Personal Finance First Step: Mastering the Budget

If you are embarking on a personal finance journey, then let’s get you started on the right footing. Step one begins with mastering a budget. Some may scoff at me and say that I know nothing about becoming rich and getting to financial freedom. They laugh and say that I must not realize that reaching financial freedom lies in increasing income, rather than decreasing spending. But I know something that they don’t know.

You can increase your income, and never be financially free. It’s just a quick fix attempt, and usually, quick fixes do not work. In order to really tackle your personal finance, you need to start with the basics. You can’t just jump ahead to making a ton of money, because without mastering a budget, you’ll likely never see that extra money you make. If you’re like most Americans, you’ll spend it before it even gets to your bank account.

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Now I’m not naive enough to believe that mastering your budget is all it takes. I agree that there are limitations to mastering a budget. One can only cut their spending so much. On the flip side, one can increase their income exponentially…indefinitely, perhaps.

I, myself, am well aware of the need to increase income. I worked three jobs while going to undergrad to increase my income, but I also graduated in three years in order to cut spending. I was one of the few students who worked during dental school, just to make a little extra money. And even now, am a side-hustler of sorts. I work in dentistry, write on my own blog, write for other blogs, walk dogs via Rover, work the midnight shifts as a bread baker with Rye Goods, and bake my own bread to sell (currently I am applying for a license to open my own “bakery”). But before all of this, I mastered my budget.

Here’s the thing. I know many people who are high income earners. I define high income earners as people who make six digit incomes or more. Most of them are also swimming in debt. This debt includes car loans, mortgage loans, student loans, and even consumer debt. Unfortunately, lifestyle creep is real, and unless you’re well-versed in staving off advertisements who are convincing you to spend more as you earn more, you will likely be one of the top targets (and victims) of lifestyle inflation.

There’s a statistic swimming around that 80% of Americans do not have $2,000 set aside in an emergency fund. Eighty percent! The part that gets me is the fact that $2,000 won’t even cover most true emergencies. Medical bills are way more than $2,000. If something happens to your home, or someone loses a job, $2,000 won’t last most people one month in Southern California. While it’s hard to confirm the statistic, for they do have a tendency to appear out of nowhere and start floating around, I can confirm that many patients that I meet don’t have the income to jump into an emergency dental procedure right away. Yet many of them are working their tails off (I can’t tell you how many nightguards I’ve diagnosed to help with stressful grinding habits), and earning decent pay, and still, they have to “save up” to treat a tooth in pain. And trust me, you wouldn’t put off treating a tooth that really hurts, unless you absolutely have to. It’s a feeling one never forgets.

People are working longer hours and making more money, but are saving less and less. We’ve been raised to be consumers. It’s not an anti-consumerist society, I can tell you that. But we haven’t been taught how to be SMART consumers. I was never taught how to ration out my earnings. I was never taught to pay myself first. I was told that good credit is GOOD. Wrong. Good credit is bad, and bad credit is worse. People without credit history probably are the best with handling their money. (This does not mean they are the richest. Just that they are really good at handling money).

All of this to say, you can try to get rich by working your butt off. You can spend all the hours of your day for forty years of your life trying to make enough money, and then some. But you can’t be successful if you don’t know how to manage it. You can try to take the short cut, the quick way to success. But that’s what most Americans are doing, and eighty percent of them don’t have $2,000 set aside for emergencies.

If you were to take my advice, I’d say start mastering your budget. If that’s something you’ve wanted to do in 2019 but haven’t had the chance, check out my free course How to Create a Budgeting Tool, and get started today!

Why You Need A Budget

I always tell people how having a budget helped turn our life around. For some people, just the mention of the “B” word makes them cringe. There are many negative implications attached to budgeting, but I am here to tell you that they are not true. Many people believe having a budget is limiting, as if it will tell you what you can and can’t do. I completely disagree. I think having a budget is freeing, because it allows you to finally tell your money where to go. When you have a budget that works, you will have your money working for you, instead of the other way around.

You will never know how you are doing financially without measuring it in a factual manner. Likewise, you cannot improve if you don’t know what you need to improve upon. Numbers don’t lie, and your budget will be the best reflection of how well you do with controlling your spending. The first question I ask people who tell me they have difficulty saving money is, “how much are you spending each month on _____?” If they can’t give me a definitive number, then therein lies their problem. I liken it to people who say they can’t lose weight. If they don’t know how many calories their taking in and how many calories they’re burning per day, then how do they expect to have any grasp on the things they can improve on in order to see results. A budget is necessary in order to track progress. People will usually try to ball park their spending, but it never works. Why? Because we always underestimate how much we spend. It’s human nature. It’s difficult to understand what’s keeping us from financial freedom if we do not know what we are doing with our money.

Budgeting will teach you more about yourself, what you value, and what you want in your life.

There are many reasons why you may want to master your budget. Here are some ideas.

  • To free up your time. You may feel as if work is taking up all of your time. You may want to cut down on work or change jobs completely but you can’t do so because there are bills that need to be paid. A lifestyle needs to be supported. Getting your budget in order may be just want you need to decrease your spending, thus allowing you to take that part-time job or cutting down on your work hours. Some people even want to become so financially savvy that they can pursue complete financial independence and retire early!
  • To relieve stress. Having a shortage of money can be very stressful. However, if you budget correctly, you should never run into that situation. Mastering your budget gives you more flexibility and allows you to be better positioned to deal with unexpected expenses.
  • To have more freedom. The more financially secure you feel, the more freedom you will have when making life decisions such as changing jobs, quitting work, traveling the world, starting a business, starting a family, and more. When money is tight, these things may seem very risky. But when you have a grasp on your budget, you can predict how much freedom you have in pursuing your passions. For example, if your dream is to time off and travel the world in 2020, you can definitely make that dream happen but planning ahead and using your budgeting skills to prepare yourself for that.
  • To support yourself and your loved ones better. For me, this was MY “why”. I was graduating from dental school with over half a million dollars in student debt, and was also about to get married. I knew what a burden I was choosing to bring into our marriage. He didn’t mind it, but I did. I was propelled forward with this drive to release us from this student debt, so that we can be free to pursue the lives we want to lead without being tied to working in certain fields to support large loan payments. It isn’t fair that the person I most love would be affected by debt because of the career I chose to pursue. So I embarked on a journey to get our finances in tip top shape, and we have mastered our budget so well that what people once told us would be impossible to do is being done! They said we wouldn’t be able to pay off our debt in under ten years considering the salary we would be making. Well, we are on track for eight years, and it all started with mastering our budget!

So, do you have a budget? What’s stopping you? If you want to kickstart your budget and start telling your money where to go, check out my FREE course, How to Create A Budgeting Tool That Works, and start achieving your life goals sooner. I hope it helps you with your financial journey as much as it’s helped us.

A Frugal Approach to Halloween to Make the Holiday A Bit Less Scary

Halloween marks the start of the holidays for us. That’s about the only celebratory sentiment I have towards this holiday. I don’t typically celebrate Halloween at all, except to rejoice that Thanksgiving, Christmas and New Years are just around the corner. Anyone who knows me can tell you that I avoid anything that could even remotely resembles scary. I go so far as to avoid YouTube in October, just in case I see one of those ads for an upcoming horror movies. To be honest, I was not introduced to the concept of Halloween until I moved to the United States at 8 years old, an age nearing when it was time to outgrow playing dress up. Additionally, I’m a DENTIST. So I have never passed out candy in my life, and likely never will. It has helped that we live in a live/work loft, since no children walk along the streets of downtown knocking on the doors of businesses already closed for the evening.

Despite my Grinch-like approach to All Hallows Eve, I understand that there are others who choose to celebrate the holiday. And I’d hate to send the wrong message here, because frugal living does NOT equate to deprivation. There IS a way to enjoy your favorite holiday, whatever it may be, without excess consumption. Hence, a brief guide to a more frugal approach.

Costumes

Create Your Costume

Remember in college, there were Halloween parties to go to, but most of us were broke? I think being poor really does require one to tap into our most creative selves. If my memory serves me, almost every costume at a college Halloween party was home-made. Why not have some fun and re-create those days? I remember one year, I had a witch’s hat and a name tag sticker that said “Hi! My name is Sam!” and I went as a Sam-witch. Another favorite was a classmate carrying around a cereal box and a knife, calling himself a “serial killer“. Cheesy?  Yes. Punny? Absolutely! A conversation starter, at the very least. If you’re interested, here is a list of clever, last minute Halloween costumes.

Borrow A Costume

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As a zero waste advocate, I am all for borrowing! Not only costumes, but everything else, too,  from vacuum cleaners to clothes steamers. Since this is a Halloween post though, let’s talk about borrowing a costume. I may not like Halloween, but there are people who live for this holiday! I have a dental assistant who loves it so much that she goes to multiple parties and wears different costumes to each one. I happened to mention to this particular assistant that I did not have a costume to wear to work, since we were required to dress up for the kids. I inquired if there was a costume I could borrow. She immediately listed off a number of costumes that she had on hand, and we decided that I would go as a pizza slice this year, because I like pizza. It’s that easy. Another assistant of mine mentioned that they were doing the same as I, borrowing their sister’s costume from a previous year. Props for those friend circles who create a chain of borrowed costumes. Gather a group of people and trade amongst each other, to have “new” costumers for multiple years without spending a dime!

Wear a Hand-Me-Down

In line with the previous thought, there are many people who refuse to wear the same costume twice. Offer to take their hand-me-down costume for the following year. If you create a loop with such a friend, you may get a “new” costume from her every Halloween, and she has a way to de-clutter her costumes without throwing them directly to the trash. I would consider that a win-win.

Re-Use the Same Costume Every Year

This is the one advice that I get the most push back on, but I think it’s worth considering. For four years, I wore the same teddy bear costume. For three years prior to that, you could rely on me showing up as Sally from Nightmare Before Christmas. Part of the reason definitely had to do with the fact that I did not put much thought into Halloween and ended up having to make do with what I already had whenever I would get <s> invitied </s> dragged to a Halloween party. The other part? It saves money!

Decorations

I cringe whenever I walk by houses decorated with all sorts of fake cobwebs and plastic spiders and inflatable black cats and flying witches. Cringe because, firstly, they DO give me the creeps, and secondly, because I think of all that plastic waste. I can guarantee that very few people re-use cobwebs that have been sitting in their bushes for a month. In fact, those fake cobwebs may be intermingled with entirely real cobwebs. Here are a few thoughts I have on decorations.

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Pumpkin on the Porch

I’d like to pose one simple question. Will lack of decoration stop children from trick or treating at your house? I don’t know about you guys, but as a child, even if no decorations were up, I still walked right up to the door with my siblings and tried my best to solicit candy. Call it hopefulness, or ignorance, but children will still want to TRY. So a lack of decoration will not deter a child, unless mom or dad is with them and is telling them to respect the privacy of that one particular home owner. Therefore, the simplest way to decorate your home and signal to little beings that you’ve got candy in store is a single pumpkin on the porch. Okay, or maybe a few pumpkins on the porch, and some in the windowsill. Carved pumpkins optional, the use of its insides non-optional. (Who doesn’t love pumpkin cake?) In fact, when I was young, this was how most houses were decorated. There was no excess consumption of plastic skeletons, and scary moving ghouls. No myriad of plastic webs on the front yard. Plus, kids who trick or treat are only thinking about one thing: The treat! They aren’t judging who’s got the best house on the block. I’m just saying.

YouTube Videos

If a pumpkin on the porch just doesn’t cut it, or if you are looking to be a bit cooler than that, try adding effects using a projector. We happen to have a projector at home, in lieu of a TV, so we could easily point the projector towards the front of our house and play music or an image that we film on repeat. Try projecting Singing Pumpkins or a Zombie Invasion.

Use Yourself as Decoration

Is projected imagery still not enough? Want your house to be really scary? How about using yourself as decoration? This isn’t to comment on your physical appearance, but rather, at your ability to disguise yourself. I remember the days of walking by a porch with a lone monster or ghoulish figure sitting on a wooden stool or chair. Those were the houses that I knew were the scariest, because you never know when the monster would come to life and get you. The bowl of candy is by his feet, or worse, in his lap, and the sugary sweets are calling to your sweet tooth. But is it worth the venture onto that porch? If you are looking to scare little kids with decoration, why not use yourself, dressed up in the scariest possible way? Or get a group of friends and create a themed look.

Au Natural

Lastly, have you noticed that fall decor consists mostly of dead things? How appropriate for Halloween! In addition to pumpkins on the porch, why not gather organic elements and create a house worth visiting? Grab some fallen pine cones on your nightly walking path. We’ve got tons at the park, so you may too. Display them amongst the pumpkins. Gather a bunch of broken twigs and sticks, and tie them together with twine to make witches brooms. Collect some “poisonous” apples and throw into a cauldron or basket. Or better yet, bend the thinner twigs into a wreath, and collect autumn colored leaves to make a fiery statement on your front door. Got paper? Cut out spider webs and bats to hang from the ceiling and walls. A combination of all these natural, bio-degradable, and sustainable elements is enough to make any person want to swing by! Hey, if you have a black cat, maybe he’d like to perch on the window sill all night, too. Who knows?

Property Ownership: How to Detect and Avoid Fake Sellers

What is a fake seller and why would anyone want to knowingly waste time and money on something so lame? It may seem like a bogus idea, but fake sellers are out there. Trust us, we know. From our short-lived personal experience to boot! I feel a story unraveling…

From the onset, we knew what we wanted. We have been mulling the thought of buying a property for a year and a half, and we had extensively narrowed down the price range, location, and types of homes we would be willing to consider. Additionally, we had been spying on the market over the course of the last few years. For every home type that we were considering, I knew the neighborhoods in which they were located, the price ranges, and the typical pros and cons of the properties. I knew which agents were specialized in selling those particular places as well. So the time came when we were ready to make a leap of faith, I reached out to an agent who specialized in lofts in Orange County, CA.

Originally, we were very specific in which lofts we wanted. We wanted a loft in our current and exact neighborhood. We specifically wanted one that faced the market and commercial area, rather than one that faced Main Street or Memory Lane, which limited our search to less than twenty particular properties. We requested that she reach out to any owners to see if they would be willing to sell their loft.

She returned to us on the same day saying that there IS one owner who is interested in selling. He isn’t listed on the market, and is willing to do it without opening the deal up to other buyers And by that night, we were looking at the property.

That’s where the good parts of this story ended.

The owner had an asking price that was $50,000 more than the average value of the property. He claimed that there were upgrades to the loft, which was very true. We looked at the property and we agreed there were updates. We pulled up a comp report and analyzed the selling price of neighboring lofts in the last 6 months. They were usually selling for $575-$590k and the seller was asking for $650k. We accounted for the upgrades he had made to the home and the slightly larger square footage, and the comp report analysis returned at a value of $612-$617k. Since we really wanted the space, we offered $620k, trying to work with the seller.

Unfortunately, when the counter-offer returned, we knew this was not going to be the home. He returned with a counter offer of $645k AND we had to pay for all of HIS closing costs. He was using the downstairs space of the loft for a digital business and did not physically need to be here in California. Since he does not live in this state, he viewed the selling of the house as an inconvenience and is not willing to put any effort in the selling of his house. When we confronted his agent about the ludicrous price, he simply shrugged his shoulders. He knew that the loft would be appraised at a lower rate than $650k and that the difference will have to be covered by the buyer in cash. The seller’s agent informed us that this entire thing is an inconvenience to the Seller, to which we replied, “Then why bother say he wants to sell?” And like that, we dropped them like a handful of hot coals.

How to Spot Fake Sellers

So here’s the rub. Fake sellers can easily seem like real sellers. They do all the things a real seller would, such as put the house on the market, place FOR RENT signs on the lawn, have an agent and host open viewings. However, whether knowingly or unknowingly, they waste their time and money doing all of this because they are not really READY to sell. If you don’t know how to detect fake sellers, then you cannot avoid them. And if you don’t avoid them, then you may waste precious time and money to fruitlessly negotiate buying a house that isn’t really for sale.

  • Are the sellers realistic? The number one reason that people cannot sell their homes is because of a grossly high asking price. When you hear that an owner is having difficulty selling their home at such a high price, beware! As with the case of our first loft offer, what it actually means is that the seller is refusing to accept the market’s opinion of what their house is worth. They may have an alternative motive, such as making up for the costs they’ve spent to upgrade their place. Or just to try to get more money from a buyer who knows nothing about the current market. This, by the way, is different from real sellers who mistakenly place too high of an asking price. Real sellers will wise up over time. Fake sellers will not. My advice is to move on.
  • Are the sellers motivated? Getting a seller who is motivated is important. Most sellers are motivated by a life change, such as a job transfer, a recent marriage or divorce, retirement, etc. Having a REALLY motivated seller makes it better for the buyer, because they will have a better chance at negotiation. Our fake seller was obviously not motivated at all, which made it easy for him to be uncompromising. Lack of motivation is a giant red flag. Run the opposite way, especially if you hear them say “they are just testing the market”.
  • Do sellers have a time frame? Deadlines make things happen. If the seller has no deadline, then he is in no rush to meet deadlines. It’s easy for fake sellers to start an escrow process and decide to not meet deadlines and kill the deal. Only because there is no urgency to sell the home.
  • Are the sellers forthright? Genuine sellers are open about the condition of the home and the legal status. Why? Because they are aware that withholding vital information can ruin the sale. Early disclosures of possible problems help indicate whether you’ve got a real seller on your hands.
  • Are the sellers cooperative? Real sellers want to sell their homes. They will look for ways to make the transactions go more smoothly. Inconsistent behavior is another red flag. If seller’s become uncooperative or start missing their deadlines, they may have lost the motivation to sell. When you start to see these signs, ask why they are happening. Otherwise, you may be in for a surprise if the deal ends up blowing up in your face.

My best advice is to do the same as we did. If you find yourself dealing with an unrealistic, unmotivated, and uncooperative seller, it’s time to walk away. Find something else. Maybe that seller will wise up, but then again, maybe not. You don’t want to waste your time and energy trying to coax reason into a seller like that.

Plus, you may find that it ends up being a blessing in disguise and you find a property that checks off even more boxes! Like we did!

How to Decide if Property Ownership is a Good Financial Decision for You

This post may contain affiliate links. Please see my disclosure to learn more.

Well, we are doing it! We are in the throes of purchasing our first property! Currently, we just started the escrow process, so it’s all new enough to accurately relay our experience on zee blog. I have been MIA on the finances front for a while, but I’ve decided to start a new series on Property Ownership (I say property ownership because, as you will see, we did not go with a traditional home, therefore I think home ownership is too selective of a title), in which I hope to cover a collection of thoughts and well-meaning advice.

The first of which is this: You’ve got to know what you are doing when buying a home. Unless you want to get your money swept from underneath you or risk ending up with a home that you absolutely hate, I highly suggest getting informed before even considering any of this. May I suggest starting with the Home Buying Kit for Dummies? Not saying you’re a dummy, just saying I read this from front to back and felt confident in the home buying process, which went quite smoothly for us. In fact, today’s topic of deciding whether to buy is outlined in their first chapter. Sans my own personal stories and interjections. You’re welcome!

Deciding Whether to Buy

We all make consumption choices in our lives. Whether that’s a cup of coffee, a sustainable product, or an eco-friendly gadget. Sometimes, purchases can lead to buyer’s remorse, especially when they fall short of our expectations. When it doesn’t cost much, you can get over it quickly by either choosing to return the product or deciding you will not make the same mistake twice.

As a very mindful consumer, you likely already know that I weigh the pros and cons of every purchase I make. This is especially important with large purchases, such as a car or home. Sloppy shopping can lead to financial and emotional disaster. And I love the analogy that consumer debt is the equivalent of financial cancer. So, buying a home should not be taken lightly. It should not be an entirely emotional decision. And it is not right for everybody. If that is something you did not want to hear, then I am very sorry.

The goal of this series is to go through the process that Mike and I went through in order to help ensure that we have a home we are happy with, we get a good deal on the property, and most importantly, that owning a home helps us accomplish our financial and life goals.

But before we could have even decided whether owning or renting was best for us, we had to learn the advantages and disadvantages of both!

The Pros of Ownership

Not everyone should buy homes, and not at every point in their lives. That’s a statement I believe in. That being said, there are many pros to owning your own property.

  • Owning should be less expensive than renting!

This is the first guideline that Mike and I wanted to follow. We have thrown away so much money in rent. How much, you ask? Our first 18 months, we paid $2,800 a month for our beautiful 1,599 sq. ft., 2bed, 2ba live/work loft in Orange County, California. For those of you thinking we are financially crazy, I just want to point out that an 800 sq. ft. 1bed, 1ba apartment in an apartment complex runs around $2000-$2200 in our area. I agree, it is crazy expensive to live here. I also agree that we weren’t exactly financially savvy when we started out. The next 8 months, we received a huge rent reduction to our space. We made a bargain with our landlord which stated that we ourselves will fix any problems (that totaled to no more than $200 per month) that came up, and she reduced our monthly rent from $2,800 per month to $2,600 per month. Additionally, we took on co-housing and we further reduced our rent to $1,900 per month, while giving our roomie her own bedroom, bathroom, and access to the entire house for $700 a month. She was happy because she avoided having to hemorrhage $1,500 for an old, run-down studio space, and we were happy because our rent went down almost $1,000 with those two simple changes. The savings of $900 over the course of 8 months was $7,200! YAY US!

All of this to say, that over the course of the last 26 months, we have spent $65,600 in rent. If we didn’t have our roomie, then we would have spent $71,200 towards rent, with nothing to show for it. Now if it seems like your monthly rent looks way smaller than the price of a home, which is likely to be hundreds of thousands of dollars, think again.

A very simple calculation of the home you can buy that would have approximately the same monthly cost as your rent can be completed using the following equation.

$______________ per month x 200 = $ _____________________

Example: $2, 800 per month x 200 = $ 560,000. The property we decided to put an offer on? $499,900.

Another consideration between the cost of buying and renting is the cost of doing so today versus the cost in the future. As a renter, you are fully exposed to inflation rates. A reasonable annual increase in rent is 4% per year. Remember that if you pay $1,000 in rent per month, that is the equivalent of buying a $200,000 home. Well, in 40 years, with 4% inflation per year, your rent will balloon to $4,800 per month, which is like buying a $960,000 home! On the flip side, after buying a home, your housing costs are not exposed to inflation if you use a fixed-rate mortgage to finance the purchase. So only the comparatively smaller property taxes, insurance, and maintenance expenses will increase over time with inflation.

This isn’t to say that you must buy because of inflation. But, if you are going to continue renting, you must definitely plan your finances accordingly.

  • You can make your house your own

This is a great pro to all the creatives out there. However, a word of caution:

Don’t make the place too unique. I understand that you may have a distinct taste or style. And while that may lead you to a happy life in your home, it could make it very difficult to sell in the future. If you do make improvements, focus on those that add value, such as adding skylights, energy-efficient  upgrades, and updated  kitchens and bathrooms.

Avoid completely running yourself into financial ruin. It’s easy to get carried away in the emotions associated with owning a new home. There is this urge or pressure to make it look picture perfect straight away! There is nothing wrong with making your home a dream one the slow way. When you feel the urge to throw all your money straight into renovations, think of the things you already have. Say, a roof over your head?

  • Avoiding Landlords You Can’t Get Along With. Mike and I have never personally had an issue. However, we have heard stories of landlords who neglect their tenants needs or continually refuse to fix rental units that are falling apart.

The Pros of Renting

  • Simplicity. Signing up for a place to rent is definitely easier than going through the process of securing a home. You don’t have to deal with financing, inspections, and other possible issues like you would if you were buying a home.
  • No upkeep. When you have a rental property, your landlord will be responsible for property maintenance and upkeep!
  • You have flexibility! This was actually one of our initial reasons to continue renting. Renting allowed us to not feel tied down. In the last few years since we got this place, we were going through so many changes. We got married, Mike got a new job, we started tackling our student debt, and we wanted to travel the world. I just started work and Mike and I did not know if we would like our new jobs and if this is the area we wanted to stay. Luckily, since then, we have fallen in love with our city and our jobs. We have proven to ourselves that tackling the student debt is doable, and we are comfortable enough to now tackle on housing. But if you are at a stage in your life where you need any sort of flexibility at all, then maybe renting is better for you right now. If you plan on not keeping your property for more than five years or plan to move soon, buying and then selling a property is not the way to go.
  • Increased liquidity. Many people buy their first home and wipe their finances clean with the down payment and the closing costs. Plus they have to make their monthly payments. Renting will help prevent you from being financially stretched.
  • Better diversification. Buying a property could mean that your wealth is tied up in the house. As a renter, you can invest money in a variety of investments, not just one.

Do NOT Fall for the Following Pitfalls

  • Renting because it seems cheaper than buying. You must consider the monthly cost as well as the future cost. See discussion above.
  • Buying when you expect to move soon. Additional costs that come with buying and selling a home are pretty large. Unless you plan on keeping the home for a while after you’ve moved, it may be better to wait until you are more sure of where you will be one year from now.
  • Allowing salespeople to sell you something you don’t want. Many people in the biz have a vested interest in getting you to buy, because they work off of commissions. But remember that when you buy a property, you will be the one coming home to it every day. You will be the one paying for it. So make sure that you do you!
  • Ignoring logistics. You should probably think through how every aspect of your life is affected by your home purchase. Imagine buying a home that has everything you are looking for and is within your price range, but which adds an hour commute to work. How much would you resent that home? Or imagine having a home that happens to be located in a loud neighborhood, and you are a light sleeper. These are important things to consider!
  • Don’t become house poor! Either you own a home, or it owns you. Nuff said.
  • Being peer pressured. This is a toughie. Typical me, I had to really dig deep and figure out why I wanted to buy a home. Was it entirely socially ingrained? Was it purely from a financial perspective? Was it part fantasy? I had to rationalize and confirm (and re-confirm) that I was not being peer pressured into this. That this is something Mike and I decide to do, for reasons of our own. Just because siblings, friends, and co-workers are buying homes, it does not mean you should too. Maybe they own a home, but have no finances left over to travel. Maybe their house is keeping them from quitting their work and pursuing a passion. Don’t assume their life is better than yours. And as always, never compare your beginning to someone’s middle.
  • Misunderstanding what you can afford. To be honest, if you haven’t gotten a feel for your financial situation and life goals, you are just guessing how much you should be spending on a home. So having a good grasp on your financial stance is the place to start. Also, unless you are a high-income earner, if you do not have a back up plan for unexpected life occurrences, you may find yourself in a tight situation. A job loss, family emergency, or natural disaster can make you house broke in an instant. Understanding all of this and having a back-up plan is very wise!

Given all of these pointers, only you can ultimately decide if buying a home is right for you. Not me, not your peers, not your real estate agent, and, no offense, but not even your parents. More importantly, you must analyze whether NOW is the right time for you. It may be that waiting until you have a bigger down payment, a more stable job, or a better financial back up plan is the best option. Something we as humans tend to avoid thinking about is the worst case scenario. But think about it you must.

Also, learning about the property buying process is quite necessary. If you are feeling a bit overwhelmed after reading this post and need a place to start, start with this book! I highly recommend it. Do you have other recommended reading for first-time home buyers?  Feel free to share with the community in the comments below!

The Value of Having a Certified Financial Planner (CFP)

This post may contain affiliate links. Please see my disclosure to learn more.

Today, I wanted to pose the question, “Is having a CFP right for you?” When I first graduated from dental school, I was absolutely lost. Along with the feelings of excitement and pride with my recent accomplishments came a subtle (but over-powering) dread, and a very heavy, invisible weight. I knew I needed guidance, but did not know who to reach out to. I did not exactly have adults in my life who could act as good financial role models (my long historical relationship with money detailed here), and there are very few people I know (outside of my fellow graduates) who really had the problem of paying down half a million dollars in student debt at 26 years old. So I reached out to Andrew Davis, the CFP behind SeamlessFP, who happened to be the husband of a dental classmate, and whose work focused on guiding newly-graduated dental students, specifically. I think it was the best decision we ever made.

On the flip side, there are people who would argue that CFPs are a waste of money, and that money could be used elsewhere. Which is a fair argument. I myself am a big fan of avoiding outsourcing tasks as much as possible. It will take a bit of work, but handling your own finances is totally a doable thing! However, it requires time, which I have value over money. Delving into research isn’t such a scary thought for me, but spending all my free time learning the nuances of taxes, S corporations, estate planning, investments, and more is NOT an enticing thought. So what I want to discuss today is the value of having a CFP to us, and then I leave the decisions to you.

The value of having a CFP

The list of pros for having a CFP versus not having one is quite long, which is a good thing!

  • Pro: Outsource financial planning to free up time, in order to pursue interests, hobbies, work, etc.

As mentioned before, outsourcing financial planning frees up a lot of our time. Time is a resource scarcer than money in the modern world. People seem to always be running out of it, but are still quick to occupy it with tasks, necessary or otherwise. When you think about how much your time is worth, in dollars, can you really put a price to it? Time is the one thing you are constantly running out of, and will never be able to replenish, making it an extremely valuable resource. Being intentional with the tasks I choose to occupy my time is very important to me. Spiritual uplifting, emotional replenishing, mental healing, these are the things that matter and make it a life worth living. NOT constantly worrying, thinking, and dealing with money.

  • Pro: Peace of mind that we are hitting our financial goals in a very step-by-step (and legal) manner.

This is for the DIYers out there. I am a lover of DIY projects and take pride in my ability to be self-sufficient. However, no matter how much of my free time I put into studying the nuances of finances, I cannot possibly keep up to date with the ever-changing rules and regulations. Mike used to do his own taxes with TurboTax and that worked sufficiently well, but once we got married, added in an S-Corporation with its own separate payrolls, well things got too complicated. We started asking ourselves, “How do we know we are following all the rules? How do we know about the fine-print clauses that benefit us? Who will be flagging our attention with every change?” A financial planner gives us peace of mind, knowing that we are on track to hit our goals in a efficient (and legal) manner. There are many minute details that one could miss, but it makes us feel better knowing that we have someone else helping us with that.

  • Pro: Keep up to date with new changes.

The new Tax Bill that passed last year is a great example of this. Even now, nothing is quite set in stone as to how these changes will apply to us. By having a financial planner, we were alerted to the possible beneficial change for S Corporations in the upcoming year, something we would never have known, but definitely can impact our financial plan.

  • Pro: A resource for learning more.

This, by far, is the most beneficial to me. Andrew has been instrumental in educating us about our finances and different paths we can take to achieve financial freedom. He has recommended books, blogs, podcasts, and other resources. He was actually the one who introduced us to the FI community: a community dedicated to reaching financial independence by using life optimization “hacks”. We would not have gone so far on our financial road to freedom without life hacks such as co-housing, travel hacking, YNAB, and more!

Financial planning VS Investment Planning – What’s the difference?

It is important to differentiate between financial planning and investment planning. We do financial planning, which requires a long-term life plan, created by the marriage between our financial past and our dream futures. Our first meeting with Andrew was not something we expected to have. It began with a meeting dedicated wholly to gaining a deep understanding of our personalities, goals, and dreams. It almost felt like a therapy session, with questions such as, “If you knew you were going to die tomorrow, what would you spend your time doing today?” Don’t let that deter you. I think that first meeting was essential to setting the foundation on which we created our entire plan. The process continues to be a constant reassessment of life. Initially, we listed our priorities as traveling, buying a house, yoga subscriptions, guitar lessons, sticking with loan repayment program, and working until we were 65 years old. Now our life still includes travel, but our goals have shifted to standard repayment, renting for the next few years, working less hours, being a blogger, opening a coffee shop, and early retirement from our lines of work, which would possibly lead us to newer lines of work. In this respect, Andrew acts as more than just a financial planner. He is a psychologist, therapist, educator, mediator between spouses, confidant, & friend. This is NOT to be confused with investment planning, where someone advises you where to invest your money. That is included with financial planning, but not the other way around.

The importance of being a fiduciary

A fiduciary requires that someone acts in the best interests of a client. It is important that your CFP is a fiduciary in all aspects. Conflicts arise when CFPs have affiliations with third parties that may sway their advice towards promoting something that benefits them. For example, a person can receive a profit for selling an affiliate insurance. The insurance may be great, however, that person has a motivating factor that would make him want to promote that particular insurance. Even though it can be beneficial for you to sign up with that insurance company, the decision was not completely unbiased. We did not even realize the importance of being a fiduciary until we learned the concept from Andrew himself. 

If you are not sure whether your CFP is a fiduciary, ask! Try to find a fiduciary in all aspects. You want to ensure that you are being treated fairly at all times. Do not be afraid to ask how they get compensated, so that you can truly see where they are getting their money. It may seem awkward to inquire about it, but it is your finances on the line.

What a CFP has done for us, so far

  • Budgeting Help: Our CFP introduced us to budgeting, setting up our YNAB budgeting tool, and helped us develop good budgeting habits. 
  • Analysis between two potential jobs: When Mike was considering making the move from one company to another, we needed help analyzing whether it was a reasonable financial move. It was not simply a comparison between the two different income, but also required factoring in 401k investment matching, health benefit options, life insurances, difference in commute, and level of interest in the line of work.
  • Investment Planning: He has given us advice on how to manage our 401k portfolios as well as given us other investment tips when we reach out for help. We retain full autonomy as to where we want to invest and how much, but having a third person to go over the pros and cons at each step has been helpful. 
  • Health Benefits: We needed help deciding on a health plan, and have chosen one that works well for us thanks to Andrew’s help. After an analysis of our options, an HSA option was also open to us, and we decided to take advantage of that privilege.
  • Renter’s Insurance: Prior to our new place, we did not have renter’s insurance. After seeing the benefits of having that extra coverage at a small monthly cost, we decided to sign up for one right away!
  • Connection to a CPA: Taxes for SCorps can be a bit tricky. A CPA is advised so as not to miss a thing. Initially, I was going to go with the same person my parents have used for years. But after an hour-long interview with him, it became clear to me that he did not know much about taxes as they applied to dentists specifically. He did not even know about the different student loan forgiveness programs, or how an SCorp can be used for tax deductions. It was useful to be referred to a CPA who frequently does taxes for dentists specifically.
  • Set up my SCORP: This was so beneficial to me! It is possible to create a corporation easily online, however, he walked me through the pros and cons of having an SCORP so that I could make an informed decision as to whether this is something I wanted to do. The application for the SCORP was easy but we did meet some humps along the way that he quickly helped me to resolve. 
  • Setting up Gusto and ways to automate my SCORP: Once the SCORP was set up, our CFP took care of creating an automated payroll for me. We use Gusto to manage my payroll, and once it was set up, he easily walked me through the different ways that we can keep track of the payroll via my SCORP. All I have to do is wait for my payments, the system takes care of the rest!
  • Introduction to financial life hacks: I learned tricks such as travel hacking from Andrew and it was he who introduced us to the FIRE and FI communities.
  • Analysis of student loan repayment options: This is the part about our finances that has most affected our lifestyle. He walked us through the different student loan forgiveness programs that we qualified for. After a thorough explanation of each, he created an extrapolation of our financial futures under each repayment option. By using physical numbers, we were able to predict the lifestyle changes associated with each student loan option. Once we had our budgeting in order, he brought to our attention that we were able to pay down student loans without the forgiveness program, thus saving us more than $100,000 in the long run, as well as buying our freedom 15 years earlier than planned. That decision itself was so life-altering for the better, and we would have never gotten to that point on our own. 

We personally benefit from SeamlessFP

Andrew Davis is the CFP behind SeamlessFP. He focuses on helping newly graduated dentists create a financial plan. He does work with non-dentists occasionally, or dentists who have been practicing for a long time. I only know this because we have referred people in those categories who now are working with him too.

There are multiple options one can choose when working with SeamlessFP. A person can do a one-time consultation in order to gain help on a particular goal or project, or they can choose the full life-planning package. We chose to do the latter option. I did not want help with simply setting up an SCORP. I wanted a more thorough analysis of all of our financial details. I was determined to tackle as many aspects as possible to optimize our financial situation. After every meeting, he will upload a list of tasks via an online portal to be completed. This is helpful for people who need someone to hold them accountable to ensure that they continue moving forward with their financial path. Together, we re-analyze continually to see what we can change to optimize even further. A yearly re-cap meeting is held as well, where we go over our dreams and goals for the future (5, 10, 25 years out) so that we aren’t dully following a pre-set path. Besides, a lot changes in a year!

What I like most is that he is eager to help clients learn more about their financial options and situations. It is clear that having his clients make their own decisions (given the facts) is important to him. I can ask him one question, and we will go over the entire topic in detail, prior to him answering my question just so that I know the reasoning behind his answer. It’s scarce to find that these days, and I wholly appreciate it.He may give suggestions but he really makes sure you know that ultimately, the choices are still completely yours to make. It’s easy to see that his goal is to help his clients find the happiness they seek, by eliminating financial stress from the equation. It also helps that he is very accessible via email or text. Typically, responses occur within one day. Additionally, if you choose the latter option, there is unlimited access. Anyone who knows me will easily tell you that I am the type to ask multiple questions, always in search of a deeper understanding of all things. So a CFP who embraces that is gold. Off course, you want to make sure that the CFP you choose is right for you, if it’s right at all. If you have any interest in learning more about our friend Andrew, you can easily set up a one-hour phone call to speak with him and see what services he can offer you and which package is best for what you are trying to achieve.

Overall, I just wanted to shed light on how a CFP has changed our life in this blog post. As always, you do you.

 

Finances: How YNAB Helped Us Pay $84,000 Towards Student Loans in One Year!

This post may contain affiliate links. Please see my disclosure to learn more.

Looking back on it, it seems absolutely nuts that we have been able to pay $84,000 towards our student loans in the last year. Prior to getting our finances in order, you could say that I was not one who was highly motivated in monitoring my spending. Or rather, I may have been highly motivated, but not entirely good at it. Honestly, I did not know where to start.

I was never afraid of budgets. Some people are. They are afraid that it would be too limiting, or depriving, to set financial constraints on their having fun in life. I get it. YOLO, right? But honestly, that’s just the rub. YOLO. You only get one life, and I don’t want mine consistently anchored down by debt. I want to be free. So it was not the budgeting that scared me, but the lack thereof. In fact, I was always in search of ways to budget. However, I had no idea how to do it efficiently.

We used to implement that all-too-familiar way of assessing our spending by guessing, eye-balling, rounding up and down (depending on our mood), or sometimes, ignoring all-together. Additionally, much of our analysis was performed retroactively. As in, “Oops, I spent too much on groceries last month! Roughly $100 too much.” The estimates, off course, were always too low, and the recognition harbored a bit too late, after the spending was already a done deal. Yikes!

Enter YNAB. YNAB is kind of like that high-school teacher that slaps your wrist and sets a vagabond teen straight. The acronym stands for “You Need a Budget“, and is better than an angel on your shoulder keeping your finances in check. It is a very easy system that is based on the age-old envelope system of budgeting. It used to be that, without computers and programs such as YNAB, people would use envelopes to budget their money. Each envelope would stand for a category. For example: “Groceries”, “Rent”, House Maintenance”, “Savings”, etc. With each incoming paycheck, a person would split the cash in between envelopes, allocating a certain amount towards those categories for the upcoming month(s). One can never accidentally overdraw from an envelope, because once the money runs out, that’s it! In order to overspend in a category such as “Dining Out” for example, one would need to proactively choose to take out money from another envelope, thus consciously deciding to decrease spending elsewhere.

With the invention of things such as credit cards, this becomes an obsolete practice, but I think it is one that is very useful. Instead of retroactively analyzing our spending, we should be proactively planning for our financial futures. In YNAB, you can create categories of your choosing that would be equivalent to those envelopes. You can be as precise or as general as you would like. We prefer to be more general, because it makes categorizing easier. Our categories are separated into “Needs”, “Financial Goals”, and “Wants”. A few examples include:

Needs – Rent, Auto Insurance, Utilities, Cell Phone, Groceries

Financial Goals – Student Loans, House Savings

Wants – Activities/Hobbies, Travel, Mike’s Fun Money, Sam’s Fun Money, Dining Out

So as paychecks roll in, we are proactively placing budgeted money into each category. Every dollar we earn is accounted for, down to the last penny. The goal is to budget appropriately, so that none of the categories need adjusting during the month. Metaphorically, you don’t want to borrow from any of the other envelopes. It did take us a while to get a feel for how much we spend in each category, but that’s the fantastic thing about YNAB. It summarizes previous spending in the months prior really well. Over time, we were able to know exactly what number we would need to budget in each category to be absolutely prepared.

A word on those summaries. This is a wonderful way to get a picture of how much of your spending is going towards your “Needs”, your “Wants”, and your “Financial Goals”. For us, because of our student loans, 50% of our income goes straight towards hitting our “financial goals”. We try to keep “wants” to a low 10% of our income, travel included, which is why travel hacking is so important for us. Also, there are graphs to show you how much your net worth is rising, as well as comparisons of “Income VS Expenses”, if those are motivating at all for you.

All of this can technically be done on an Excel sheet, but it would take a lot of time and effort. What I love about YNAB is that it can link to your bank accounts and automatically record every transaction, whether that’s money going in or money coming out. The only thing left to do is to categorize each transaction. Also, YNAB will remember which transactions fall under which category. For example, we frequently shop at Mother’s Market and Whole Foods for our groceries. I no longer have to categorize those things, since YNAB will automatically do that for me, thus making my job easier.

Off course, YNAB comes with a fee, which luckily for us, is waived by our financial planner. The cost to use YNAB is $89.99 annually, which seems like a lot, but when I look at the number we paid towards student debt ($84,000), I don’t feel bad at all! I think that fee is totally justified, plus it makes the whole budgeting process easier and much more motivating than if I had to go through all of our bank accounts and credit cards and physically input each and every transaction, create analytical comparisons and graphs and pie charts, and let our financial situation take up all of my free time.

If you are someone who wants to know where their money is going, wants to plan for the future, or is already doing both but wants a simpler process, try out YNAB. I hear too frequently the saying, “I don’t know where my money goes!” It’d be nice if we never have to say that ever again. Plus, once you know where it goes, you have the power to redirect it, kind of like we have!

Finance: Why I Consider the Loan Forgiveness Program as a Risky Chance

When you graduate with a loan as large as I have ($550,000 in debt!), it is easy to view student loan forgiveness programs as the superheroes of our lives. There are many different loan forgiveness options that you must choose from, but once you’ve chosen one, you are given the choice of paying a sliver of your income every month, with the promise that at the end of your program, the remaining (accruing) balance will be wiped forever from your life! It’s an ultimate quick fix to a problematic giant standing in the way of your financial independence. The small monthly payments are on autopay and the looming terror is out of sight, out of mind, for the next twenty or twenty five years. So why the skepticism?

Twenty five years is an extremely long time. I know, because I have barely passed my twenty five year mark. I also know that because after I add on twenty five years, I’d be over fifty. To be honest with you, I don’t want to keep this lifestyle up until I’m fifty. A lot can happen in twenty five years. The immediate assumption is that no matter what happens in the future, we will be grand-fathered in this loan forgiveness program.  But although it’s an immediate assumption, it doesn’t mean it’s logical or true. Because nowhere in the fine print does it say that. But our brains are wired to make up stuff that will put us at ease. And so, some like to reason that this must be true, and I know I can’t convince them otherwise. Because, what do I know?

Well, here is what I know.

  • I know that there are people out there who chose a ten year loan forgiveness program. Only to be told after their ten years that they do not or no longer qualify. Some haughty know-it-all will likely say, “Well, that’s THEIR fault for not knowing their own program!” But as we all know, they don’t make programs easy to know. The fine print just keeps getting smaller AND longer.
  • I know that my sister took a five year contract with a charter school in a city far away from her family and friends with the promise of getting $40,000 forgiven from her student debt after the five years. However, you cannot apply for the forgiveness until you’ve completed all five years. Last year, the amount forgiven changed. It went down to $17,000. Still a good amount, but not the promised $40,000. Her five years ends in June. So in June, she would have given up five years of her life living in this far away city to only get back less than half of what she thought she was going to get back. Which is depressing to think about, since she turned down multiple amazing opportunities with higher pay for this program.
  • I know that in the ONE year that I have been out of dental school, there has already been talk of the loan forgiveness program being extended to THIRTY years. An additional five years of minimum payments, a continually accruing debt, and a higher percentage of your loan that you have to pay in taxes at the end of it all. More, more, more.

Therefore, you are right in saying that I just don’t know. I don’t know the future one year from now, so I sure as heck don’t know the future twenty five years from now. I don’t know who will be in the government, who will be controlling our laws, how the program will change, if the program will still apply to me, and if the program will even exist. And with a loan this large, I will not leave this up to chance.

What I do know is that I CAN tackle this giant, so I WILL. I will not let him rule over me, stop me in my path, instill any fears or doubts.

Will you tackle him, too?