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The following is a guest post from The Financial Journeyman. Do you earn a high salary or a high combined high household income and feel like you cannot get ahead? The average household income in 2017 was $59,000 for Americans. There are many households who earn $150,000, $250,000, or much more and feel like they cannot get ahead of their spending habits. When I hear about these households, one thing comes to mind. They do not know how to budget. The salary amount that a family earns is only part of the equation. Without having a well-planned budget as part of your financial plan, it does not matter if your household income exceeds $1,000,000. Earnings are finite. If you spend what you earn, you will always feel poor. If you spend more than you earn, you will be poor. Like with most topics in personal finance, there is a solution. The solution is simple, but it might not be easy. It is not easy because it will require a person to make changes to how they budget and spend. When setting up a budget, there are a few general guidelines to follow as to how much you should be spending per category. To keep it simple, let’s examine how a household should budget a net annual income of $100,000 per year (after taxes). That would come out to $8,333 per month. Below are some budgeting guidelines to break the feeling of not being able to get ahead: Housing Housing costs should not...
The following is a guest post from Bernz JP who writes at Moneylogue. More importantly, Should You? When “life happens” it can be extremely tempting to use retirement accounts as emergency savings accounts. And while in an ideal world, you would never need to do this, sometimes it may be necessary. Statistics state that a little over 30% of 401K investors in the last decade have cashed out before reaching the minimum age of 59½ that let them avoid the 10% early distribution penalty. IRS rules do make room for retirement plan loans if the maximum amount of the loan is either under half of the amount of your vested balance or $50,000, whichever amount is smaller. This means you won’t be able to borrow more than $50,000 from your 401K, no matter how much your plan is worth. So, the question is, what counts a necessary and what doesn’t? If your financial situation has become problematic and you're eyeballing your 401K plan as a possible out, most financial advisors will tell you; you need to have a full understanding of the consequences before you move that direction. While borrowing from yourself might initially appear harmless and convenient, the long-term costs can end up being more expensive than you may realize. Here are some reasons to rethink borrowing from your 401K. You’re Paying Taxes on the Same Money Twice Yes, you will be paying yourself back with interest, but you’re using your taxable income to do it. This means you’ve paid taxes on the...
Check out this video: The key point in it: Exercising for 30 minutes a day, 5 days a week saves you $2,500 a year. And this is only heart health savings! If you add in all the other health-related savings, it's much higher than this. Couple this with the fact that people who exercise more make more money and exercising is a no-brainer! I am at the gym six times a week and am active in addition to that (I try for about 15k steps per day). I feel better by working out as well, so my quality of life is improved to boot! How about you? Do you exercise? Why or why not?
As tax season gets close to wrapping up, I thought this piece from Business Insider was timely It gives a flowchart, decision-tree on whether you should do your taxes yourself or have someone else do them for you. The times they suggest you should hire someone include: Household income over $200k Self-employed or own a business Extensive investments Make large charitable donations Had a major life change like baby or marriage Don't have the time and patience to DIY Other than the major life changes, all of these pertained to my family for most of the past 20 years. That's why we've used a CPA to do our taxes for most of that time. This year it took me a fraction of the time to get everything together for my CPA. Once I retired things did get a bit less complicated in some ways, but more complicated in others (like having a daughter in college.) So unless things shift drastically for us, we'll probably keep using a CPA for taxes for the foreseeable future. How about you? Do you hire someone or DIY? Why did you decide to do it this way?
Just look at this interesting chart. There are several things that stood out to me here, but most notably these: Look at how much housing takes up at every single level. No wonder I was able to accumulate such wealth by paying off my mortgage early. Food is a category that most people spend way too much on IMO. Almost every single person we coached spent multiples of what we did on food (much of it on expensive, processed, branded products and eating out) even when we had more people in our family. Transportation is a huge money suck. This information makes a good argument for living close to work, driving a car until it can't go any more, and keeping these costs as low as possible. In fact, if you look at these three costs, they make up half the spending at almost every income (much more than that at lower income levels). Here are some quick thoughts on how to reduce the spending in each area: Buy a house below what you can afford. This will not only help you pay it off faster but save on associated expenses. It's well documented that the larger the house you have, the more you spend on related items. Reduce your restaurant costs and branded purchases. From there take the right steps to save even more on your remaining food purchases. If you can live close enough to work to bike/walk, do it. If not, get a gas-efficient car and drive it into the...
Do you think it's possible to retire on $1 million? CNBC doesn't think so: A cool $1 million has long been considered the gold standard of retirement savings. These days, it's only a fraction of what you will really need. For instance, a 67-year-old baby boomer retiring now with $1 million in the bank will generate $40,000 a year to live on adjusted for inflation and assuming a sustainable withdrawal rate of 4 percent, said Mark Avallone, president of Potomac Wealth Advisors and author of "Countdown to Financial Freedom." It's worse for a 42-year-old Gen Xer, whose $1 million at retirement will only generate an inflation-adjusted $19,000 a year when all is said and done. And a 32-year-old millennial planning to retire at 67 with $1 million would live below the poverty line. That's what Avallone, a certified financial planner, calls "million-dollar poverty." LOL! This is written like a journalist (who knows nothing about money) who consults with a financial planner (who knows nothing about money) wrote it! First of all, why are they assuming the millionaire today can't live in $40k? That's completely reasonable, especially if they live in a low cost-of-living city and/or have their house paid off Second, let's say the 42-year-old retired NOW with $1 million. He could take $40k out of that PLUS it's highly likely he will earn more money here and there. Very few young retirees never earn...
I've been blogging for almost 13 years now and I get the question quite often: "How can I make money blogging?" So today, I have an answer for that question. For those of you who want to get started blogging immediately and learn as you go, here's a post on how to set up a blog. For those of you who want to know the details and learn a bit before you jump in, check out the series of blogging posts starting here. Blogging has been very good to me over the years and with a bit of time and effort, I believe almost everyone can turn it into a decent side hustle. If you decide to jump in, best of luck to you on your journey.
Wow. I don't know why it surprises me when I see articles on how people can't manage to survive on $100k income or more. I've been writing on this issue for years so you would think I'd be numb to it by now. But every time they come around, I shake my head like it was the first time I've ever heard stories like these. And they always seem to come in bunches -- so I have a few to share today. We'll begin with this couple who makes $100k and says they don't ever expect to retire: Theresa Sahhar and her husband make a combined $100,000, which is nearly double the median annual income in the United States. They live in Olathe, Kansas, where the cost of living is "pretty reasonable," Sahhar told NPR's Lulu Garcia-Navarro during a segment on living on $100,000 a year. Still, they're "struggling to make enough money to do all the things that we normally do." I don't need to go any farther into the article to know that these people are spending way too much. I've been to Olathe, Kansas several times and it's not that expensive -- 5% above the average US location according to Best Places. At the same time, as mentioned, $100k is twice the average income. If you make twice what most people make and live in an average cost-of-living city, you have some BIG expense outflows in some area. But we'll get to that in a minute....
Here's an interesting infographic on the crazy way we work. I'm going to pick out a few of their facts and comment on them. 70% of American workers experience stress-related illnesses. I can relate to this. I never knew what a toll stress was taking on my body until I retired. I could literally feel the stress melting away over time. It took about six months for me to fully de-stress after working almost 30 years. Of course, too much stress is not good for any of us. In this way, our jobs are slowly killing us every day. 33% more heart attacks occur on Monday mornings. Uh, yeah. Because 1) people hate their jobs and 2) there's a lot of stress there. No surprise here. In retirement, Monday becomes your favorite day. Why? Because everyone else goes back to work. The stores are quieter, the gym is quieter, the theater is quieter, and so on. The average commute time is 47 minutes round trip. That is BRUTAL! Most people don't factor the physical (more stress!) and monetary (like taking a big pay cut) impact of a long commute. Think about it this way: 47 minutes per day * 5 days per week * 50 weeks = 11,750 minutes or 196 hours or 8.2 days per year commuting. Ugh. I never had a commute more than 20 minutes one way and if I had I would have probably hated it completely. 41% of tasks on to-do lists never get completed. What a shock...
Here's a very interesting post and infographic on what people think it takes to "make it" in America.  2,000 people were asked what “making it” means to them. Their answers provide some interesting results. Here are a few of the money-related ones and my thoughts on them: Average annual income: Now: $57,426; Made it: $147,104 So while the average person in the survey makes $57k, they feel they would have "made it" is they earned $147k. Wow, that's a big gap. And one that is not achievable by most people. According to WalletHacks, the top 5% of earners earn $130k or more. So in other words, the vast majority will never "make it" to their desired income. That said, if they want to, they need to get started asap at growing their careers as well as begin a side hustle. Average home value: Now: $248k; Made it: $461k First of all, these people are either living in high cost-of-living areas or they want HUGE houses! Yikes! They should be careful since houses costing over $300k can actually lower your net worth. Second, I think I have "made it" and I've never owned a home I purchased for over $400k (my current home might be worth that now, but I bought it for under $400k -- and we don't live in the high rent district). That said, I do own $600k of rental property, so don't know if they're counting that (I assume not). Average car value: Now: $15,789; Made it: $41,986 Uh, no. Really?...
Unless you've been hiding under a rock for the past few years, you've heard about the "student loan crisis" I put that in quotes because it's not a crisis IMO. It's a problem caused by people who do not understand basic financial principles. But more on that in a minute. For now, let's begin with what Wikipedia says about student loan debt: The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion, with over 7 million debtors in default. In 2014, there was approximately $1.3 trillion of outstanding student loan debt in the U.S. that affected 44 million borrowers who had an average outstanding loan balance of $37,172. This level of debt in and of itself is not a problem -- as long as that debt can be covered by the salaries of the graduates with the debt. The problem comes when a person borrows a huge amount that has no chance of being repaid given his expected graduating salary. Here's a perfect example of what I'm talking about: A Wilmington woman has reached her wits' end trying to pay off nearly $200,000 in student loan debt with a $38,000 salary. And it's not isolated by any means. I've seen these sorts of situations for years and years and years. Dave Ramsey deals with this sort of issue all the time. Here he is addressing it on a video: And if you really want...
MSN gives some details on how much the average 40-year-old has saved. The summary: Among U.S. households headed by someone aged 44 to 49, the average retirement savings balance is $81,347, according to the Economic Policy Institute. But while that number may not seem all that bad, it's also a bit misleading. A small number of wealthier people who are financially able to set aside very large amounts can easily pull an average up. And in fact, they do. If we take a look at the median retirement savings balance -- signifying that half of these households have more saved, and half have less -- it's just $6,200. And what this tells us is that there are far more 40-something families whose nest eggs are below the average than above it. Yikes! The median is $6,200???? That is totally pathetic! But there's more -- they continue: But even if you're between 44 and 49 and have managed to amass $81,000 or so, you still have some catching up to do. According to Fidelity, by the time you reach your mid-40s, your retirement savings balance should be equal to four times your salary. Since the average salary for American workers in their mid-40s is somewhere around the $50,000 range, to have accumulated just $81,347 at this point means you're not where you need to be. And if you're among the countless Americans who have yet to set aside a single dime for retirement, let this...
Kiplinger lists five countries where you can retire for $1,000 a month as follows: 1. Thailand2. Bolivia3. Nicaragua4. Malaysia5. Georgia Here's my take on this: Personally, I wouldn't want to live in any of these. None of them appeal to me in any way. That said, if you haven't saved much for retirement and don't want to stop working when you're 90, these offer a great option. I'm not sure I'd ever leave the US -- I like living here. If we ever did move to a foreign country we'd likely go somewhere more expensive -- like St. Martin. For now, I think our near-term plan is to live in Colorado most of the year, then spend anywhere from a couple weeks to a couple months in the Caribbean when it's cold here. Those are my thoughts. What would you like to add?
Business Insider lists 19 cities where you can live on $50k per year. Here are my comments related to this: Where you live has a HUGE impact on your net worth. It's a fact of financial life that some places are simply more expensive than others -- some MUCH more expensive. It's hard to get ahead when you live in a place that's 50% more costly than a comparable city. I prefer the option of going low in cost and high in income by making a lot of money while living in a low-cost city. And don't say it can't be done -- I've done it for almost 30 years now. Of their cities listed, I've lived in or near four of them. And I happen to live in one now -- and the most beautiful place we've ever lived in. This is just their list of the top 50 markets that are best to live in for low costs. There are tons of much smaller markets that are inexpensive and still great. I know there are other reasons to live in a spot than money (like family). But if you have the choice and are mobile, moving to a low cost-of living city will help you grow your net worth and ultimately retire much faster than a high-cost city.
CNN Money lists five signs you retired too early as follows: 1. You're bored2. Your expenses are unpredictable3. You don't qualify for Medicare4. You're withdrawing early Social Security benefits5. Your financial planner isn't happy Here's my take on these: Yes, it's true that you need something to retire TO, not just retire FROM something. If you have no life outside of work, you either need to find some things to do or keep working. As for me, I have so many fun things I like to do that I'm busier than ever (in a good way) and get up at 5:30 am each day because I want to do them! Here's where a budget comes in handy. Not only does it help get you to retirement (by being a tool you can use to control your spending), but helps you predict what your retirement budget (both income and expenses) could be. You do NOT want to retire without completing a solid budget beforehand and one that includes margins of safety in case income is lower or costs are higher than expected. We had 20+ years of data in Quicken, so estimating our retirement budget was a breeze. You don't have to have that much info, but I'd suggest at least five years to have a good guess at what your costs will be. Healthcare in retirement is a HUGE issue because it's so expensive. Unfortunately, there aren't a lot...
This piece by financial "expert" Suze Orman came out a bit ago. Here's the headline statement: If I resurrected "How Am I Doing?" today, I'd be handing out plenty of failing grades to anyone who thinks they will be able to retire before they turn 70. Yes, you heard me right: 70 is the new retirement age—not a month or year before. She goes on to elaborate: Look, I totally get that if you are reading MONEY you're probably a diligent saver. But it's always dangerous to assume you're better off than you really are. You likely have plenty saved up to breeze through 15 years or so of retirement. But, people, if you stop working in your 60s, your retirement stash might need to support you for 30 years, not 15. Then she details her three steps to retirement: Step 1: Delay Tapping Social Security Until 70Step 2: Lay the Foundation Now to Work Longer LaterStep 3: Truly Enjoy a Secure Retirement Several thoughts on this one: For most Americans, she's probably right. Why? Because they don't save like they should while working. They spend too much and save too little, which ends up meaning you need to work longer. That said, if you manage your money correctly, you can retire -- and retire quite well -- waaaaaay before 70. I did it at 52 and could have retired almost a decade earlier quite comfortably. If I was stuck at...
Just want to wish you all a very happy New Year! May 2018 be your best year yet! I'll be back next week. As of now I'm in college football heaven. ;)
Just wanted to wish all FMF readers a very Merry Christmas!!!! I'll be taking the next couple weeks off to enjoy the season. Hope you all have a great holiday!!
Money magazine ran a piece on "Four Ways to Cut Your Medical Bills" which inspired this response in a letter to the editor: Here is my list of free measures that can be taken to save on health care costs that are usually underutilized: 1. Don't get overweight.2. Do get some regular exercise.3. Don't smoke.4. Don't overuse alcohol or don't use it at all.5. Don't use illicit drugs.6. Do get enough sleep.7. Do wear your seat belt. Over my 31 years as a practicing internal medicine physician, most of my patients would have been better off just following these rules. My thoughts on these: 1. I work out six times per week (three days of weights and three of cardio.) I also have a trainer that I meet with regularly. I have lost 20 pounds and am in the best shape of my life. I know that there are health reasons to be the right weight. I also know that not being overweight can help you save money and earn more as well.  2. In addition to what I said above, I feel better when I exercise too. There are many financial benefits to being healthy and in good shape. For one thing, it makes you more attractive which is one step in making more money. 3. I've been writing a long time about not smoking....
Here's a piece from Money that says Americans paid $15 billion in overdraft fees last year. The details: In 2016, U.S. consumers paid a total of $15 billion in fees for bouncing checks or overdrafting -- which is when a customer tries to make a purchase without enough money in their account to cover the transaction -- according to new data released by the Consumer Financial Protection Bureau. He also pointed out that the average amount of money consumers overdraft by is about $24 -- but that banks often charge fees of around $34 for each overdraft incident. I don't know why I'm surprised at stuff like this any longer. You'd think that after all these years of blogging that I'd have it ingrained how poor Americans are at money management and nothing would shock me. Then something like this comes along. $15 billion in WASTED MONEY. That's what this is saying. People spent money they didn't have and ended up not only paying the original bill but actually paid $15 BILLION more. Ugh. When will these bad decisions end????