Monthly Archives: July 2016

Do The Math For Debt

I’ve never gotten more push-back on a post than I have for my 30 Financial Milestones You Need to Reach by Age 30. It’s still Money After Graduation’s most popular post of all time, and since making the checklist the download that you receive when you sign up for my email newsletter, more protests are coming in.

In the time I’ve been doling out personal finance advice online, I’ve been called everything from privileged and out of touch, to colorful names I will not repeat. I know I don’t have the soft touch many other personal finance gurus have. But I have to be harsh with you because you need to know the truth:

If you do not get your financial shit together, you will not be okay.

If you do not aggressively save for retirement, you will not have enough money saved to leave the workforce on your own terms and live comfortably. If you do not pay off all your debt as fast as possible, you will not have the flexibility and security of keeping every dollar you earn. If you do not set aside money for emergencies, you will not be ready to deal with what life throws at you (and it will throw many things at you, and a handful of them will be horrendous).

But the painful truth is I cannot make any of the above easy for you. I can tell you how to do it and I can give you motivation and inspiration, but I cannot lighten the load. I cannot reduce your debts, earn you more money, or increase your investments. You have to do that part.

I also cannot (or at least, will not) lie about it. Which is why my advice sometimes comes across as “harsh” or “mean”.

It’s not easy.

Getting your finances under control is not easy at all. That’s actually why most people don’t do it. It is far, far easier to buy a house you cannot really afford, finance a car with a 7-year loan, make the minimum payments on your student loans, and use credit cards to fill in the gaps.

That’s what most people do. Don’t be most people.

You can save $25,000 for retirement in less than 5 years.

When you look at that number, you might think $25,000 over 5 years means you have to save $5,000 per year or about $417 per month.

Wrong.

If you invest that money in the stock market and earn an average rate of return of 5%, you only need to save $368 per month. This saves you just shy of $50 per month, or nearly $3,000 over the 5 years. Yes, you read that right. $3,000 of your $25,000 retirement savings is going to save itself. So you don’t have to save $25,000 — you have to save $22,000.

Don’t think you can earn a consistent 5% return? Fine. Find 3% and you only have to save $387 per month. It’s still $30 less per month than you thought.

You can save up a 3-month emergency fund in less than 1 year.

Some people think you need to save 3-6 months of your gross income as an emergency fund. This is a wonderful idea, but largely impractical in your 20’s and 30’s. You should, however, have at least 3 months of essential expenses on hand. Make a list of all the things you spend money on over the course of a month. Now, cross out anything that isn’t a necessity.

If you were without income, you would still need to pay for housing, utilities, food, and your cellphone, as well as make the minimum payments on your debts. But that’s it. You do not need to put money into savings when you don’t have a job. You can apply for forbearance on your student loan payments. You will not go out with friends.  You literally will live on the bare minimum.

Is it your entire income? Probably not.

These are your essential expenses. I would guess they’re somewhere around $2,000 or $3,000 per month. Multiply it by 3, then divide by 12. That’s the amount you have to set aside each month to accumulate a 3-month emergency fund in less than a year. If you cannot save up a 3-month emergency fund in one year then your home is too expensive and/or you cannot afford your car and/or you can’t differentiate between “needs” and “wants”. Explore each category ruthlessly, then cut out whatever is holding you back.

Right on the Money

Many of our grandparents were born between 1910 and 1925. This is what Tom Brokaw dubbed “The Greatest Generation” when America was developed and defended on the backbones of its hard-working citizens. Anyone with silver hair, no matter their birth date, has spent an entire lifetime making choices and reaping consequences. It is our choice whether or not we will learn from our grandparents’ experiences and advice. That is why I’ve comprised a list of frugal habits I’ve learned from watching my own grandparents as a child.

It only just dawned on me that I’ve been learning from their example all of my life even though they’ve all passed on.

Even my grandpa “Big John,” who passed away from a heart attack when I was four, left a legacy in his community as a reliable and trustworthy man others looked to for business advice. Things like that, 25 years later, stay with me.

Grandma’s Top 10 Frugal Habits That Were Right on the Money

I titled this piece “Grandma’s Top 10 Frugal Habits” because many of us had “that grandma” who wore the same three outfits and that one pair of shoes.

But this list will also include other grandparents who had a powerful influence in my life.

1. Driving a used car.

My grandma Dorris drove the same used car through my entire childhood. It wasn’t new or flashy, but it was nice, reliable, and paid for.

2. Gardening.

My grandpa Lloyd plowed Michigan soil every season of his adult life. In retirement, his favorite pastime was taking care of his beautiful garden.

Grandma Dorris and I spent time picking and snapping green beans straight from her garden into the dinner pot.

When I graduated from high school, grandma sent me a letter with two packets of seeds to start my own garden. That was my grandparents’ legacy.

3. Scratch and dent.

Grandma helped me shift my mindset and think about things like manager’s specials and clearance racks. She went a bit too far some days, coming home with food that looked like it was ready to crawl out and burrow itself into the ground, but the lesson was still valuable.

I probably won’t hunt for nearly spoiled food and cereal boxes that look like they’ve been flattened by a forklift. Still, finding food on sale because of a simple blemish or dent is a win in my book.

4. Saturday garage sales.

If I visited grandma Dorris over a weekend, we’d either end up at the “scratch and dent” store or we’d go to garage sales. If I didn’t bring my own spending money, grandma didn’t buy me anything.

I remember only one time when she got something for me. It was a knock-off Barbie doll with chopped hair and a missing foot. It couldn’t have cost more than a quarter. Still, I cherished her gift and played with it for many years.

5. No TV.

I have so many childhood memories of showing up at grandma’s house, diving under her couch for a pack of Uno cards and sitting across from her as we played for hours. Not once did my grandma own a TV.

We’d occasionally listen to Peter Rabbit on her record player or catch the latest Detroit Tigers game while we cooked dinner together.

These types of memories stay with me as I raise my own children. I love the idea of our TV being a side product to our house, not the central focus. We don’t have cable and we try to spend as much time in the play room, kitchen or outdoors as we can.

I want my kids to have as much fresh air and the color green in their memory banks as I had

6. Homemade gifts, toys, and quilts.

Grandma worked constantly with her hands, whether that meant carving bars of soap into little rabbits or sewing brightly colored quilts and toys for her church and family. She didn’t have Pinterest, but I’m so glad that side of grandma’s life lives on in so many homemade projects happening in the world today.

7. The gift of time.

One frugal habit we all have is the gift of time. Grandma Dorris became a widow in her early 60’s, but she devoted a great deal of time befriending and supporting other widows. She’d make them tea, sit with them and lend a listening ear.

Grandma also performed a tremendous service for the single mothers in her community. Each week, she opened her home to their children, running a sort of after-school hangout.

Many of these children had troubled environments at home or struggled with mental disabilities, unchecked emotions, anger, lying, and stealing. I was there to witness the patience of my grandmother with everyone she met.
I’m not saying grandma was perfect. She never followed a recipe and burned many a meal. Even still, she had the same 24 hours that you and I have. She willingly gave many of them away, saving money on purchasing gifts, but also giving some troubled and lonely people in her community a safe haven.