Budgeting Will Set You Free

Sadie and Emma,

Do you want to win with money?  Yes, would be your answer 🙂  The way you win with money is getting on a budget!  By being on a budget, you are telling your money where to go!

If you don’t track your spending and plan out your month and every dollar of income for that month then that money will just disappear.  When you first start a budget, you will be amazed at how much you spend on different categories.  It can be mind-blowing in fact.  If you eat out five nights a week, you might not realize how much you are actually spending every month.

To start your budget, you need to figure out your monthly expenses.  Track every dollar you spend.  Update your spending once a week.  Every week when you add in your weekly spending, you might need to update certain areas of your budget.  Maybe you went over on your eating out expense, so that extra money to cover that category is going to have to come from somewhere else. Your budget is a fluid object, it changes constantly.

After a few months of budgeting, you will start to really get a feel for it.  This is when you can really start optimizing your spending.  Look at places where you can trim the fat, and cut back on excess spending.  Do you really need to go spend that $20 a month at the coffee store?  No, make your coffee at home and save that money.  This is where you can make your changes.

The goal here is to limit your spending so you can save as much as you can.  The more you save, the more you can invest.  The more you invest, the sooner you can “retire”, or more so really do what you want to do.  Find a passion, and go after it!  This all starts with budgeting and getting your expenses under control.  Start a budget.  Update the budget every week.  This is how you WIN!

The Path to FI, and Why

My sweet girls,

Why I am writing these letters to you?  What is the point in all this?  Why should you care about personal finance?  I am going to tell you why it is important to me, and hopefully, that will help you understand why it should be important to you.

Let’s start with “What is FI?”  FI, or financial independence, to me, is having enough money that you don’t have to be a slave to a job you don’t like.  It is being able to not have to do what everyone else thinks is normal, work a job you don’t like, Monday through Friday, 8-5, until you are 65!  It is having “F U money!”  It is being able to live on your terms.  This is the path your Mom and I are working our way towards.  My goal is to empower you with the knowledge so that you can start early so it won’t take you as long as it will us.

I struggle with my job right now.  It isn’t terrible by any means, but it is not what I want to be doing.  It is not what I am passionate about.  It was a great opportunity when it fell into my lap.  It got me out of the restaurant industry, and the crazy hours that go with it.  It gave me the opportunity to be home with our family on the weekends finally!  That is important to me.  But now, I don’t just want the weekends.  I want to make my own schedule.  I want to be my own boss.  I want to be able to spend more time with you girls.  This is what FI can provide for us.  It can let me work on my passion.  Let me let you in on a little secret girls, if you like what you do you will never work a day in your life!

So, start early!  Stay away from debt, get on budget, have an emergency fund, maintain a high savings rate, and invest, invest, invest!  Your best friend is time and compound interest.  If you start young, you can be one of these people who “retire” in their 30’s.  Some people look at it as FI/RE, or financially independent, retire early.  I look at it as financially independent so I can work doing what I love.  Get on the path!

Debt, the Wealth killer

Sadie and Emma,

Dad here. I want to teach you girls about personal finance. I want you know at a young age, what it took me years to learn. I had to figure some out on my own but also learned quite a bit through seeking knowledge. So, my first nugget of wisdom is that debt is bad. Debt is the biggest obstacle to building wealth.

What is debt you ask? Well, according to www.dictionary.com debt is, something that is owed or that one is bound to pay to or perform for another; a liability or obligation to pay or render something; the condition of being under such an obligation. Or in other words, you spend money you don’t have now, and pay it back later, with interest…usually very high interest. The average credit card interest rate today is 15.07%. One of the biggest epidemics in our country today is student loans. The average person graduates with $28,950 in student loan debt. Think about that for a minute…you just finished college, getting ready to start your career, and you already have a negative net worth. It is terrible!!

When you have debt, you are giving away your hard earned money every month to someone else. Imagine if all that money you are giving away every month to pay off debt was staying in your bank account! If you are debt free, then you are on your way to FI (financial independence), which is the goal. I will talk more about FI later.

If you are debt free then you can save all that money. Put that money into an emergency fund. After your emergency fund is done, then you start investing that money. If you can start investing as soon as you get out of college, then you are on the path. The two biggest keys to investing are time and compound interest!

So, don’t do like Dad & Mom did and get into debt because then you have to spend all this time and effort to get out of debt. You have to sacrifice just to get back to a zero net worth. Instead, stay out of debt, and start building your wealth. Let’s give you an example to show you how powerful it is to start early.

At age 21, you have $0 in retirement. You start contributing $1,000 per month to invest. If you get an annual return of 8% (S&P has an average return over 30 years has been 11%), then by the time you are 65, you will have….drum roll please….$4,626,067.

Now, let’s say you didn’t take Dad’s advice, and you go into debt. Let’s say you also put off investing any money because you are trying to pay off your debt and become debt free. Now you don’t start investing until you are 30. Let’s take the same scenario. At age 30, you start contributing $1,000 per month to invest, and you are still getting 8% annual return. At age 65, you now have…$2,233,225.

See the power of starting to invest as early as you can?!?!? Stay out of debt, and invest!

Introduction

This is going to be a series of letters that I write to my two daughters, Sadie and Emma. Through these letters I am going to share what I know about personal finance, to try and share with them the knowledge that I was never given. I think personal finance should be a mandatory high school class. There is so much that you are not taught in high school or college and go throughout life learning as you go and making mistakes. Well, I would like to share my mistakes so they don’t make the same ones. Hopefully, as my girls get older, they can look back and read these letters, and learn some basic knowledge.