan before continuing
   if (studentLoan && studentLoan.balance > 0)
      // make min and extra payments until paid off
      while (studentLoan.balance > 0) {
         studentLoan.balance -= minMonthlyPayment;
         studentLoan.balance -= extraMonthlyPayment;
         creditUnion.loanPool.balance += 500
      };
   }
}

Pros:

  • Emergency fund built to cover most situations
  • Save money on total interest paid as you decrease principle faster

Cons:

  • No emergency fund back up
  • Cash flow doesn’t increase until the last extra payment is made

Third Alternative -> Emergency Fund + Student Loan Pool + Extra Payments

In many cases during our lives choices are given in a this or that fashion – Dukes like to find alternatives instead.

For this Duke, I have three objectives:

  1. Pay off student loan debt
  2. Be prepared for emergencies
  3. Increase my cash flow

Both strategies can be utilized to help meet all three objectives. My third alternative solution proposal goes like this:

  1. Duke level emergency fund (completed)
  2. Open a new high interest savings account or use the cash flow budget strategy with a high income credit union checking account (completed)
  3. Based on that month’s budget, split the amount for your debt pay off journey
    1. 1/2 saved in student loan pool
    2. 1/2 paid to the loan’s principle
  4. When the loan pool > loan pay off amount from step 2 -> pay it off!
  5. Rejoice!!
function thirdAlternative(capitalOne360, emergencyFund, extraMula, minMonthlyPayment, studentLoan) {
   // check for emergency fund, log error if missing
   if (!emergencyFund.balance > 0) {
      throw '"Emergency fund is not funded - please fund before paying off debt";
   }

    // check for loan pool, create if missing
   if (!capitalOne360.loanPool) {
      capitalOne360.loanPool = new CapitalOne360Saving('high-interest");
   }

   // check for balance
   if (studentLoan && studentLoan.balance > 0)
      // while our student loan pool is less than loan balance
      /// and student loan balance is greater than 0
      while (studentLoan.balance > 0 && capitalOne360.loanPool.balance < studentLoan.balance) {
         // make min and extra payment to balance
         studentLoan.balance -= minMonthlyPayment;
         studentLoan.balance -= (extraMula / 2);

         // save into loan pool
         capitalOne360.loanPool.balance += (extraMula / 2)
      };

      // pay off loan
      studentLoan.payOffBalance(capitalOne360.loanPool.balance);
   }
}

Pros:

  • Emergency fund built to cover most situations
  • Save on interest
  • Peace of mind due to backup for severe emergencies
  • Balances out increasing your cash flow once the money loan is paid off in full

Cons:

  • Less saved on interest
  • Some money used for extra payment before increasing cash flow

Ask your tax software if contributing to an IRA is wise

Sometimes we’ve been asked to help friends and family file taxes. While we’re not tax advisors in any sense, we do relish the opportunity to help others learn to do it yourself (DIY) taxes – but only when the tax scenario is simple. Not only does DIY taxes save money upfront, but it also shows you just how the government incentivizes saving.

For this post, we’re using TurboTax Home & Business 2016. In the vast majority of cases, this software is overkill. The IRS itself offers free eFiling for filers with under $64k of income. TurboTax has less pricey versions that might fit your personal situation. And there’s a plethora of other options out there. Shop around.

Let’s look at an example of playing with the numbers.

Joe Teacher-Assistant is just starting out his professional life and made $21k in 2016 as a single filer. Unfortunately, Joe failed to calculate his W4 withholding properly and ended up with a meager $200 sent to the IRS during the 2016 calendar year. Uncle Sam isn’t happy, and Turbo Tax shows his displeasure with a prominent red $938 due. Youch.

Let’s make one small change to Joe’s taxes. Although he doesn’t have much income, he did manage to scrounge $1,200 during the year. Instead of keeping that in checking, he opts to move it into a Roth IRA. Joe has until April 17th, 2017 to make this contribution for the 2016 tax year. His decision to put money into a Roth IRA is wise, because the Roth IRA allows you to withdraw all contributions tax-free at any time for any reason, giving Joe flexibility. In all likelihood, he would be better off paying taxes now, at his low teacher’s assistant rate and withdrawing the compounded balance tax-free in retirement. We’ll dig into Roth vs Traditional in a later post, but for now, let’s assume that Joe is making the right choice.

TurboTax requires a couple more questions before it will recalculate the amount owed. In this case, Joe needs to review the section for “Retirement Savings Contribution Credit,” and TurboTax helpfully marks that section as “Needs review.”

A few easy questions later, Joe’s tax problems just got a little bit better:

 

OK, so $120 isn’t going to make a huge dent. Joe closes out and goes to sleep. He visits his parents the next day and discusses the dilemma. Joe’s parents are generous, and they tell him they can help him out. They offer to give Joe a full $6,000! But there’s one condition – Joe must max out his IRA. For tax purposes, the money contributed to an IRA must come from earned income, and because Joe earned more than $5,500 during 2016, he can legally and ethically state that the $6,000 gift from his parents went to living expenses and he saved the $5,500 from employment to go to the account. He goes back to TurboTax and updates his numbers.

Instantly, TurboTax has adjusted the amount due down to $738. Joe has $500 leftover from his parents plus $1,200 that he had planned to set aside anyway. We’d advise Joe to pay the remainder of his tax bill out of pocket, but wait, there’s another alternative. Instead of making a Roth IRA contribution (the better choice in the long run), Joe can make a Traditional IRA contribution that will immediately wipe out his tax bill. It’s a short term gain for long term loss, ill-advised, but still much better than doing neither and sending a $938 check to the IRS! Let’s see what happens when we try the alternative option.

VOILA! Look at that vibrant green number. This definitely isn’t the best choice, but it’s not a bad one either. We’d explain that plenty of downsides should dampen Joe’s excitement. Joe’s Traditional IRA contribution will be more difficult and more costly to access should he need the money pre-retirement. Because Joe is so young, his $5,500 could compound at 8% for 35 years and morph into over $80,000! That’s a lot of money to pay tax against, especially if Joe retires at a higher tax bracket. This demonstrates why we would strongly recommend contributing to the Roth IRA in this scenario. Regardless, it’s a wonderful exercise to play with the tax software and see for yourself how saving for retirement can put money in your pocket, not just for your future self, also right here right now.

 

Milestone Reached: a Positive Net Worth!!

Net Worth Hump - camels with their riders sitting down in the open desert.

A bit of one of the Duke’s story…

Net worth – your total assets less your total liabilities. A VIP KPI (key performance indicator) we track in our financial kingdom construction project. Coming from college, I fit right in with the average American that graduates with student loan debt and an auto loan. As I began reading more and more personal finance books and articles, I decided. Screw that! NO MORE DEBT!

The journey continues in a positive path but still, I want to throw my computer screen each month the auto-pay notification email comes through. Like most millennials…I immediately want this shit over and done with. Personal finance doesn’t work this way. We are in it for the long haul!! Thankfully long term gratification hasn’t totally been denied from my mindset and I look forward to eventually paying the full balances off. One reason we began this blog was to show the world they are not alone. People in similar situations with similar goals exist, and we are working together to accomplish what we want to in our lives! Thanks to other bloggers and the books I read, all isn’t lost with taking on student loans. It was an investment A knight holding shield and armorand one that is paying its dividends as I continually go to battle each month:  Mono e Budgeto. The war is far from over, but many of battles so far have been won in my favor. Today a milestone of mine has been reached!! The war begins to turn in my favor!

I finally reached the point in my life that my assets > liabilities. YES A POSITIVE NET WORTH!!!

I was and am still willing to continue sacrificing to move forward from getting over the net worth hump to getting over the debt one!

Sacrifices

Accumulating wealth takes sacrifice. Sacrificing those designer fashion shopping sprees. Missing out on expensive dining experiences. Hang drying clothes to save a few coins from being destroyed at the Laundry Mat. Walking or biking to save money on gas. Preparing food each week, eating peanut butter and jelly sandwiches, or finding recipes on budgetbytes.com. Cutting cable and Netflix watching. Taking walks and checking out books from the library. Our Sacrifices come in all shapes and sizes, and they add up as we work to build our castle.

If you haven’t been called crazy then you haven’t been sacrificing enough :). Joking aside, people who have different goals will perceive yours very differently. I mean why would you hang dry your clothes in 2017? Why would you skip out on Starbucks each morning? How can you not explore all the great restaurants in your city? As Duke’s we don’t believe in the extreme frugality of Mr. Money Mustache in our lives, not because its wrong, more that we want the process of becoming wealthy to have enjoyable experiences included as we continue living below our means.

Many will argue against this, and I totally understand. Each dollar does indeed count towards the goal of financial freedom. If you enjoy your line of work, have less responsibilities, and can still accomplish your milestones, then it’s an individual decision to let loose the purse strings in order to experience the world too (even if it means working a little bit longer). Overall we are on the moderate side of the fence in frugality, save more, spend less, and get the most of every dollar you spend in the experiences you live for!

Keep in mind, if you make the decision to spend on experiences – keep the cost low and budget appropriately. These experiences are not an excuse to miss your financial milestones !

Mindset

It was right after college I picked up The Millionaire Next Door: The Surprising Secrets of America’s Wealthy WOW. It literally transformed the future vision I had for my life. There are many high income earners in our great nation who aren’t rich. That concept still amazes me that people who make so much money can squander it so easily. That people who studied years to become surgeons, won’t take hours to learn common financial moves to prepare for their retirement. I’m not here to judge, never that. Just as we talked through in our Drake Case Study, in our free nation, citizens can spend their money how they want. I definitely appreciate the wisdom and the gift of the book (we’ll be reviewing it soon) that helped me change the direction my life would have taken.

If you haven’t read it. I will give one high level concept in this article, and we will review them more deeply in our review. The general consensus from Mr. Stanley’s studies is that most millionaires in America are not the flashy, high spending, jewelry wearing, Lamborghini drivers we see on TV. They are self-made, self-employed business owners who have consistently lived frugally to build their wealth over the years. They dress in quality clothes, drive average cars, live in average neighborhoods, and would not be judged as a millionaire from the outside in.

It’s that mindset we believe in here at Dukes of Dollars. We believe in living a life full of rich experiences, frugal in our decision making, and stable in our future. We believe in being your best self, living with integrity and kindness. We want to share this lifestyle and our learning with you along our way. Through it all, we want to encourage you to change your life like we have. Grow your net worth into a positive one. Your future self will appreciate you for your early efforts in the years to come…

Concluding thoughts

Milestones such as getting over your net worth or debt humps makes the roadmap worth while. It is the little things and little wins overtime that make us successful in building the kingdoms we envision. Celebrate these milestone wins as you reach them, then continue to build with the right mindset. If you commit to your own personal journey, you will also win the monthly budget battles and begin to claim victory over your balance sheet!

We appreciate you taking time to read our posts and this post!

We look forward to hearing more about you and your journey towards a positive net worth, leave your comments below or contact us!

An Answer to the Timeless Question, Should you pay off your mortgage?

Should you pay off your mortgage?

Yes. The real question is when should you pay off your mortgage? We think there’s a logical order of events to maximize not only your balance sheet but also the utility of your money.

When researching this topic recently, we came across some misguided advice and even a few myths that we thought had long ago been dispelled. After an engaging twitter conversation with our friends at Dividend Diplomats, we decided it was nigh time to finish the article!

The Mortgage Interest Deduction Myth

Do not fall for the trap so prevalent on the internet that states you shouldn’t pay off your mortgage because of its tax benefits. The truth is that few people benefit from a mortgage interest deduction. In order to deduct mortgage interest, one must first itemize tax deductions. In most cases, the mortgage interest number is the highest itemized deduction. For a married couple, the annual housing loan interest, combined with all other itemized deductions, must exceed $12,400 before it becomes a factor in taxes. Because interest on a mortgage is usually the largest itemized deduction by a wide margin, it’s worthwhile to consider what kind of mortgage one must service in order to claim the deduction. At today’s rates of ~3%, the couple would require at least a $413,333 mortgage – no thank you!!!

Those that do benefit from the mortgage interest tax break often miscalculate the size of the deduction by forgetting to subtract the standard deduction that they decline by itemizing. Let’s say that our example couple is paying $6,000 in interest and has total itemized deductions of $15,000. Is their mortgage helping their tax bill? A little, but not to the tune of $6,000. Itemized $15,000 – Standard $12,400 = $2,600. That’s the number that matters for calculating your effective mortgage APR, because it represents the difference between itemizing with a mortgage and taking the standard deduction with no mortgage.

Chipping away at a mortgage

Good idea to send extra payments if you pay MIP

If you bought a house with less than a 20% down payment – a frequent approach for FHA and first-time borrowers – then you’re likely paying a monthly MIP, Mortgage Insurance Premium. Because this insurance benefits only your lender, it’s often wise to accelerate payments until you reach the 80% LTV threshold. Contact your lender to establish the exact # you need to hit to drop MIP, and then contact them again when you reach the goal. This burst of payoff is quickly accretive to your monthly cash-flow and a very good idea to pursue!

After you have < 80% LTV, slow your roll

Sending an extra payment to your mortgage servicer doesn’t help your cash flow one bit. You’ll still owe the same amount next month, even if you write a $10k check to obliterate a chunk of principal. A year later, if you lose your job, you still need to make that monthly payment. The bank doesn’t care that you paid $10k extra just a few quarters ago; it wants its monthly cash flow promptly! By paying off your mortgage in small chunks, you expose yourself to the risk of a cash crunch for little reward.

Instead of slowly hammering away at the balance, pool your mortgage payoff money and invest it conservatively. Between high yield credit union checking/savings, municipal tax free bonds, CD’s, and an occasional blue chip dividend stock, you should be able to keep pace with your mortgage APR. With a small risk appetite, you might even be able to eek ahead of your interest rate.  When the balance of your mortgage payoff fund exceeds the outstanding balance of the loan, then write perhaps the biggest check of your life and eliminate the monthly expense in one fell swoop! You won’t ever have to make a mortgage payment again, and suddenly your monthly cash flow is awash in riches. In the meantime, if you come across that dreaded cash flow crunch, you’ll have an enormous emergency fund. It won’t feel great to draw down your mortgage payoff dollars, but at least you’ll be reallocating cash and not begging for the mercy of a bank.

When does it make sense to payoff a mortgage?

After you invest for retirement

Max out your tax-advantaged savings accounts before you even consider paying off a mortgage. No matter what tax bracket you’re in, if you have room in your annual 401(k), IRA, or HSA contribution limit, making the contribution will put you further ahead financially every single time.

Before you pay off equivalent-rate student loans

Student loan interest is deductible above the line, meaning you don’t need to itemize it. If your tax-adjusted interest rates are equal, it’s advisable to hold on the student loans longer than the mortgage.

Before you retire

A simple answer for prospective early retirees: pay off your mortgage right before you retire. The Dukes of Dollars are strong advocates of a low-bracket retirement, meaning that you require such little income that your tax brackets and therefore dividend and capital gain tax rates are near the bottom tier, perhaps even 0%. With a mortgage payment in your monthly budget, this low-bracket retirement becomes incredibly difficult if not impossible. By eliminating your largest monthly expense of housing, you can drastically reduce the amount of post-tax dollars that you need to spend on a regular basis.

When you can pay off the entire balance

Building a balance that can conquer a mortgage leads to an interesting question – should you invest it? Maybe not entirely in stocks, but you will want to keep up with inflation if not your actual APR. This isn’t play money, free for heedless speculation. CD’s and interest-laden checking accounts likely won’t be enough. And bond rates aren’t going to help much either, though this being taxable money in all likelihood, you should browse the tax-free municipal bond market. Stocks might have a role here if you have an aggressive risk profile and it will take you about 5+ years to reach the tipping point. If you choose to invest in equities, do so conservatively. Stick with blue chips, maybe utilities, something steady and reliable with a decent income component to help pad your balance. Stay far, far away from technology and financials!! Some names to consider here: PG, JNJ, NSRGY, DEO, HSY, CL, WMT – all big, steady, and sporting strong balance sheets. Plenty of income and very recession-resistant.

Conclusion

Strictly from a mathematic perspective, the pool >> invest >> payoff approach we advocate may not be the best choice. It depends on your investments, how much risk you take to keep pace with your debt, and your tax situation. But we approach this question from a practical standpoint. When you have $50k set aside for an eventual payoff, you can absorb a lot of life’s more brutal punches. A job loss, illness or death in the family a plane ride away, medical problems: these all become much easier with beaucoup bucks in the bank. You can’t get those back from Wells Fargo after they cash the check, even if your life is in turmoil. So keep them for yourself until you’re ready to deliver a knockout punch to your mortgage balance. You might just get a leg up on the situation if you invest wisely and get a little lucky when M&A giants start salivating over your Unilever shares.

 

Disclaimer: Long all equities mentioned either directly or through index funds.

Can you handle a $400 Emergency in your life? Duke of Dollars Emergency Fund 101!

Emergency Fund - A red emergency sign above hospital entrance.

Your daughter is crying from the pain after her collision during the soccer game. You know a broken bone when you see one. It’s Saturday evening with no doctor office ope. She needs medical attention as soon as possible! There is a huge problem…your bank account can’t take a hit, the paycheck doesn’t arrive until next week. Thinking to yourself, I can’t afford this! What do I do? Your daughter asks you…” my arm…mom are we going to the doctor?.” Of course, this is your baby girl we’re talking about. It’s time to take her to the emergency room!!

Sitting in the waiting room contemplating where you can save to pay for the visit. We can go out to eat less this month…and we can buy cheaper food at the grocery store…and we can live without cable this month…but the realization comes…you have a problem, one that is no one’s fault but your own.

Your daughter gets the cast she needs and is recovering no problem. A month goes by and the dreadful piece of paper you’ve been waiting for finally comes…the hospital’s statement. $1,233. Tears begin falling…what on Earth are you going to do??

Ask yourself – would this happen to you? Yes? It’s time for a change!!

Dukes – WE WANT YOU TO BE PREPARED!

What is an Emergency Fund?

An emergency fund is a saved up mound of coins (money)that are easily accessible, so you can maintain a normal life when life’s curve-balls get thrown your way. They can be held in savings or credit union checking accounts (to take advantage of rates), but CANNOT be used for anything except emergencies. Emergency funds give you cushion and peace of mind in your life. It’ll let you totally focus on getting your daughter back to health without having to worry about paying your bills while doing it!

If you’re just starting out, the account separation of a savings account is the way to go! Give yourself that one extra step to defend your discipline of spending it on anything else. We will talk to the details of your options below.

Do you need an Emergency Fund?

Ask yourself these questions:

  1. If you lost your job today, could you pay your bills for 3 months with no worry?
  2. Your roof begins leaking during a thunderstorm, are you able to call someone to pay for a new one?
  3. Your car needs an emergency repair, can you pay for it and still keep the lights on this month?
  4. Your child becomes ill and needs you to take care of her for a few weeks, can you take unpaid time off while making ends meet?

If you are unable to pay for unexpected events in your life, then please continue reading :).

Handling emergencies effectively, without increasing your credit card debt, makes building wealth SO MUCH EASIER. High-interest credit cards are a huge detractor from the road to wealth, and we will talk through the decision of paying down debt vs investing in a future post.We believe in building up to level 2 (The Squire below) to complete step V. Once you save up that 1G in your account, you will be ready to continue on to step VI in your new home! We recommend that you continue to save each month after reaching level 2, keep the momentum and keep on leveling!

Did you just graduate from college? After contributing to your 401(k), saving for your emergency fund should most definitely take a new spot in your budget.

Have the discipline to be different, you are a Duke of Dollars!

 

The Levels of Building an Emergency Fund:

  • Level 0: $0The Scoundrel
    • At this worrying level, you are unable to handle any emergencies in your life. It’s time to start your training!!
  • Level 1: $500The Page
    • You have began your new training towards knighthood by beginning to save each month. It can be a small start, as learning a new skill is difficult. 60% of Americans can’t handle a $400 emergency – now you are in the upper 40.
  • Level 2: $1,000The Squire
    • If you’re familiar with Dave Ramsey’s baby steps, then you know that this is his beginning recommendation. We too see this as a baby step and one that can really give you a peace of mind. You’re able to swing your sword, run the hills, and carry your shield. It’s a great step in the progress and one you should truly feel proud of!
  • Level 3: 1-3 months of living expenses – The Knight
    • Younger Dukes (millennial), with marketable skills and fewer expenditures, 3 months for an emergency fund may be all you need. There is a huge difference in being on your own vs providing for your family. This amount is a situation and risk-averse based. Determine your risk as you did for your 401(k) investing. Keep in mind that the more money you have sitting in cash, that’s fewer greenbacks you have in your army. Then make your decision. Do you want to enjoy knighthood in your younger days, or save more to reach the Duke level? Totally up to you!
  • Level 4: 3-6 months of living expenses- The Duke
    • Becoming a Duke takes more time, more wisdom, and more aging. For those just starting out on the path, this will be the level of an emergency fund you want with your family. Peace of mind and safety are VERY important when you are providing for others. Most millennials should stick with being a knight during their early construction days, but still add more to their emergency fund once they begin settling down.

Emergency Fund Principles:

Liquidity

How quickly can you get the cash from your emergency fund into your hands to use for an emergency? Your safety net or strategy for emergencies should allow you to pay unexpected expenses quickly to keep your peace!

Risk

With different options to store your fund, we are talking about the risk that your emergency fund can lose value. As with picking your 401(k) investments, a risk is a personal decision and requires knowing thyself. Higher risk = higher return.

Returns

Can I expect the returns from this option to keep up with inflation or increase the value of my stash? Risk, volatility, and returns are factors to decide upon when choosing an option below. What is most important is having the confidence to easily afford unexpected emergencies in your life!

Volatility

Will this option keep my emergency fund value stable or will it fluctuate throughout the times? Cash and low-interest savings accounts will not, investing can (depending on your investment performance).

Emergency Fund Options:

Picking an option is a choice based on your risk tolerance and keeping your mind at ease. The easiest being saving accounts with investments leaning towards more complex.

Ratings:

How do they meet the principles? We’ve rated them for in the table below with 1 being lowest and 5 being highest.

OptionTraditional Bank Savings AccountOnline Savings AccountCredit Union Checking AccountMoney Market FundsDiversified Investing Portfolio
Risk11134
Liquidity55542
Volatility11125
Returns12345

Strategies:

Savings Account

Both online and traditional savings account are very easy to set up and very easy to use. Create a new one for your emergency fund, set up your direct deposit each month (based on your budget), and then transfer it to your checking when an emergency occurs!

We recommend using a top online savings account (our favorite being CapitalOne 360) to get the best returns for your money. The more Annual Percentage Yield (APY), the more money you receive from the bank each year (see chart below). Although online accounts offer a 1.00% APY, your emergency fund’s spending power will decrease each year based on the 3% average inflation rate.

Credit Union Checking Accounts (Our Duke Exclusive recommended option)

Signing up for a credit union checking account that yields 3.00% APY can be a great location for your soldiers.

There are two caveats here:

  1. Combining your emergency fund in with your regular checking account psychologically makes it easier to spend it
  2. You may have to meet certain requirements to receive the APY based on the credit union. For example, Dupont Credit Community in Waynesboro, VA requires 15 debit card purchases summing at least $250 per month

By utilizing our cash flow budgeting strategy, you’re able to track your expenses to prevent using the balance kept for your fund. If you are able to overcome the psychological aspect, track your balance with a hawk eye, and utilize these returns, then you are looking at a risk-free (assuming an FDIC insured account), inflation defeating, emergency funding option for your kingdom!

Investing in a diversified portfolio -> Higher Risk, but returned the money. 30 % buffer rule

There are financial advisors who give insight into using a bond/stock allocation (60 stock/40 bonds) to beat inflation with returns for your emergency fund. This can be a great option if you are in a great financial situation. If you are just starting out, this might not be a realistic option for you.

Why not?

The stock market’s volatility makes the balance of your investment increase/decrease, especially during market corrections. According to Tony Robbins’s Unshakeable, these happen every year. Even worse are bear markets that take longer to correct themselves. Advisors who like this option use the 30% buffer rule. The rule goes like this if you add 30% on top of your emergency fund, then during corrections, its balance will still meet the goal you set. If you’re living expenses are $1,000 a month, then 3 months + 30% = $3,900. That’s a big chunk of change for those just beginning the journey.

Overall we believe our Duke’s should only look into this option once they have ventured down the roadmap and have gathered the experience of buying and selling investments. Our chart below shows how well it can perform. The psychological aspect of not panicking during corrections and being able to quickly access your money should be taken into consideration.

We didn’t include a certificate of deposits in our options because losing money to retrieve emergency funds too early isn’t part of our kingdom soiree.

Options vs Inflation Visualized:

Let’s take a look at a chart to visualize our options.

This chart is showing how each type of account compares to the historical average inflation rate. 
The APY rates we used were for the best accounts we could find on for that option.

Emergency Fund vs Inflation chart. It shows that out of all options, credit union checking and investing are the only ones to keep up with the average inflation of 3.3%.

We can see that out of all options, only the credit union checking account and investing (if we have a good 7 years with historical average returns) keep up with the inflation rate. This shows that in order to keep the same spending power of your emergency fund, you will either need to add more funds each year or get higher APY .

It’s time to level up! Your Emergency Fund Starter Guide:

  1. Revisit your budget to determine an area you can cut or how much you can start saving each month
  2. Pick your Emergency Fund option
  3. Sign up for your new account
  4. Set up a direct deposit or automatic transfer
  5. Give yourself a pat on the back, you have taken another step towards a great life and even greater kingdom!

Concluding thoughts

Let’s take a quick moment to reflect how far you’ve come:

  1. You have consistent income
  2. You have a budget strategy
  3. You have committed to financial stability
  4. You have your 401(k) set up
  5. You’ve begun saving your emergency fund

We want to say thank you for reading and thank you for being different. Our readers are now in the top 40% that can handle a 400$ emergency and that is exactly why we began writing these things, to help others, help themselves! It is also nice to learn a bit on the way.

Thanks again and have a great week!

Resources:

  1. The Simple Dollar
  2. Washington Post
  3. Betterment

Is coffee roasting your savings? If so – it’s an EMERGENCY!

Today we rushed to the tornado sirens to blare them across the land after reading this damning bit of statistics. If you’re young, there’s a greater than 1/3 chance that you’re spending more on coffee than retirement??? EMERGENCY!!

Whats the big deal?

Why is this such a big deal? After all, some of you may think, you have plenty of time to save for retirement. And that’s the big deal: time! With so many years ahead, you have time on your side, and it’s your most powerful ally by a long shot. But time won’t help you one bit if you don’t call it regularly or at least send it a few texts; hell just get time to subscribe to your snaps, i.e. automate your contributions, and you’ll be good to go! If you don’t take action today, time can’t do shit for you tomorrow. However, if you take a few minutes and a small handful of $1’s right now, you can plant a seed for time to tend to tomorrow and the next day and every night you’re sleeping forever and ever. It’s a simple concept: when you need it, your oldest money will be your biggest money. That $500 you socked away from a summer job freshman year is going to be yuuuge! Much larger than the $500 you grabbed from the ATM after your last paycheck ever.

Look, retirement savings isn’t just for retirement. It’s your road to wealth. Without following the roadmap, you’ll be fighting a losing battle to get ahead of your finances. You start with the tax-advantaged accounts and fill them up to a logical level. Your employer and the government reward you lavishly for taking these first steps. We’re talking free money in the form of tax breaks and matching contributions.

The numbers:

For a single person making $45,000 and not dedicating a cent toward retirement contributions, consider this: contribute 6% to your 401(k). That’s $2,700. And in all likelihood, your employer will pitch in at least 3% of your salary as an incentive: $1,350 in free money. A $45,000 salary will put your AGI bracket at 15% so that $2,700 that you put back means you save an additional $405 in federal taxes and ~$160 at the state level. All told, you keep $7.40 per day, and you instantly get $5.25 per day extra as a reward. Why wouldn’t you do this??

We can only think of one legitimate reason why you wouldn’t take advantage of this amazing opportunity: your employer doesn’t have a 401(k) or equivalent savings vehicle. If that’s the case, you need to focus 100% of your personal time and efforts into developing a skill and finding a job that will allow you to save. This is a bare-bones, absolute minimum financial standard that you should be meeting early in your career. The sooner the better.

Let’s assume you pocket the tax breaks ($405 from our example) – hey, spend them on coffee – while your investments compound at historical S&P500 rates of 7% after inflation. Check out this chart from the above example:

Year 1: $4,050

Year 10: $55,956

Year 20: $166,032

Year 30: $382,566

The only way that you’ll be able to compound money for 30 years is if you start doing it before you’re 35. The magic of compounding is that the longer the period, the crazier the numbers get. Imagine if you start doing this before 25 and therefore have 40 years to compound before traditional retirement age. That $382k? It becomes an eye-popping $808,522. A full, comfy retirement, from $7.40 per day. And along the way, you got to spend $22,600 on caramel macchiatos.

The only way that you can accomplish these gaudy figures is to start early. Start NOW!

Do you like free 401(k) contribution money? Contribute to your company match and get yours!

401k Contribution - A picture of a road that leads to a kingdom, symbolizing your journey towards your own!

Hello and welcome to our second post of the 401(k) series, 401(k) contribution. In post one, we deciphered one of the most popular retirement accounts for you!

In our second post in our 401(k) series, we will dive into the specifics of 401(k)contributions. We discuss how company matches provide you with free money towards retiring and contributing saves you tax money. We want this post to serve as an inspiration to contribute towards your aspirations of a financial kingdom!

Assumptions:
  • 401(k) balance is starting at 0
  • Investments will have 30 years of compounding

Let’s begin with a few scenarios that show the results of your investments over time. These will demonstrate balances after 30 years with different return rates and company matches.

Scenario 1 – 0% 401(k) contribution

5% rate of return:

$0 saved for retirement

7% rate of return:

$0 saved for retirement

Scenario 3 – 8% 401(k) contribution with 0% match

5% rate of return:

401k Contribution - Line chart starting at 0 and ending at $396,296 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% rate of return:

401k Contribution - Line chart starting at 0 and ending at $558,961 based on 401k contributions

401k Contribution - Table summary starting at 0 and ending at $558,961 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Scenario 3 – 8% 401(k) contribution with 4% match

5% rate of return:

401k Contribution - Line chart starting at 0 and ending at $594,4451 based on 401k contributions

401k Contribution - Table summary starting at 0 and ending at $594,4451 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7% rate of return:

401k Contribution - Line chart starting at 0 and ending at $838,442 based on 401k contributions

401k Contribution - Table summary starting at 0 and ending at $838,442 based on 401k contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

How do contributions change my tax bill or paycheck?

Tax Savings:

For a single individual, making 50K in 2017 and contributing 8% ($4,000), you will save $1,000 from uncle Sam’s invoice. By utilizing your 401(k), you take advantage of free money and save taxes, DOUBLE WHAMMY! Savings + more investments = more $$$$ for your lower tax bracket future self.

A table showing that for a $50,000 annual income and 8% contribution, you save $1,000 in taxes!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Paycheck changes?:

Let’s do some quick math to see your typical paycheck:

$50,000 / 26 weeks = $1,923.07

$1,923.07 * .08 contribution = $153.85 per paycheck

Actual paycheck changes according to bankrate.com?

$103!!

How? By making the contribution your tax bill per paycheck is less by 50$, in other words you save $50 per paycheck by investing $150 towards your kingdom!!

401k Contribution -A table showing a pay check reduction of $103 when changing from 0% to 8% 401k contributions as a single filer with $50,000 per year salary.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

401(k) Contributions Table

Annual SalaryTotal ContributionTotal Tax SavingsEmployer MatchSalary Increase RateExpected Return401(k) Balance in 30 years
$50,000$0.00$0.00$0.003%0%$0.00
$50,000$4,000$1,000$0.003%5%$396,296.79
$50,000$4,000$1,000$2,0003%5%$594,445.19
$50,000$4,000$1,000$0.003%7%$558,962.69
$50,000$4,000$1,000$2,0003%7%$838,442.54

 

Concluding comments:

As we hire new workers to put up our walls and maintain them throughout our lifetime, we realized that retirement (or Financial Independence) cost money. Duke’s harness the power of our toolbox to fund our kingdom. The first two posts have presented the new tool. In our last post of the series, we will discuss how to pick investments in your account to sharpen it even more!

Post Resources:

Deciphering the Traditional 401(k) – One of the Biggest Tools in Your Duke Toolbox

Deciphering the 401(k) - a huge block of code on a screen that needs deciphered.

Welcome, Dukes! You have successfully completed the foundation to your kingdom. Now that the concrete has completed cured, we move on to our kingdom’s walls. Our wall design documents have two action items: 401(k)’s and emergency funds. Before we begin talking through our first action item, please refill your water from the well, sharpen your tools on the wet stone, and bring the ladders from storage. Ready? Let us go about these walls!

Deciphering the Traditional 401(k) Plan:

Retirement Plan History:

Before 1978, employers managed employees’ retirement plans through pension plans. These defined benefit plans, guarantee income from the employer in retirement, placing the risk with the employer to fulfill that guarantee.  If a company declares bankruptcy or the pension plan doesn’t perform well, then a retiree’s income is in jeopardy.This increased risk and higher cost on the employer gave way to a new plan, called the 401(k) in 1978.

The new plan makes it easier for knowledge workers to switch plans when switching employers, easier for smaller companies to offer to their employees (because of lower cost), and put control in their employee’s hand. Many people may argue that the defined benefit plans conveyed a higher degree of employer contribution and safety for the employee, but we at Duke of Dollars believe in taking matters into your own hands, and the 401(k) gives you quite a bit of control and flexibility.

Traditional 401(k)s Deciphered:

What is it?

A traditional 401K is a qualified investment account into which employees can make pre-tax and taxable contributions from automatic paycheck deductions. Pre-tax contribution means that we do not pay federal or (usually) state income tax on the amount contributed. Typically, employers (sometimes automatically enrolling) allow you to make a contribution based on a percentage of your salary, that they will then deduct each paycheck.

What is my limit for contributions?

$18,000 – In 2017, we can contribute 18G’s of pre-tax investment dollars into a 401(k)!

Employer Contributions

Employers contribute to your 401(k) through matching – AKA free money!!

Matching – Many employers incentivize their employee’s to save for retirement by offering what they call a match. For example, they may match 0.5% for each 1% percent you contribute, up to 6%. This means, if you were to contribute 6%, your employer adds 3% for a total of 9% that year. These are not included in the 18K limit we as individuals have!

In our second post of the 401(k) series, we will demonstrate why taking advantage of this free money will give you a boost to your financial kingdom timeline.

Vesting

Employers typically enact investing schedules to receive their free contribution amounts. They may require you to work at the company for 3 years to become vested, meaning if you leave before 3 years, then they will be taking the matched contributions back. After 3 years, the money is all yours.

Withdrawing from your 401(k)

Straight from the IRS:

“Generally, distributions of elective deferrals cannot be made until one of the following occurs:

  • You die, become disabled, or otherwise have a severance from employment.
  • The plan terminates and no successor defined contribution plan is established or maintained by the employer.
  • You reach age 59½ or incur a financial hardship.

Tax on early distributions. If a distribution is made to you under the plan before you reach age 59½, you may have to pay a 10% additional tax on the distribution. This tax applies to the amount received that you must include in income.

Exceptions. The 10% tax will not apply if distributions before age 59 ½ are made in any of the following circumstances:

  • Made to a beneficiary (or to the estate of the participant) on or after the death of the participant,
  • Made because the participant has a qualifying disability,
  • Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.),
  • Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55,
  • Made to an alternate payee under a qualified domestic relations order (QDRO),
  • Made to a participant for medical care up to the amount allowable as a medical expense deduction (determined without regard to whether the participant itemizes deductions),
  • Timely made to reduce excess contributions,
  • Timely made to reduce excess employee or matching employer contributions,
  • Timely made to reduce excess elective deferrals, or
  • Made because of an IRS levy on the plan.
  • Made on account of certain disasters for which IRS relief has been granted.”
Borrowing from your 401(k):

Generally speaking, we do not advise borrowing from your 401(k) and will not be going into details on how in this article. There are some situations where a 401(k) loan is a logical choice for advanced Dukes, and we’ll dive deeper into those scenarios at a later date. In the meantime: if you need the cash badly enough to be considering a 401(k) loan, please contact us and we can give input to your situation :).

Reasons we utilize 401(k)

Three main reasons:

  1. Pre-tax contribution = decreasing your tax bill!
    1. We will go into more detail in post 2 on how your contributions can change your tax bill
  2. Pre-tax contributions = more money invested
    1. Since we are not paying any federal income tax on the money we contribute, this means we can take advantage of compound interest on more money. More money equals higher returns and a bigger nest egg!
    2. In post two, we will be charting out the advantages for growing your money at a faster rate!
  3. In our retirement, we assume a lower tax bracket compared to our working years. Because 401(k) withdrawals are taxable income, a low-income retirement allow us to hang on to more of our compounded dollars. Later on, we’ll review strategies for maximizing the value of tax-deferred investments.

Overall Comments:

At Duke of Dollars, we are huge fans of wielding the 401(k) tool in our kingdom toolbox. It allows us to increase our overall investment amount while saving on federal income taxes, and then withdraw that money when our tax bracket is lower, taking true advantage of the qualified plan in our reach.

For stop IV, we ask our Duke’s to contribute to that match of their employer. Free money is hard to come by and we want to take all we can get! In our next post in the series, we will provide visual aid to further encourage you to begin your contributions to construct your walls!

Resources:

  1. http://www.investopedia.com/ask/answers/100314/whats-difference-between-401k-and-pension-plan.asp?ad=dirN
  2. https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview
  3. https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules