make-money-invest

Becoming financially successful can be done if you have the right mindset and game plan. Mastering your money is a great goal, and through finding success with your money and finances, you’ll be able to live life the way you want, stress-free.

Being a master of your money is an incredibly empowering feeling. Having a strong financial foundation can remove the feeling of the helplessness, which so many people experience. While it may seem tough, mastering your money can be done.

While you might feel uncomfortable talking about money, having a shaky financial situation can take a toll on your well-being. Money is commonly cited as the leading cause of relationship issues in the USA.

Money is also the top cause of stress for an individual based on respondents from 22 countries!

You can get a handle on your money starting today, and become the master of your money.

You may be thinking: What exactly do you mean by becoming a “master of your money? How can I master my money?”

Mastering your money is coming to the realization you are in control of every aspect of your finances.

Make no mistake, improving your financial situation will not be easy. However, there are a few easy steps to take to get a handle on your finances, regardless of where you’ve been or where you are currently.

Following these six easy steps will allow you to overcome the feeling of being overwhelmed, allowing you to get things back under control.

Whether it’s making money, spending money, or saving money, YOU are the master of your money – and your life!

In this post, you’ll learn about the following easy to take steps to get control of your money:

  1. Educate Yourself on Personal Finance
  2. Understand the Current State of Your Finances
  3. Categorize and Track Your Income and Expenses
  4. Set Goals and Use Affirmations
  5. Automate Your Finances
  6. Understand How Your Money Can Grow Over Time with Investments

Let’s dive into each of these steps to help you master your money.

1. Educate Yourself on Personal Finance

Becoming financially literate is the key first step to mastering your money.  This is easier than ever in today’s day and age with an unimaginable amount of information available to you online and in books.

If you are new to personal finance, it can be very intimidating.

There are hundreds of terms made up my financial advisers and other “professionals” which seemingly are made up to confuse you.

You don’t need to know all of these terms, and can start with the basics. In the next section, you’ll learn the five most important things to track and calculate for yourself.

Also, by learning more about personal finance, you can learn what to do, and what not to do with your money.

People often say that the best way to learn is from making mistakes. I say the best way to learn is from others’ mistakes.

Luckily for you, there is a vast amount of people from all walks of life who share their experiences (including mistakes) on the Internet.

Check out this list of 800+ personal finance resources that we have curated. There are over 800+ active personal finance blogs you can learn from out there on the internet!

2. Understand the Current State of Your Finances

Have you ever been on a road trip and not knew where you were? If you’ve been lost, then you probably didn’t know where you were going. If you don’t know where you are going, you certainly aren’t going to get there.

With personal finance, if you don’t know where you are, then you will not be able to master your money.

Becoming a master of your money involves becoming aware of the current state of your finances.

If you are a beginner, then you may be lost and not knowing what things to track. However, the list of financial accounts to track isn’t too bad to pull together for yourself.

In a spreadsheet or on a piece of paper, think about and write down the following things you own, and which affect your financial life:

  • Assets
    • Assets are things you own, and items with value (investments, houses, cars, cash, art, precious metals, etc.)
  • Liabilities
    • Liabilities are things you owe to someone else (mortgage, student loans, credit card debt, etc.)
  • Income
    • How much money is coming into your bank account on a monthly basis?
  • Expenses
    • What are you spending on different categories each month? You’ll learn about this in a later section in this post.
  • Credit Score

With these five pieces of financial information, you will have a great understanding of your financial situation.

After finding these five pieces of financial information, you can do some calculations to further improve your understanding of your finances.

Calculating Personal Finance Metrics to Master Your Money

There are four main personal finance metrics you should be calculating to get a better understanding of your money over time.

Your credit score is a standalone piece of information which you can track over time. While credit score is important, this calculation is handled by the different credit agencies. You don’t need to worry about it.

The four personal finance metrics to track are net worth, income, expenses, and savings rate.

Net worth is simply your assets minus your liabilities. Essentially, your net worth is what is left over if you sold everything and paid off all of your debts.

Don’t be discouraged if your net worth is small or negative. You are taking control which means you will be able to improve it!

Next, we have income. You can find your income from your most recent paycheck, or if you are someone who works gigs, you can add up the number of deposits to your bank account from your bank statement.

Next, we have expenses. Expenses are the total amount of money you spend during a month – will help you identify any weaknesses in your budget.

You can track your expenses however you find most effective. I split my expenses into some broad buckets, and then dive deeper to get a better understanding of where my cash is actually going each month.

  • Discretionary Spending
    • Food and Drink
    • Shopping
    • Recreation
    • Travel
    • Hair
    • Home Improvement
    • Cash Withdrawal
  • Utilities
    • Internet
    • Gas
    • Electric
    • Water
  • Mortgage/Rent
    • Principal on Mortgage
    • Interest on Mortgage
    • Home Insurance
    • Property Taxes
    • Private Mortgage Insurance
  • Auto
    • Gas
    • Auto Insurance
    • Maintenance
    • Auto Loan Principal and Interest
    • Parking
  • Other Insurance
    • Health Insurance
    • Dental Insurance
    • Umbrella Policy
    • Life Insurance
  • Other
    • ATM Fees
    • Other random charges and fees
  • Taxes
    • Federal
    • State
    • Social Security
    • Medicare

The last metric to track is savings rate. Savings rate is simply the percentage of your net income remaining after paying your gross expenses.

With these four metrics, you can now start searching for ways to improve these over time.

3. Categorize and Track Your Income and Expenses Over Time

The next step in mastering your is to continue to track your income and expenses over time.

If you have never tracked your expenses before, you may be shocked by results! You need to be fully aware of your spending if you want to master your money. Tracking your expenses doesn’t have to be complicated.

The level of detail you go into when itemizing your expenses depends on your preference. Remember, personal finance is personal!

As shown in the last section, tracking your expenses can be general or detailed.

The minimum level of detail you should include in expense tracking is broad categories, such as automobile, utilities, or food. You can get really detailed if you so choose.

For example, automobile can be split into gasoline, insurance, and maintenance. More detail gives you more insight into your spending, but it also requires more work!

There is one notable tool that makes expense tracking a breeze. Mint is an app that allows you to sync your bank accounts to their secure platform. You can use it to automatically sort your expenses to varying amounts of detail. The only thing you will have to manually track is when you make transactions in cash!

Now that you have an understanding on your finances, let’s talk about growing wealth and becoming the master of your financial future.

4. Set Financial Goals and Use Affirmations

By this point, you’ve started learning more about personal finance and have calculated your net worth, savings rate, and credit score. Now, it’s time to focus on the future. Setting well-defined financial goals is a must for mastering your money.

Setting financial goals is a great way to start your financial journey.

First, it’s important to start with you why, and ask yourself what you want:

  • Do you want to take more vacations?
  • Spend more money on entertainment?
  • Buy a bigger house? 
  • Put your kids through college?

Whatever your reason, having this result in mind will help with setting your goal.

Below I’ve listed some common examples of financial goals. Note: each one has two components: a monetary component and a time component.

Saying you’re going to do something isn’t good enough; you need to tell yourself when you’re going to do it by!

  • I will achieve a net worth of $100,000 by age 30
  • My debt sucks, and I will pay down $20,000 of my student debt in the next three years
  • I will increase my net income to $80,000 annually by age 32
  • Saving more is important to me, so I will increase my savings rate to 25% within the next two years
  • I will improve my credit score to 700 within the next two years
  • I will save $10,000 by the time my daughter is 10 years old to have a good base for college.

Having these goals in mind will help create the future you want and deserve going forward.

Use Affirmations to Change Your Mindset to Achieve Financial Success

Would you say you have a strong money mindset, or a mindset which needs improvement?

A very quick and easy way to improve your money mindset is through affirmations.

What are affirmations?

An affirmation is a statement of truth.

Affirmations strengthen us because we can “trick” our brains into thinking what we want in this world.

An affirmation is as simple as the following statement, “I’m good with my money.”

An affirmation also could be more involved, such as, “I’m a person who is in control of my money, improving my financial situation for the future, and building wealth over time.”

Typically, the statement you choose will be something you want to change in your life.

Improving your finances is more than just making real world changes. Mastering your money also involves making changes to your mindset!

Affirmations are one such mindset change. It is a truth that you repeat to yourself, and it can have a tremendous effect on your subconscious mind.

Each day starting off, do some affirmations and positive thinking exercises to help improve your money mindset.

Now, let’s talk about two slightly more advanced, but important, ways to continue to master your money.

5. Automate Your Finances

One of the most effective ways to master your money is to automate your finances.

What does automating your finances mean?

Automating your finances involves using technology to help meet your financial goals. It might sound scary, but it’s easy to step up and will help tremendously.

Automating your finances is as simple as:

  • setting up direct deposit to your bank accounts
  • setting up transfers to transfer money to investments
  • scheduling auto payment on your debt and utility bills

With all of this, you can make sure you don’t miss a payment and are transferring money into your savings accounts.

Automating your finances is very efficient. No more spending time paying bills and worrying over whether you forgot anything; you just need to spend a few minutes looking over your statements each month making sure what you’re being charged is accurate!

Also, automating savings contributions will help you if you are one who suffers from making impulse financial decisions. You can’t spend the money you intended to save when your bank is automatically putting it away for you.

Take care though if you are automating savings contributions. You need to make sure you have enough remaining after saving money to cover your bills!

6. Grow Your Money Over Time through Investing

The final step to take when mastering your money is understanding your investments.

It is possible to grow your money over time through smart investing.

There are a number of assets you can own to become wealthy:

  • stocks
  • bonds
  • real estate
  • precious metals
  • businesses
  • cryptocurrencies
  • cash

There is certainly a learning curve to all of these assets, and some may not make sense for your goals.

However, if you want to grow wealth, master your money, and become financially free, understanding how to grow money is critical.

What I do mean by understanding your investments is that you have to be aware of:

  • how much money you have contributed to your accounts
  • the estimated return on your investments
  • the allocation of your money across different assets classes
  • what type of account you’re holding the assets in
  • the cost of investing (fund fees, trading commissions, tax obligations, etc.)

There are some people who don’t even know how much they’ve contributed to their 401k or other retirement accounts. There are others who don’t even realize the exorbitant fees they might be paying on their mutual funds. This isn’t a good situation to be in.

Know what you own!!!

Once you know what you own, you can see where the room for improvement lies. Saving money is powerful on its own, but your savings are missing out on potential growth if you don’t properly invest!

Master Your Money and Become Financially Successful

Becoming a master of your money follows a similar process as becoming a master of anything.

You need to spend a great deal of time studying and learning.

You need to adjust your mentality to ensure that you act intentionally and positively.

Finally, you need to take action and put your newfound knowledge to work.

Becoming the master of your money may not happen overnight. However, by putting in the work, you can get a great handle on your financial situation.

Now, get out there and take control of your finances!

Readers: which step has been best for helping you master your money? What financial resources are some of your favorite to understand personal finance better?

steps to financial freedom

Achieving financial freedom is a big goal, but a goal that can be achieved through consistent efforts over time. Becoming wealthy is possible with the right formula and process. In this post, you’ll learn about steps to financial freedom and financial success.

Are you looking to become financially free? Does financial freedom sound amazing to you? What if you could become financially free?

What if you could skip your commute and spend time with your friends or family uninterrupted all day? Wouldn’t that be fantastic?

Make no mistake, financial freedom is quite a lofty goal, but is possible. If you decide financial freedom is what you want, there are a number of personal finance habits you can cultivate to become wealthy.

If you want to become better with your personal finances, you’ll definitely want to read this post all the way through.

In this post, I’m going to share with you a seven step plan to get to financial independence – the ultimate personal finance goal.

First though, let’s talk about what financial freedom is and why becoming financially free should be a goal of yours.

setting goals and dreamsWhat is Financial Freedom?

Before talking about the steps for achieving financial freedom, let’s talk about what financial freedom is and why you should care about financial freedom.

Financial freedom, or also known as financial independence, is the ability to do what you want with your time and energy without having to worry about money at all.

Being financially free could mean having enough money saved up in bank accounts and investments where you don’t need to work anymore.

Financial freedom could also mean owning a number of businesses which provide you with enough cash flow where you have your bills paid each month without having to work.

Becoming financially free is something everyone wants deep down (whether they consciously know it, or subconsciously know it), but not everyone knows how to get there, or knows why it would be empowering.

For me, financial freedom means being able to do what I want to do when I want to do it. No silly corporate meetings, no talking to pushy co-workers, no commutes – only working on hobbies and my passions.

What do you think? Wouldn’t it be great to be able to wake up each day and do what you are passionate about?

This is what financial freedom is all about. Now, let’s get on to the steps to financial freedom.

The 7 Steps to Financial Freedom

You may have heard of the seven steps to financial freedom before. Maybe you haven’t. There are two versions of the seven steps to financial freedom I’ve come across over the past few years.

One is by Dave Ramsey and the other is by Tony Robbins.

Dave Ramsey’s 7 Baby Steps to Financial Freedom

The first seven steps to financial freedom is from the one and only, Dave Ramsey.  Dave Ramsey, for those of you who don’t know, is a personal finance and money management expert with a radio show and many courses and workshops that help people get their finances in order.

Dave Ramsey’s 7 baby steps to financial freedom are:

  • Baby Step 1 – Build a $1,000 emergency fund
  • Baby Step 2 – Pay off all debt using the debt snowball
  • Baby Step 3 – Save 3 to 6 months of expenses in savings
  • Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
  • Baby Step 5 – College funding for children
  • Baby Step 6 – Pay off home early
  • Baby Step 7 – Build wealth and give

I like these, and completely agree that for most people, these steps are great for building wealth and reaching financial freedom.

If a person doesn’t have $1,000 in the bank, then that should be goal number one on the way to financial freedom. Next, pay off your consumer debt and start saving for the future.

Finally, become fully debt free and share your wealth with the less fortunate.

If you follow these steps, you will be wealthy – I have no doubt.

Tony Robbins’ 7 Steps to Financial Freedom

money master the game 7 steps to financial freedomThe second set of seven steps to financial freedom are from Tony Robbins. Tony Robbins wrote Money: Master the Game a few years ago and goes over his seven steps to financial freedom in it.

Tony Robbins’ 7 steps to financial freedom are:

  • Step 1 – Make the most important financial decision of your life (Decide to be the investor, not a consumer.)
  • Step 2 – Become an insider: know the rules before you start investing
  • Step 3 – Make the game winnable through knowledge
  • Step 4 – Make the most important investment decision of your life (dollar cost average, asset allocation)
  • Step 5 – Create a lifetime income plan (consider insurance and annuities for income)
  • Step 6 – Invest like the 0.001 percent (model the portfolios of hedge funds)
  • Step 7 – Just do it, enjoy it, and share it!

I read Money: Master the Game a few years ago and I really enjoyed it.  While there was quite a bit of fluff, there were many actionable tips and takeaways for me to implement in my life.

Step two of Tony Robbins’ steps is all about managing fees, how financial advisers may not be the best route to go, and buying and holding are all things to know and consider before investing.

Finally, he talks about alternative routes to income and wealth once we have a substantial nest egg. It’s one thing to have a lot of money, but it’s another to have a lot of money that is protected from disaster.

I want to be unique with my content and ideas. Both of these plans have a lot of merit, and I’ve built off of them and created my own seven step plan to financial freedom for you.

Our 7 Step Plan to Financial Freedom

Coming up with a seven step plan was tough. Everyone’s situation is different – and with anything you read or consume, it’s important to take a step back and see how it can fit into your life.

All I can share and point to is my seven step plan to financial freedom. The following list is what I’m personally trying to do to grow my wealth, and get on the way to financial freedom:

  1. Build an emergency fund
  2. Pay down consumer debt
  3. Save 10% of my income
  4. Learn about investing
  5. Invest in yourself and grow your income
  6. Stay consistent
  7. Give back with your time or money

Let’s go into each of these in more detail.

Step 1 for Financial Freedom: Build an Emergency Fund

An emergency fund is most important for your personal finance success.

It’s truly tragic – around 70% of Americans don’t have $1,000 in their bank account.

What happens when the furnace or AC goes out in your house? What happens if your car breaks down, or you get sick? There’s so many unplanned emergencies to account for.

Having a safety net will be beneficial for your financial well-being, and will also be great for peace of mind.

Saving up 3 to 6 months expenses, or even having $5,000 saved is a great starting point for your emergency fund.

Step 2 for Financial Freedom: Pay off Consumer Debt

Debt sucks. Debt is a restriction on your life, and does not allow you to live the life you want and deserve to live.

Getting out of debt is possible by spending less money, and applying debt payoff strategies.

After getting your debt knocked out, you can start focusing on offensively building your wealth.

Step 3 for Financial Freedom: Save 10% of your Income

After building an emergency fund and destroying your debt, the next steps are to start saving. Take 10% of your income, and start saving it for the future.

After paying off your consumer debt, take that money and start directing it towards investment and savings accounts for the future.

Get your savings rate up!

Step 4 for Financial Freedom: Learn about Investing

You need to learn how to invest.

Financial freedom isn’t going to come through investing in CDs. The only thing guaranteed about a CD is you are guaranteed to lose money due to inflation! (Okay, in some situations and rate environments they are okay – but not right now)

Do you want to be an active investor or passive investor? Active investors should look at starting businesses or buying real estate. Do you want to sit back and watch your money grow without much work? Stick it in the stock market.

These questions are worth asking yourself.

After figuring out your goals, next learn about the different fees, downfalls and traps in your chosen market.

For example, paying a financial adviser 2% over 30 years could amount hundreds of thousands of dollars lost!

With these information, you can wisely grow your wealth and become wealth over time.

Step 5 for Financial Freedom: Invest in Yourself and Grow Your Income

The best investment you can make is in yourself.

Your level of success will rarely exceed your level of personal development, because success is something you attract by the person you become.

If you are looking to make more money and be successful, then you will have to work on yourself.

If you increase your income, you will be able to save more. By saving more, you will be able to increase your investments.

All of these steps go back to investing in yourself and improving as a person.

Step 6 for Financial Freedom: Stay Consistent

Paying off debt and then going back into debt isn’t going to help on the way to financial freedom. Saving $5,000 in one year isn’t going to amount to much.

BUT, saving $5,000 a year for 30 years and investing it in something returning 5-7% a year can grow to hundreds of thousands of dollars.

Consistency is the key to everything.

Step 7 for Financial Freedom: Give Back

No matter how wealthy you become, there’s one thing you should always remember: IT DOESN’T MATTER UNLESS YOU SHARE IT WITH OTHERS.

Giving you time, money, and knowledge can help others achieve their goals and dreams.

We make a living by what we earn. We make a life by what we give.

With these 7 steps, you will be on your way to financial freedom. However, if you are still struggling to get past step 1, below are 2 easy steps you can take for personal finance success.

2 Easy Steps to Take for Financial Success

Make no mistake, becoming better with your money and personal finances can seem tough.

However, there are two easy steps you can take for overnight financial success:

  1. Tracking your income and expenses
  2. Learning about personal finance

Step 1: Track Your Income and Expenses

What gets measured gets managed.

Knowing where you are financially is so important to financial success.

Consider the following example of two people: Mark tracks his income and expenses every month, and Lisa doesn’t track her income or expenses at all.

Mark wants to retire in 15 years, and has identified that by saving $500 a month, he will reach his goal with average market gains.

Lisa also wants to retire in 15 years, but doesn’t know she needs to save $500 a month, and as a result, is only putting $250 into her retirement account each month.

Mark saves $400 a month right now, but has identified he can cut $100 out of his food spending each month and put that towards retirement.

Lisa spends $300 a month on random shopping expenses (of which she doesn’t know the dollar amount), and doesn’t realize that she doesn’t need these random shopping expenses.

Who do you think will be successful? Mark, who tracks his financial situation, or Lisa, who doesn’t track her financials at all?

I’m going to guess Lisa will be mighty disappointed at the end of the 15 year period.

income statement balance sheetHow to Track Your Income and Expenses Each Month

Each month, I pull all of my transactions from my Mint account into my income statement spreadsheet.

I categorize my transactions and see exactly where my spending and savings rate landed during the month, and look to see if there are any trends forming.

You could download these transactions from your bank directly, you could use similar tools to Mint, or you can analyze your income and expenses through your online banking application – all are acceptable.

For me, I see the importance of tracking my income and expenses by looking at my spending in various categories. I typically spend $300-400 on food and drink a month.

I know this as I’ve spent $300-400 a month for the past 18 months consistently. Some months are worse than others, and in those months, I may spend closer to $500 on food and drink.

If I didn’t know how much I was spending on food in a given month, maybe I’d continue to spend that amount month over month, or even start spending more.  Let’s say, somehow, I started spending $300 more a month on food and drink because I wasn’t tracking it.

Now, all of a sudden, I could end up spending an additional $3,600 a year ($300*12 = $3,600) on food and drink, just because I’m not keeping track of my expenses!

That’s a lot of money that could be better served somewhere else.

Tracking our cash flow also makes us think more about our finances.  If I wasn’t tracking my expenses, I wouldn’t have this mental trigger to keep my spending down on food and drink.

There are a number of tools and apps you can use to track your income and expenses.

If you aren’t already tracking your income and expenses, and you don’t want to click through to my other post, I have a spreadsheet for download which you can get by putting your email into the box below.

Step 2: Be Consistent, and Learn with Books, Blogs, and Podcasts

prioritize and track financial goalsConsistency is the key to being successful in this world.

Consistency involves working, learning, and growing a little bit each and every day on the way to your goals.

It’s not enough to invest $100 one time and let it sit.  It’s not enough to cut expenses one month, and then revert back to your previous spending habits.

I can guarantee you short term success will not lead to long term success unless the short term actions are internalized and made into long term habits.

Consider this example: would you rather receive $1 million dollars today, or would you rather take a penny, but have it double every day for a month? Naturally, most people would say, “Give me the million bucks!”

But if we step back and actually analyze the other side, we can see what a big mistake that might be.

The first day, you have 2 cents, the second day, you have 4 cents, the third day, you have 8 cents… two weeks in, you have $81.92. Well, guess what? At the end of the month, you’d end up with over $10 million dollars. You only started off with a penny, what happened?

Yes, you started off with a small amount, and for a long time, you didn’t have much, but 30 days later, boom, $10 million bucks – much more than $1 million!!!

This is the same concept as the power of compounding over time.

If you save $10,000 a year for 30 years and achieve a 7% rate of return, you will become a millionaire.

This is a mathematical fact.  It’s the power of consistency and compounding at work.

Applying Consistency and Learning in Your Life

The penny example we just went through above can be applied to the base of your knowledge on personal finance, not just investing or savings.

I’ll be the first to admit, I’m not a personal finance expert.

I have no idea the intricacies of Roth IRAs, 403(b)s, or how 1031 exchanges work in real estate. That being said, I know that I could learn any of these things if I wanted to. There are millions of words published in text and voice out in the world and on the internet.

While hopefully this site will be a great starting point for you, there’s so much more out there. For example, there are so many personal finance resources which all have something to offer.

Reading these different personal finance blogs, listening to podcasts, and reading books are great ways to increase your financial knowledge.

If you want to become an expert on the stock market, take a step today. Maybe you want to build your understanding on different forms of debt – take a step today.

For you, if there is anything you want to accomplish this year, or in life, just take a step. That’s all you can do initially.

No one goes from 0 to 100 in an hour or a day.

But, by going from 0 to 1 to 2 to 3, you can get there over time.  It’s about taking baby steps to start, and as you get more comfortable, you can increase the pace – in other words, you sometimes have to slow down to go fast!

What you do today matters. What you do every day matters.

Successful people are those who understand that the little choices they make matter, and because of that they choose to do things that seem to make no difference at all in the act of doing them, and they do them over and over and over until the compound effect kicks in.

financial decision makingStart Tracking and Improve Your Financial Situation

Tracking your income and expenses, and having a hunger for knowledge, will get you firmly on the path to financial success.

Start with identifying your why, then start tracking your income and expenses with a spreadsheet or online tool – and continue to learn about personal finance, investments, and building wealth!

Having these two steps in mind will guide you on your path to your financial goals.

Over time, by having your why and a plan, you will be able to make smart financial decisions and stay on the path to personal finance success.

Get on the Path to Financial Freedom and Become Financially Free

With the information presented in this post, you now have three different, seven step plans to financial freedom to draw inspiration from and put into action.

After reading this, take a step back to reflect on these different plans, and how they may align with your own plan.

If you aren’t quite yet on the path to financial freedom, implement the 2 easy steps to take to become better with your finances, and you’ll be in a better place financially soon.

Take action today and get on your way to financial freedom!

7 Steps Towards Financial Freedom
7 Steps Towards Financial Freedom
7 Steps Towards Financial Freedom

saving money for future

Would you trade grinding for five years to be rich for life? Would you be willing to sacrifice upgrades and luxury to improve the chances of financial freedom and becoming wealthy? What would you do to become rich for life?

I have a few big questions for you:

  • what do you think you’d have to do for five years to become rich for life?
  • are there any steps you could take in the next five years to drastically improve your financial situation?
  • what would life be like if in five years you could wake up rich – compared to where you are today?

The answers to these questions are very important.

You have the power to drastically improve and impact your financial situation with the right choices and strategy.

For me, since graduating college a little more than five years ago, I’ve lived within my means, exploded my income, and worked to build wealth.

Now, I’ve saved up a solid amount in my retirement and investment accounts, paid down my debt, and have a strong emergency fund.

Even without the investments, just by having paid off my debt and having an emergency fund, this gives me an opportunity mentally to take more risk at work and look to further my career and hustles.

For you, you can do this too.

It will take time, but it’s not too complicated and will be totally worth it.

In this post is to talk about the math, the mindset, and the strategy you can take to do this in the next 5 years.

Becoming Wealthy is Determined by a Simple Equation

Becoming wealthy and saving more money is determined by a simple equation:

(Income – Expenses) * Time = Increase in Savings and Net Worth

If you make more than you spend, and do this for a number of years, you will build your net worth and grow your savings.

Add to this equation, investing wisely, making good financial decisions around your savings, and learning about personal finance over time, and you have the potential to drastically improve your financial situation.

In my opinion, time is the most important variable in this equation.

If you do the right things financially for a month, sure things will get a little better, but rarely will a big month have a huge effect on your overall financial situation.

If you do this right for a year, you can get to an even better situation, but again, in my experience, things don’t really change.

To experience the biggest effects, you need to dedicate at least three to five years of your future life to living within this equation.

Overnight success doesn’t exist, but over three to five years, it is certainly possible and attainable.

Winning with your money is within your reach and you can do it.

How Living Within Your Means for Multiple Years Can Lead to Having More Money

Everyone’s situation is different, but just to illustrate the potential of this simple equation, let’s do some math.

If you make $50,000 a year, and spend $40,000 a year, you will have $10,000 left over to put towards your financial goals (investing, emergency fund, debt payoff, etc.).

$10,000 might have a big impact on your financial situation, but in terms of becoming rich, this won’t go too far in today’s world.

However, take this and throw it in our equation.

($50,000 – $40,000) * 1 Year = $10,000

After one year, we get $10,000. But let’s look at five years (yes this is basic math but I’m getting to the point).

($50,000 – $40,000) * 5 Years = $50,000

make 50k save 40k

What would you do if you had $50,000 more in the bank? This would certainly be a change in your financial situation – I know an extra $50,000 would be great for me!

Now, what happens if you start making tweaks to the other variables?

What if you could eliminate $5,000 in expenses per year? What would this look like?

After one year:

($50,000 – $35,000) * 1 Year = $15,000

After five years:

($50,000 – $35,000) * 5 Years = $75,000

make 50k save 35k

An extra $25,000 because you were able to trim your expenses by $5,000.

What about if you increase your income as well by $5,000 a year?

After one year:

($55,000 – $35,000) * 1 Year = $20,000

After five years:

($55,000 – $35,000) * 5 Years = $100,000

make 55k save 35k

Again, $20,000 is a lot, but not enough to drastically impact your life. $100,000 on the other hand? That’s a great start to financial freedom.

Obviously there are many combinations and ways to play around with this equation to start to see how much you could save in five years.

But with these examples, I hope I’ve shown you the potential of this simple equation and how you can improve your financial situation in a big way over a few years.

How to Become Wealthy and Rich

Now, let’s talk about how you can actually take advantage of our equation and build wealth for the future – starting TODAY.

Below are seven steps you can take to start your path to financial freedom and success.

  1. Determine Your WHY
  2. Develop a Mindset to Avoid Lifestyle Inflation
  3. Track Your Income and Expenses
  4. Cut Unnecessary Expenses
  5. Focus on Exploding your Income
  6. Learn about the Basics of Investing
  7. Stay Consistent Over Time

Let’s dive into each of these steps in greater detail below.

passive income1. Determine WHY You Want to Become Rich

Here’s a fact I’m sure you know: money doesn’t bring happiness.

However, money can be a tool which allows you to live a life you want to live.

Why do you want to improve your financial situation?

For me, I want to improve my financial situation to provide a stable, secure and stress-life for my future family.

It’s not about having nice cars, clothes and a big house for me – I don’t need these things to be happy.

I want to be able to spend time with people I love and do the things I want to do with my time.

This is why I want more money.

What’s your why?

  • Do you want to spend more time with your family?
  • Get out of debt to live stress-free?
  • Go out to your favorite restaurants?
  • Travel to exotic places?
  • Buy your favorite cars?
  • Live in a big house?

Any of these could be your why and it’s up to you to figure out what makes sense to you.

If you have a why, you will figure out a way.

2. Develop a Mindset To Avoid Lifestyle Inflation and Live “Poor”

Lifestyle inflation is one of the biggest traps people fall into regarding their personal finances.

Essentially, lifestyle inflation can happen in the following way: as a person’s income increases, then their expenses increase.

As you can see from our equation above, it doesn’t matter how much money you make if you spend it all.

Avoiding lifestyle inflation can be done with by making a conscious decision to limit luxuries, live like a college student, buy used, etc.

For me, this is easy – I wear shirts I’ve had for 10 years, shoes I’ve had for 5, bought a used car, and only replace something if it’s broke.

This somewhat goes back to my why as well. I’m happy by doing things which bring me enjoyment – not by the clothes I wear, the place I live in, or the car I drive.

To me functionally is more important than the glamour, and for this reason, I’ve been able to keep expenses low.

Over time, as your financial situation improves, it is totally okay to spend more money, but until that point, keeping expenses low will be important.

3. Track Your Income and Expenses

Before focusing on improving your income and expenses, you need to KNOW how much you make and how much you spend on a monthly and yearly basis.

What gets measured, gets managed. – Peter Drucker

Tracking your income and expenses is the first step to becoming better wit

The four personal finance metrics you need to know for personal financial success when it comes to tracking finances are:

  • Net Income
  • Gross Expenses
  • Savings Rate
  • Net Worth

For our purposes, net income and gross expenses are the two which apply to us most and are the focus of this article.

Net income is what did you make in income, after taxes, for a given period? You can find this out by looking at your paystubs.

Gross expenses is the total amount of money you spend during a month.

After you have these two numbers, you can then start to budget, identify spending weaknesses and get on the path to financial success.

4. Cut Unnecessary Expenses

The fastest way to improve your financial situation is to cut unnecessary expenses.

One thing I will say though is you should focus on the BIG expenses of housing, transportation and food first, and then look at other expenses.

While yes, subscriptions, coffee and other expenses do add up, if you can reduce your rent or mortgage payment by $200, this will have the same effect as cutting your daily Starbucks.

Or if you decide to take the bus to work instead of driving, this could save you $400 a month in parking and gas – again, a much bigger impact than cutting a streaming subscription.

For me, I take the bus to work, I house hacked for four years, and I don’t have too many subscriptions.

While I could improve on eating out, I eat in and cook quite a bit.

Looking at where you are spending your money can help with reducing expenses, and then taking action will help you save more.

5. Focus on Exploding Your Income

Next, you should focus on increasing your income.

Five years is a long time, and you can do a lot with your spare time to make more money, get a promotion, or start a side hustle.

During the last five years, I’ve nearly doubled my salary. With this, and by keeping my expenses essentially flat, I’ve been able to increase the (Income – Expenses) piece of the simple wealth equation substantially.

Increasing your income is all about providing VALUE and being unapologetic and unafraid to ask to be compensated for that VALUE.

Examples of providing more value could be:

  • taking on more responsibility at work
  • changing jobs to a more lucrative position
  • gaining a certification and applying it
  • starting a side hustle
  • investing in real estate
  • or flipping things

All of these can lead to more money coming in each month.

It’s up to you to figure out which strategy is best for you, and while it might not be easy at first, I know you can do it.

6. Learn about the Basics of Investing and Keeping Your Money Safe

Finally, learning about investing is important for building long term wealth.

At the beginning of your journey, investing won’t bring as many gains as focusing on your income and expense. But after five years, your investments will play a big piece in your overall wealth.

During this time, you can learn about investing through reading books and blogs, build an emergency fund, and start to put money away into:

While I’m someone who likes to try and hit home runs with my investments, starting off, it’s important to invest wisely and assess your level of risk tolerance.

Once you understand your relationship with your savings and money, then you can start to invest more with a purpose and in a way which makes sense for your goals and future.

7. Stay Consistent Over Time

As we talked about above with our math calculations, time is the multiplying effect which can supercharge your progress.

While time goes slow, it is incredibly powerful.

If you decide to put your head down for the next five years, I can almost certainly guarantee things will be different for you and you will be in a better financial situation.

Five years is a long time, and by putting the principles of personal finance to work, I bet you can only dream of the progress and success you could make over time.

The power of compound interest does not just apply to investing – it applies to everything in life.

By adopting a mindset which favors intentional planning and action, you can and will find success in your life.

Are you going to be consistent and grow your money?

Are You Going to Be Rich in 5 Years?

After reading this post, you have a great resource and strategy to go out and make the next few years count.

While the progress might come slow, trusting that time will bring success will make all the difference.

Over the last five years, I’ve been successful with my finances and now I’m living a great life.

I don’t really worry about money anymore, but this wouldn’t have been possible if I didn’t sacrifice and live within my means for the last five years.

Now, I want this for you. I’ll look forward to seeing you become successful over the next few years and on to living the life you want and deserve.

side hustles

Previously, we discussed the two steps to financial success. Tracking your income and expenses is part one of the two step process for financial success.  Step number two is to further your financial education.

Right now, you are doing a great job by reading these articles on personal finance, but your learning should not stop after you leave this site (I hope you never leave, but I know responsibilities call)!

But if it does, one of the best ways to further your financial education is to listen to podcasts.

Here, I will be sharing with you five great finance podcasts which inspire, motivate, and provide entertainment to thousands of people.

5 Finance Podcasts to Listen to for Motivation and Inspiration

Whenever I get in the car for an extended period of time, I love listening to podcasts, especially podcasts about people who are pushing their boundaries, becoming wealthy through the principles of personal finance, and doing unique jobs and side hustles in pursuit of success.

There are five podcasts I’ve been listening to lately in the Personal Finance space which I believe you should listen to in 2019 and beyond to further your financial education:

 

  • ChooseFI
  • Stacking Benjamins
  • FIRE Drill Podcast
  • Millennial Money Minutes
  • Moneysplained

 

ChooseFI

choose fi podcastAre you interested in financial independence? Would being able to walk away from your day job in five to ten years interest you? How can you get started?

The ChooseFI podcast is all about financial independence and how everyday people are building wealth, retiring early, and now looking to influence and help others who are just starting their journey.

What is awesome about ChooseFI is the combination of episodes with interviews of highly successful individuals, but also episodes where Jonathan and Brad unpack the highlights from the previous episodes and draw wisdom from them.

The ChooseFI podcast will get you motivated and inspired to take action. Their interviewees are first in class, and the stories are amazingly interesting and great for someone interested in building wealth for the future. Check out the ChooseFI podcast here: motivation and inspiration for financial success, ChooseFI.

 

Stacking Benjamins

stacking benjamins showLive from Joe’s mom’s basement, it’s the Stacking Benjamins show!

The Stacking Benjamins show aims to make finance more approachable, interesting, and fun. At the end of the day, the hosts of the show, Joe and OG, want to make finance someone everyone takes seriously.

But, that’s not to say they won’t be joking around with their guests and each other.

What’s amazing is the first bullet from The Stacking Benjamins Creed is Personal Finance is Personal – hey, that sounds familiar!  You know what they say, “Great minds think alike!”

I really enjoy listening to this podcast as it is light hearted, but also provides some great advice. You want a laugh to go with some amazing information? Check out the Stacking Benjamins show here: Stacking Benjamins, light hearted perosonal finance advice!

 

FIRE Drill Podcast

fire drill podcastRun by two enthusiastic and amazing young women, the FIRE Drill podcast is all about inspiring stories about financial independence and side hustles.

Are you interested in achieving financial independence through interesting and unique ways? The FIRE Drill Podcast is a great place to start. Each episode features a different, highly successful person who is either on their way to or has reached financial independence.

Gwen and J, the hosts of the FIRE Drill Podcast, do a great job of keeping the conversation light, while also diving into the strategies and activities the interviewees are doing in their daily lives for financial success.

This podcast is more focused towards Millennials, but the stories and people featured can help someone at any stage in their career or life. Check out FIRE Drill Podcast here: a podcast about financial independence and side hustles , FIRE Drill Podcast.

 

Millennial Money Minutes

millennial money minutes podcastThese days, we can’t seem to focus for more than ten minutes on a single subject. That’s fine – Millennial Money Minutes are quick hitting episodes where the hosts, Grant and Matt, distill tough personal finance topics in five minutes or less.

There’s so much to learn in the world of personal finance – listening to the Millennial Money Minutes will help your knowledge base as you look to grow your financial education.

Millennial Money Minutes is geared towards Millennials (as the title suggests), but again, will be helpful to all people trying to build wealth. In addition, the hosts are highly successful Millennials with great stories. Check out Millennial Money Minutes here: Millennial Money Minutes, focused advice for people wanting financial success.

 

Moneysplained

moneysplained podcastMoneysplained has one purpose: clarity. There are so many confusing concepts, products, and strategies in the world of finance. Moneysplained looks to shed light on these concepts.

Ally-Jane, host of Moneysplained, talks about the basics of personal finance by performing a deep dive on a different subject each episode. For example, in one of her recent episodes, she did a deep dive on taxes for freelancers and had a CPA on the phone with her – very interesting for a small business owner like me.

I’m excited to see what the results of her work are in 2019. Moneysplained is relatively new, but is in a great spot to grow and influence in the coming year. Check out Moneysplained here: Moneysplained, a top personal finance podcast.

 

What The Mastermind Within Community Members are Listening to for Financial Education

One of the great things about having readers is being able to ask them about their strategies for financial success. A number of people contributed on the question of what they are listening to for podcasts about finance.

Dom, a high income blogger from Gen Y Finance Guy, listens to Invest Like the Best.

Cynthia, an avid reader of The Mastermind Within listens to a number of podcasts:

I like Your Money, Your Wealth very much.  I also like Retirement Answer Man and ChooseFI.

I also subscribe to Fire Drill Podcast, Her Money with Jean Chatzky, Financial Independence Podcast, Masters of Money, and I listen to Dave Ramsey once a month when he airs his Millionaire’s Theme Hour.

Scott, from Making Momentum, a true listener of a ton of amazing podcasts for life improvement, loves Marriage, Kids, and Money and The Stacking Benjamins show.

Lots of great podcasts here to choose from! I’ve really enjoyed FIRE Drill podcast for the few months it’s been out there! I’m looking forward to exploring more into this space and seeing what is out there!

 

Conclusion

Education does not stop after you leave school. Ideally, it should never stop. Keep learning something new each and every day.  Whether that’s something on investing, personal finance, tax, wealth creation, business, accounting, or self-improvement, if you take a bit of time each day to improve yourself, I know you will reach your goals.

My favorite quote is directed related to learning and improving oneself:

Your level of success rarely exceeds your level of personal development, because success is something you attract by the person you become.

Get out there and listen to these great personal finance podcasts!

credit card debt

Tracking your personal finances is the most important task to perform to become wealthy. There are many personal finance metrics to track, but in this post, you’ll learn the top 4 personal finance metrics to track and understand the importance of tracking your personal finances.

Becoming financially successful might seem a little complicated, but it’s not too difficult with the right strategy. The most important thing you can do to become wealthy is to tracking your income and expenses.

However, total income and expense aren’t the only metrics which you should be tracking. Knowing all of your income and your expenses on a monthly basis is a great starting point. However, just tracking our expenses and income doesn’t tell us anything about the way we use money.

Are you a saver?  A spendthrift?

Without digging a little deeper into the data, you won’t know whether you’re on the path to success, or if the ship is sinking.

How do you track your finances? What factors are important when it comes to personal financial success.

In this post, I will be sharing with you:

  • How to calculate each of these personal finance statistics
  • Why each of these metrics are important
  • Why it’s important to track your personal finances
  • Tools you can use to automate the calculations

Let’s get it tracking!

4 Personal Finance Statistics to Know and Calculate

There are potentially hundreds of financial metrics you could track, but there is beauty in simplicity.

The 4 metrics you need to know for personal financial success when it comes to tracking finances are:

  • Net Income
  • Gross Expenses
  • Savings Rate
  • Net Worth

gross incomeNet Income

Tracking your net income over time will give you a picture of what you are working with financially.

Let’s start off with an easy one: net income. What did you make in income, after taxes, for a given period?

The easiest way to do this is by just looking at a recent pay stub.

You’ll see your gross income listed out, which is what you made before taxes.

It should also list out all of your deductions, like FICA, federal, your state tax (if any), etc.

If you have investment income, or have any other freelancing or consulting income, you can find your gross income by adding up what you are paid each month.

Below gross income, if you’re looking at your pay stub, you’ll find your net income, which is the income remaining after all taxes.

Essentially, your net income is what you have to work with each month and year.

If you make $5,000 a month after taxes, then you know you have a maximum of $5,000 you can live on for all of your expenses and saving goals.

Hopefully, over time, this number will go up as you become more experienced and valuable to your clients or employer.

For me, I use income to judge how effectively I used my cash in a given period.

If I received a windfall or had a good quarter consulting, I might have a month where my income increases by $1,000 to $2,000. This sets the stage for increased contributions into savings or my investment accounts.

Tracking net income allows you to plan what to do with that income to best set yourself up for financial success.

You can’t base your financial planning on gross income (for instance, your yearly pre-tax salary number) because you will surely overestimate how much you’ll actually have to work with since taxes will be a chunk of that money you won’t see on a regular basis.

Tracking your net income allows for accurate money management.

Gross Expenses

Your total gross expenses is a very important financial statistic to calculate for yourself.

After income, calculating gross expenses – the total amount of money you spend during a month – will help you identify any weaknesses in your budget.

You can track your expenses however you find most effective. I split my expenses into some broad buckets, and then dive deeper to get a better understanding of where my cash is actually going each month.

  • Discretionary Spending
    • Food and Drink
    • Shopping
    • Recreation
    • Travel
    • Hair
    • Home Improvement
    • Cash Withdrawal
  • Utilities
    • Internet
    • Gas
    • Electric
    • Water
  • Mortgage/Rent
    • Principal on Mortgage
    • Interest on Mortgage
    • Home Insurance
    • Property Taxes
    • Private Mortgage Insurance
  • Auto
    • Gas
    • Auto Insurance
    • Maintenance
    • Auto Loan Principal and Interest
    • Parking
  • Other Insurance
    • Health Insurance
    • Dental Insurance
    • Umbrella Policy
    • Life Insurance
  • Other
    • ATM Fees
    • Other random charges and fees
  • Taxes
    • Federal
    • State
    • Social Security
    • Medicare

If I had kids, I can imagine having more line items for diapers, clothing, child care, sports, saving for college, etc.

Like I said, you can categorize your expenses anyway you’d like. Personal finance is personal! 🙂

For example, I lump food and drink together. Splitting them up makes sense as well, but I don’t drink as much anymore, and as a result, I simply have kept it as food and drink.

As part of your overall financial picture, tracking gross expenses can reveal areas of improvement (are you spending too much on a cable subscription when you rarely watch TV?). Over time, you can make tweaks and grow to make sure you are on the path to financial success.

Savings Rate

Savings rate is a very important personal finance metric to track.

Once we have our income and expenses for a certain period, we can move on to a slightly more complicated metric: savings rate. No, it’s not too complicated, just some division added to the mix 🙂

A person’s savings rate is the percentage of income which a person saves in a given time period.

Simply put, it can be calculated as (net income – gross expenses) / net income.

Let’s say a person makes $5,000 in a month. They spend $2,500 of it and the rest is saved in their savings account. Then, their savings rate for the month is 50%, or ($5,000 – $2,500) / $5,000.

Now, it gets a little bit more complicated once you start to factor in contributions to investment accounts and principal payoff of debt.

For me, I don’t count these as expenses. With contributions to investment accounts, you aren’t giving your money to someone else, rather you are putting it somewhere else for your future self.

For paying down a debt, I do consider interest to be an expense.

At a minimum, people should aim to save at least 10% of their income. Personally, I’d suggest aiming for 25%+ to help you become wealthy more quickly.

Net Worth

calculating net worthThe final piece of financial information to track for your personal finances is your net worth.

What is your net worth?

It is your assets minus your liabilities.

What are assets?

Assets are things a person owns which have value. Typical assets include houses, cash, stocks, bonds, cars, precious metals (jewelry, etc.), currencies, businesses – and the list goes on and on.

Next, what are liabilities?

Liabilities are things a person owes, either to a bank, a financial institution, or another person or business. These include credit card balances, mortgages, auto loans, personal loans, liens – and the list here goes on and on as well.

To calculate your net worth, subtract your liabilities from your assets.

It’s great if the resulting number is positive – this means you have a positive net worth.  Your assets are worth more than your liabilities!  Great job!

If you have more liabilities than assets, that means you have a negative net worth.  Your liabilities are greater in value than your assets.

If you have more debt than assets, there’s no sense in wallowing – it’s time to destroy that debt!

Over time, you want your net worth to be increasing. If you have a positive savings rate, then your net worth will be increasing since you will be increasing the asset side of the equation.

I focus on increasing my net worth over time. In the 3 years, I went from a negative $15,000 net worth (in college with my student loan), to a positive $125,000 net worth.

My assets include my house, my car, my cash, my IRA and 401(k), and my business. I have a mortgage, a HELOC, and 4 credit cards which I pay off faithfully in full each month.

To increase my asset base, and continue to grow my net worth, I’m focusing on contributing to my retirement accounts, paying down a little bit extra on my mortgage each month, and growing my business.

Knowing your net worth is crucial to tracking your finances. Focus on growing your net worth and you’ll be on your way to financial success.

Some Other Favorite Personal Finance Metrics

One of the great things about having blog readers is being able to ask them about their strategies for financial success. A number of people contributed when asked how they track their finances each month:

Diego, a good friend and avid The Mastermind Within reader said the following:

A steady and overachieving monthly and yearly savings rate is the key for me.

I love it – savings rate is truly a great indication of where you are!

The Grounded Engineer, a fellow blogger, says he used to compete with a friend to see who could save more:

I used to look at what other people were doing. For example, one of my best friends and I would see who’s 401(k) had the larger balance. It was fun and we are both competitive, so it worked out great because we were both saving a significant amount of money. My friend has slowly succumbed to lifestyle inflation, and hasn’t been able to keep pace. I’m trying to get him on the financial independence bandwagon, but I have been unsuccessful in my attempts.

I’ve never seen that in practice! I’m glad you have kept up with your contributions!

Cynthia, another reader and friend of mine, said:

We track net worth over time. If net worth is going up over time, we are happy.

I couldn’t have put it any better myself!

The community members agree: tracking personal finances through knowing your savings rates and tracking your net worth over time will lead to financial success.

5 Personal Finance Softwares and Tools for Millennials

Tracking your finances over time is critical for financial success.

What gets measured, gets managed.

Not everyone is a spreadsheet or Microsoft guru. Luckily, there are many softwares and tools out there to help automate and track your finances over time.

I love spreadsheets and developing new algorithms and ways to calculate and track what I’m doing in my life. Technology is something I love, and as a programmer and statistician, I’m able to play with different technologies at work every day!

There are six tools I want to highlight that are critical for your financial success. These tools range from simple spreadsheets to calculators to full blown applications:

  • Mint
  • Personal Capital
  • Mad Fientist Financial Independence Calculator
  • Financial Mentor’s Calculator
  • Different Personal Finance Blogger’s Spreadsheets and Tools

Mint

The pinnacle of free web and mobile applications, Mint is at the front of everyone’s mind. I love it because I can input 95% of my accounts, and it allows me to see my net worth in real time.

With Mint, you are able to connect all of your bank accounts, retirement accounts, debt accounts, and see all of the balances and information in a neat and tidy fashion.

I use Mint in tandem with my personal income statement spreadsheet. Mint is a great starter application for people who are looking to get their finances in order.

Personal Capital

Tracking your investments over time can be a struggle. You sell a little bit of this stock, and buy some of that bond. We aren’t all programmers and developers, and can’t track our profit and loss and portfolio value over time easily. That’s where Personal Capital comes in.

Personal Capital is like Mint, but has much greater capability for tracking investments over time.

With Personal Capital, you will be able to see your exposure to different asset classes, as well as get your income and expenses over time.

Personal Capital is a great tool to add to your finance tracking portfolio.

Mad Fientist Financial Independence Laboratory

How far are you away from financial independence? With the Mad Fientist Financial Independence Laboratory, you can know right now!

This web application allows you to enter in your monthly financial data and it automatically charts your progress to FI. It’s an easy to use and cool application.

In addition to being able to use your current expenses, you can forecast using your future expenses to see what financial independence will look like.

Check it out here: Mad Fientist Laboratory.

Financial Mentor

Financial Mentor has eighty financial planning and personal finance calculators on their site.

Eighty! That’s insane. Many of these are pretty simple, but it’s still pretty cool to see all of them in one spot. Plus, they are free!

Hopefully there is one for you. Check these calculators out here: Financial Mentor Calculators.

Other Bloggers Spreadsheets and Tools

Since I started blogging, I’ve seen a number of bloggers posting their own spreadsheets and tools. I love seeing what other people have created, as there are many, many smart people in the world, and everyone has a unique take on life.

Three bloggers that have tools I’ve been recently using are Life and My Finances, Physician on FIRE and ChooseFI.

Derek from Life and My Finances, has a collection of spreadsheets, all for free!  I actually ended up drawing inspiration for my Debt Destruction tool from Derek’s debt snowball calculator!  Check him out here: Life and My Finances.

Physician on FIRE has a great spreadsheet as well. As a doctor, he knows a thing or two about finance as well! Check him out here: Physician on FIRE.

Finally, the ChooseFI Vault has a great wealth of information. If you love their podcast, then you’ll definitely want to check out the vault here: ChooseFI Vault.

The Importance of Tracking Your Personal Finances

Tracking your personal finances and knowing where you are financially is so important to financial success.

But why?

I have two friends: Jack and Jill. Jill tracks her income and expenses, and Jack doesn’t track his income and expenses.

Jack and Jill work at the same company and are in the same team, both making $5,000 a month.

Jill, the Tracker

Jill, the tracker, wants to retire someday, and a few years ago, she started putting away $500 a month into an investment account. Now, she is married and just gave birth to her first kid. As a result, her expenses have gone up but she still has kept in mind this goal of saving for retirement.

Before having her child, she was spending $500 a month on food and drink with her husband. Now, since they have another mouth to feed, she realized that their combined food spending would about $750 a month if she kept eating out. Instead, she changed her habits and started bringing her lunch from home a few days a week.

With this simple change, and even with an extra mouth to feed, Jill is still only spending $500 a month on food, did not alter her lifestyle too much, and is still on track for retirement.

Jack, the Non-Tracker

Jack, the non-tracker, wants to retire soon, but doesn’t know where he is at on a monthly basis. He puts $500 into his retirement account because he heard that it was a good idea on some radio show. In addition to this, he has been saving on average a few hundred dollars a month in cash which he adds to one of his investment accounts here and there.

Recently, he got married as well, and recently gave birth with his wife to a newborn. His expenses have increased, but he is not really sure how much.

One of the things he loves is watching football, and in particular, going to games at the local stadium. Even with his newborn, he still wants to go to games.

With the increased expense of having a kid, his cash savings goes to 0, and now he isn’t getting those additional savings.

A few months later, he realizes he can’t make his usual investment account contribution and is a little puzzled, “oh well, I guess we just bought a few more diapers than I thought, I’ll make the investment next month.”

His next investment is never made because he has no idea how much cash he is saving each month.

Who’s going to be more successful in the long run?

Who is going to be more successful financially in the long run? Jack, the non-tracker, or Jill, the tracker?

I’m going to guess Jill is going to be more successful financially.

She knows exactly where her money is going at the end of the day. Jack on the other hand does not.

I hope this example helps paint a picture of why it’s important to track your income and expenses over time.

You never know when life is going to rear it’s ugly head and throw some unexpected expenses at you – but with proper tracking, you can navigate these rough roads much easier!

Grow Wealth Over Time Through Tracking and Consistency

Keeping track of how you are doing financially WILL lead to personal finance success.

With these four metrics in hand, you will be ready to take on the world of personal finance. Tracking your income and expenses, savings rate, and net worth over time will help you understand where you are financially, what you can improve on, and how to take action.

Calculating these ratios and metrics are not difficult – basic addition, multiplication and division will suffice.

With these tools in your financial toolbox, I know you’ll be well on your way on achieving your financial goals and dreams.

How to track your income and expenses to build your wealth

first steps to wealth

If you want to improve your financial situation and find success with money, you need a plan. In this post, you’ll learn about the first steps to wealth, what you can do today to get into better financial shape, and how you can get on the path to financial freedom.

Are you looking to find success with your money? Do you want to achieve financial success and get into better financial shape? How would you feel if you had a little more money in the bank?

Becoming wealthy and improving your financial situation might seem confusing and difficult, but with the right plan, you can grow your wealth.

In this post, you’ll learn about the first steps to wealth you can take today to start having more money over time.

After reading this post, you’ll have learned actionable steps to build wealth.

One thing I want to say before we start though is becoming rich fast or becoming rich quick is not what I’ll be talking about.

No one becomes a success overnight. Becoming wealthy is no different, and it might be months or years until you become rich.

However, every journey starts with a single step, and in this post, you’ll learn how you can take that first step to financial success and having financial wealth.

First, before discussing the steps for building wealth and having more money, I want to ask you a question.

What Would Your Life Look Like If Money Wasn’t a Problem?

First, before laying out a financial plan for you and talking about the steps to building wealth, I have a few questions for you:

What would life look like if money wasn’t a problem?

A pretty simple question, but an interesting one. What would life look like if money wasn’t a problem? I want to get you thinking about this because what I’ve experienced is that when you have stability with money, you can live a great life.

For you, if money wasn’t a problem:

How would you feel? How would you spend your days? What are your dreams, and could you reach them? Would you have the same job? Live in the same house? Take the same vacations?

I wanted to start this post out with these questions because I wanted you to start thinking BIG.

Personal finance is a BORING subject, but if you attach it to your goals and dreams, you can make amazing things happen with in your life.

What would life look like if money wasn’t a problem?

Got your answer?

Great!

Now, let’s get into the meat of the post, and the first step to wealth.

first steps to wealth

The First Step to Wealth and Having More Money

The first step to wealth is to make a conscious decision that you are going to become wealthy.

You need to make a decision today which will impact your entire live.

Today, you are going to start on the path to wealth and being good with money.

With this decision comes a responsibility to yourself to take care of yourself, your family and be good with money.

The first step to wealth is making a decision you will be good with money.

However, saying “I’m going to become wealthy” is great, but if you don’t actually believe you can do it, then what good will this decision be?

So many people make goals and decisions, but after a few weeks, the excitement is gone and you are back to the same place in life.

Making changes in life is tough without the right mindset and focus.

How can you change your mindset to set yourself up better for success in life?

For me, I’ve been able to change my life most effectively after changing my mindset and mental make-up with affirmations. With money affirmations, you can change your mindset to get on the right path mentally.

How to Use Money Affirmations to Improve Your Mindset Financially

Before getting into any tangible and concrete steps for improving with your money, it’s important to believe in yourself and get in the right head space to achieve your financial goals.

Mindset is so important.

Having a strong mental game is as important as having skills and talents. Positive thinking has proven, time and time again, to lead to more success than negative thinking.

With positive thinking, you can alter your reality and become the person you want.

Similarly, if you think negatively, you will not become who you want to become.

With regards to money:

  • If you tell yourself you aren’t good with money, then you won’t be good with money.
  • If you tell yourself you will always be in debt, then you will always be in debt.
  • If you tell yourself you will never become rich and wealthy, then you never will become rich.

These are negative thoughts and will not help on your path to creating wealth for yourself.

Instead, we need to use affirmations such as the following to cultivate positive money thoughts for ourselves.

Right now, I want you to read out loud the following affirmations:

Now, write these affirmations down, or come up with your own money affirmations, and each morning, read these aloud to yourself.

Over time, you’ll start believing that you can become wealthy, and with this belief, you can accomplish your money goals.

Now, let’s get to what you can start doing today which will have an instant impact on your personal finance situation.becoming wealthy

The Second Step to Wealth and Finding Success with Money

The second step to building wealth, after making the decision you are going to become wealthy, is to start tracking your money.

Do you know how much you are spending each money? Do you know how much money you have after taxes? Are there any expenses you could cut to save more money?

One of my favorite quotes is the following:

What gets measured, gets managed.

If you don’t know where your money is going on a monthly basis, how will you know what to change for improvement?

Knowing where you are financially is so important for financial success.

Tracking your income and expenses is the most important step to building wealth.

There are potentially hundreds of financial metrics you could track, but there is beauty in simplicity.

The 4 metrics I believe you need to know for personal financial success when it comes to understanding your finances are:

  • Net Income
  • Gross Expenses
  • Savings Rate
  • Net Worth

First, you need to know your net income and gross expenses.

Net income is how much you made in income, after taxes, for a given period.

Net income is what you see in your bank account after your paycheck is deposited.

Next, your gross expenses is how much you spend on things throughout a given month.

These gross expenses are things like food, transportation, housing, insurance, travel, shopping, child care, home improvement, debt payments, etc.

For me, I like to break down these further to get a more detailed look at my spending:

For you, you can make this as high level as you want, or as detailed as you want. The main point of this exercise though is to understand where you money is going each month.

Next, we have your savings rate and your net worth.

A person’s savings rate is the percentage of income which a person saves in a given time period.

Simply put, your savings rate can be calculated as (net income – gross expenses) / net income.

Finally, we have net worth.

What is your net worth?

It is your assets minus your liabilities.

What are assets?

Assets are things a person owns which have value. Typical assets include houses, cash, stocks, bonds, cars, precious metals (jewelry, etc.), currencies, businesses – and the list goes on and on.

Next, what are liabilities?

Liabilities are things a person owes, either to a bank, a financial institution, or another person or business. These include credit card balances, mortgages, auto loans, personal loans, liens – and the list here goes on and on as well.

To calculate your net worth, subtract your liabilities from your assets.

With these four personal finance metrics, you will have a complete snapshot of your financial situation.

But now, how do you actually get these pieces of information?

How to Track Your Personal Finances Each Month

Tracking your personal finances is all about being organized and knowing where your money is going on a monthly basis.

The first spot I look is at my bank and credit card statements.

My monthly bank statements will show me all of my expenses, and give me an a complete picture of where my money is coming from, and where my money is going.

Next, you should categorize your spending and calculate the different metrics we discussed in the last section.

Finally, you need understand the details around your savings and debt accounts, i.e. what are your interest rates, what are the minimum payments, and are there any fees associated with these accounts.

While this sounds like a lot of work, there are some tools and softwares you can use to make this easier.

For example, some common personal finance tracking tools include:

Some of these tools are free, some are premium. Of course, you can always make your own spreadsheet or keep a notebook 🙂

Once you have your numbers, now the real improvements can happen.

Tweaking Your Budget and Spending after Calculating Your Expenses

Once you have your numbers, now you can start doing analysis on your spending habits.

For example, let’s say you tally up all of your expenses and you notice you spend $1300 a month on food for your family.

Is that $1300 a good use of your money? Do you value eating food and think $1300 is right for your family, or is this too high?

The true power of the quote “what gets measured, gets managed” is in the second part of the quote – the management.

If you have a goal to save $500 more a month, and you now know you spend $1300 on food, could you cut $500 out of your spending to unlock that $500?

With this analysis, the possibilities are endless. By knowing your numbers, you can make a financial plan for yourself and get on to improving your financial situation month by month.

Now, let’s get on to the last step you can take today to get on the path to personal finance success.

improving finances The Third Step for Wealth and Becoming Wealthy

The final step you can take today is to decide to get educated about personal finance.

In the United States, we don’t learn about personal finance in school, and as a result, we have to learn it on our own in the real world.

Luckily, there is a ton of financial education content on this blog, the internet, and in books where you can further your personal finance education.

Personal Finance Articles and Resources on The Mastermind Within

On this blog, there are a number of great resources you can read and apply in your life to learn more about personal finance.

These articles range from beginner articles to somewhat more advanced articles, but look to cover a wide range of personal finance topics.

Some of these articles include:

By reading these articles, and other articles on the internet, you can further your understanding of personal finance and get on to personal finance success.

If articles aren’t your thing, you can also read books about personal finance.

3 Personal Finance Books to Read for Personal Finance Beginners

I love reading books, and I’ve learned a ton about personal finance from these different books.

The three books which I’d recommend, because of their simplicity and ease to read are:

  • The Automatic Millionaire
  • The Slight Edge
  • How to Think About Money

I’ve included a brief summary of each of these below.

The Automatic Millionaire, by David Bach

the automatic millionaire

The Automatic Millionaire starts with the powerful story of an average American couple–he’s a low-level manager, she’s a beautician.

Their joint income has never exceeded $55,000 a year, yet they somehow manage to own two homes debt-free, put two kids through college, and retire at 55 with more than $1 million in savings.

Through their story you’ll learn the surprising fact that you cannot get rich with a budget!

You have to have a plan to pay yourself first that is totally automatic; a plan that will automatically secure your future and pay for your present.

For a more in-depth summary, click to read my book summary of The Automatic Millionaire.

The Slight Edge, by Jeff Olson

the slight edge, by jeff olson

The Slight Edge is a way of thinking, a way of processing information that enables you to make the daily choices that will lead you to the success and happiness you desire.

Learn why some people make dream after dream come true, while others just continue dreaming and spend their lives building dreams for someone else.

The Slight Edge is not just another self-help motivation tool of methods you must learn in order to travel the path to success.

The Slight Edge shows you how to create powerful results from the simple daily activities of your life, by using tools that are already within you.

For a more in-depth summary, click to read book summary of The Slight Edge.

How to Think about Money, by Jonathan Clements

how to think about money, by jonathan clements

How to Think about Money, which was named 2017’s adult book of the year by the Institute for Financial Literacy, is built around five key ideas:

  • Money can buy happiness, but we need to spend with great care.
  • Most of us will enjoy an extraordinarily long life–and that has profound financial implications.
  • We are hardwired for financial failure, so sensible money management takes great mental strength.
  • We need to bring order to our financial life–by focusing on our paycheck, or lack thereof.
  • If we want to add to our wealth, we should strive to minimize the subtractions.

With these ideas, you can build wealth and become rich over time.

For a more in-depth summary, click here to read my book summary of How to Think About Money.

Start Today and Make a Change for Your Financial Future!

At this point, what do you say?

  • Are you going to make the decision to start improving your financial situation for the future?
  • Are you going to make a decision to start building wealth?
  • What’s stopping you from waking up in 10 years and being comfortable financially?

I hope that after reading this post, you make a decision which will have a positive impact on your financial life.

With this decision, you’ll be on the path to financial greatness and ready to take on whatever life brings your way going forward.

Again, becoming wealthy is not something which will happen over night. If you are starting at a net worth of 0 or a negative net worth, it might take 5, 10 or 15 years before you are 100% comfortable with your financial situation.

But, you will never get there if you don’t start there today.

Start with some money affirmations to get your mind in the right spot, continue with tracking your income and expenses, and then get to learning more about personal finance.

I’m excited to see where you go in the next few years and hope this post will help you unlock everything you’ve ever dreamed of doing.

Thanks for reading!

make-money-invest

What is money really? Why is money so important? Why does money matter? In this post, I’m going to answer these three money questions and talk about how you can use money to create a great life. Money is a tool, and you can use your earnings and money to create a life which is forth living.

What is money?

This is a simple question, with a seemingly simple answer.

But, really, what is money?

Also, what is debt? Are they the same thing?

In this post, we will explore the simple question of what is money, why money is important, and how you can use money to live a life worth living.

What is Money?

calculating net worthFirst, what is money?

I typed “what is money?” into Google and got a ton of hits – all from financial and information websites (Investopediathe IMFWikipedia, and Economics and Liberty)

Most of what I looked at had similar definitions of “what money is”.

Money, simply put, is a medium of exchange. 

Societies throughout history have used money to make it easier to exchange and trade goods.

Very early on in history, humans used bartering as the main way to exchange and trade goods. “I’ll give you 2 pounds of grain for 1 gallon of milk” was probably close to a common trade back in the day.

Unfortunately, milk and grain go bad after a certain point, and humans looked to other things they could use to facilitate these activities.

Silver, gold and other precious metals were used, and over time, paper and digital forms of money have been introduced to facilitate the exchange of goods, services, and capital.

The type of money (silver, goods, cash, etc.) is determined socially, be it by a governing body or by the people in a given market.

At this point, I could go into the functions of money, what are some of the properties of “good” money, and talk about “why fiat currency is the best form of money and why cryptocurrencies have no intrinsic value” (or is it the other way around?), but these are just distractions from the question we are trying to answer of “what is money?”

What I don’t like about the simple definition above is that is ignores the fundamental constraint of the world: energy.

Money is a Number for True Capital and a Claim on Energy

While many financial analysts, actuaries, and investment professionals believe in the energy tooth fairy (i.e. energy will always be plentiful because of technology or because oil never runs out), it’s my belief that energy needs to be considered when talking about finance.

With this in mind, our definition of money from above needs tweaking.

Here’s what I believe the true definition of money is: money is a claim on a certain amount of energy.  

Think about it, with $25, you could pay someone to cut your lawn for you (which requires energy), or you could spend an hour of your valuable time and keep your $25 (but in this case, you personally have expended energy).

The more money you have, the more things you can do because you can afford to use a certain amount of energy.

Speaking a little more in general, the cost of buying something (monetarily), should be roughly equal to the amount of energy (be that actual energy, joules) put into producing that something.

Over time, as processes become more efficient, the cost of goods should decrease, because efficiency leads to lower uses of energy during production.

If Money is Energy, What Can We Conclude?

After establishing a definition, it’s good to look at some of the results and logical statements we can conclude from it.

First, if money is claim on a certain amount of energy, then we can say the following:

  • Having more money is good, as it allows you more options.
  • If money is a claim on a certain amount of energy, then debt is a future claim on a certain amount of energy.

With these conclusions, I want to try to answer a few questions.

First, why is money important? Second, how should you think about money? Third, why does having more money in the bank matter? And, finally, how can you use money to create and live an interesting and fun life?

Why is Money Important and Why Does Money Matter?

First, why is money important? Why does money matter?

Let’s start with an easy question: at a basic level, what do human beings need to live?

Shelter, clothing, food, and water.

Going a step further, some other needs include education, sanitation and relationships.

Unfortunately, there’s no such thing as a free lunch, and all of these things cost money.

The purpose of money, in my opinion, is a that money should be viewed as a tool for us to facilitate the purchases of our needs and wants.

Money is a tool. Money is a store of energy which can be used to create freedom, acquire things or experiences, and can give us a buffer for times of emergency.

Saving money allows us to not have to work later, and can be used to finance and fund a great life today or tomorrow.

Money should be viewed as just this: a tool which can be used to enrich your life.

Why Money Matters

good at making moneyIt’s Wednesday night and I’ve just finished up dinner.

In 12 hours, I’ll be waking up, showering, and getting on the bus to go to work.

I have to go to work tomorrow because I have rent to pay, a mouth to feed, and other obligations to meet.

I’d love to stay at home and read a book. Or take a nap. Or work out.

At this point in my life, I can’t afford to not work – I need the money.

Money matters because money can help you become free. Financial freedom is my ultimate goal in the next 5 to 10 years. I don’t want to be a slave to the bank, a slave to my employer, or a slave to anyone else.

Financial freedom will allow me to spend time the way I want to spend it. Financial independence will allow me to pursue my passions for pleasure or profit, and I’ll be able to help millions with my talents.

There are so many problems to be solved out in the world, and I’m excited to be able to dive in and contribute to the solutions.

Now, I’m going to talk about how exactly you can think about money and how you can use money as a tool to create and live a life worth living.

passive incomeHow Should We Think About Money and What’s the Purpose of Money?

For you, again, thinking about money as a tool to fund your lifestyle and amplify your life and personality is a great way to think about money.

Money is a tool, and with this mindset, you can start thinking more strategically about how you want to spend your money.

So before you start making a plan to use money in the best way for yourself, I have some questions for you.

What Makes You Happiest and How Could Money Help?

On this blog, I want to help you with your goals and help you create a great life.

Figuring out what you want your life to look like can’t be found without breaking it down into smaller questions. These smaller questions can be used to get at the core of:

  • who you are
  • how you like to enjoy your time
  • what you like to do on a daily, weekly, and monthly basis.

So now, first, here’s a big question for you:

When are you most happiest and what are you doing when you are experiencing this joy?

This is a simple question. When do you feel happiest? What activity or thing are you doing which brings the happiness?

For me, happiness comes from creation and helping others. I love creating content, building things, and solving problems. If life was a huge puzzle, I’d love it (which it kind of is, but the pieces are constantly changing 🙂 )

Happiness also comes from doing things on my own terms and having the freedom to create what I want when I want.

For you, how could you use money to do more of these things? What would that look like? How could you use your money and savings to bring more joy into your life?

How to Use Money as Tool to Create and Live a Great Life

Now that you have figured out what makes you happiest, now it’s time to come up with a plan to use your money to the fullest.

In my opinion, life is all about pushing towards doing what makes you happiest and understanding that while today might not be where you want to be, over time you can get there.

For you, what do you love to do?

Next, how would live change if you could spend 2 times as much money on that thing? What about 4 times as much money?

Now, what could you do to free up that extra money to do more of that?

For me, I try to cut out spending my money on things I don’t like, and spend more on things I do like.

With this simple mindset shift, and looking at my money as a tool, I’m now living happier and feeling good about life.

What about you? Are you going to start viewing money as a tool?

Start Using Money as a Tool Today to Fund Your Dreams

With more money, you have more options. With more options, you can do the things you want with your life. You can live out your dream and you can be the person who you are meant to be.

After this post, now you know what the purpose of money is, why money is important, and how you can start thinking about money to bring happiness into your life.

I hope you’ve enjoyed this article about money and with this, now you have the mindset to create the life that you want to live.

Readers: what makes you happiest? Why do you do the things you do? Why does money matter to you? What is the purpose of money in your life? 

win with money

Becoming financially successful and winning with your money can be accomplished with the right game plan and actions. Luckily, you don’t need a finance degree to be good with money. In this post, you’ll learn the 15 steps you can take to improve your financial situation in your 20’s, and how to become financially smart in your 20’s.

Are you looking to get into a better financial situation? Do you want to be able to make financially smart decisions? Would you like to save more money and learn about personal finances? Are you in debt and want to get out of debt?

This might be obvious to you, but the financial decisions you make in your 20’s can either help or hurt your financial future.

Unfortunately, there are people who, either through bad luck or bad decisions, do not have their financial house in order in their 30’s,  40’s and 50’s, and cannot live the life they want to live.

I believe that through intentional living and smart decision making, anyone can be successful.

It’s possible that these same people could be in better financial situations if they made different choices.

The thing is with personal finance, these choices are usually not life changing. You would be surprised if I told you an extra $50 a month in savings (not a lot of money each month) could lead to thousands later in life!

Becoming better with your finances, finding financial success, and winning with your money in your 20’scan build a great foundation for your future self.

In this post, I’m going to share with you 15 steps, and a number of great resources for learning personal finance, to help you become more confident when handling your finances and money.

Let’s get into this personal finance basics post!

becoming financially successful15 Steps to Winning With Your Money in Your 20’s

Below are the 15 steps to win with your money which I will cover in this post. By following these steps, you can create a great financial foundation for your life early in adulthood.

After creating a great financial foundation, you can then start thinking about financial freedom.

This post however is all about the steps to take to create an incredibly solid financial foundation.

The 15 steps to becoming financially successful are:

  1. Start Thinking Positive Thoughts
  2. Cultivate an Abundance Mindset
  3. Decide to Live Intentionally
  4. Start Tracking Your Income and Expenses
  5. Learn More about Personal Finance
  6. Cut Expenses to Save More Money
  7. Get Out of Debt
  8. Focus on Exploding Your Income
  9. Understand Credit Scores
  10. Build an Emergency Fund
  11. Learn about Investing and Investment Accounts
  12. Explore House Hacking
  13. Start a Side Hustle
  14. Become Self Aware of What You Enjoy in Life
  15. Stay Consistent with Your Actions

Let’s dive into each of these steps for winning with money in greater detail.

1. Start Thinking Positive Thoughts

Our minds are incredibly powerful and can quite literally create its own reality.

Using positive thinking can manifest itself in building the financial situation you want.

Telling yourself you are good with money can lead to you becoming better with money.

You are what you say you are.

Saying, “I’m a negative person who is broke and will never be rich” is a reinforcing trap. Saying this sort of thing will result in you being a negative person who is broke and will never be rich.

Likewise, telling yourself, “I’m a positive person who can build wealth and improve my financial situation” will lead to improving your financial situation.

Using positive thinking can help guide you on your path to winning with money.

While mindset alone will not change your financial situation, by starting to think positive thoughts, you will start believing in yourself and change for the better.

Related Posts for Positive Thinking:

2. Cultivate an Abundance Mindset

Think about this for a second: there is so much money in the world, and to become a little bit wealthier – you just need to get a little bit of it.

In the world, there are trillions and trillions of units of wealth (dollars, whatever your country’s currency is, etc).

0.0000001% of 1 Trillion Dollars is $10,000.

Think about that, of all the money in the world, you only need to get 0.0000001% of it to get to 5 figures in savings.

Can you do this?

Getting into an abundance mindset will let you believe in yourself, and also realize that you can win while others win.

Creating value and doing what’s right in the world can lead to riches – you don’t need to steal or cut others down to make more money.

Related Posts for Living in Abundance:

personal finance success3. Decide to Live Intentionally

Do you decide what will happen to you in your life, or do you let life decide what will happen to you?

Improving your financial situation involves intentional living and doing what you want with your time, money and efforts.

By setting goals, making a plan, and executing on that plan, you can build wealth, pay down debt and grow your savings.

To do this, you need to start living intentionally and practice proactive behavior.

Instead of letting life happen to you, you need to take action and lead a life of intention and action.

After making the decision to live with intention, a decision to care about your financial situation, then you can get onto learning about the basics of personal finances, come up with a financial plan, and start executing your plan.

4. Start Tracking Your Income and Expenses

One of my favorite quotes is “What gets measured, gets managed”, by Peter Drucker.

The idea behind this quote is especially important in the world of personal finance.

If you don’t know where you are with your finances, how are you going to get to where you want to go?

Tracking your income and expenses is easily the most important step for improving your financial situation. Just knowing how much you are saving (or spending) each month will allow you to prioritize what you can cut back on, or what you should change regarding your spending habits.

At a minimum, you should track your income, expenses, savings rate, and net worth.

Once you know each of these numbers, you can then start making changes in your spending habits to start saving more, paying down debt, investing more, etc.

Looking at your bank statements is one place to start, but there are also a number of great softwares (or Excel) which you can use to track your personal finances.

5. Learn More about Personal Finance

After you’ve started tracking your numbers, now it’s time to start learning more about personal finance.

When I think about personal finance, I think of the following topic areas:

  • Making Money
  • Paying Down Debt
  • Saving Money
  • Investing
  • Mindset
  • Budgeting

These personal finance topic areas have some overlap, but a lot of the content is unique and specific to a certain goal and situation.

Learning about personal finance basics can be done through reading personal finance books, personal finance blogs, or personal finance podcasts.

You’ll have to figure out which medium of learning is best for you, but I can assure you, there are hundreds of great resources out there for you to explore.

For me, when I started on my personal finance journey, I read a lot of personal finance blogs. I also love reading books, so read a lot of different personal finance and investing books.

You might like podcasts, and luckily there are a ton of podcasts to help you learn the basics of personal finance!

Over time, you’ll become comfortable with different personal finance terms and concepts, and get on to becoming a personal finance expert.

Related Posts for Learning about Personal Finance:

emergency fund

6. Cut Expenses to Save More Money

After starting to track your expenses and learning more about personal finance, now, it’s time to start building a solid financial foundation.

The best place to start, which will bring fast results for your financial situation, is to cut unnecessary expenses.

Even $100 a month can add up over time, and I’d be very surprised if you weren’t spending $100 on things you don’t necessarily need (I know I do even in months where I’m really good with my spending!).

The first place you should start is by examining the big three expenses: housing, transportation and food.

While it might not make sense to move, over time, you can consider downsizing or picking a slightly less nice apartment to save more money.

For transportation, buying a slightly used car vs. buying a new luxury car lead to massive savings over time.

For food, cooking your meals vs. going out can lead to great savings.

After examining these three expense categories, subscriptions and impulse purchases are next.

Over time, you can figure out which expenses are necessary, and which expenses are unnecessary. Through this process, you will then be able to save more money over time.

7. Get Out of Debt

Being in debt is incredibly restricting and expensive.

Whether you have credit card debt, student loan debt, a mortgage, an auto loan, or a personal loan, getting out of debt should be a priority over time.

Being in debt sucks and is not a freeing feeling.

Getting out of debt can happen faster by paying more than the minimum payment each month, and over time, you can employ some different pay down strategies, refinance, or consolidate your debts to further decrease your payments.

At the end of the day, being completely debt free is the goal, and this will help you on your path to winning with money and becoming financially successful.

8. Focus on Exploding Your Income

After you’ve gotten a handle on your expenses and debt, now, it’s time to focus on providing value in the world and exploding your income.

While you can get the fastest personal finance benefit from decreasing your expenses, there is unlimited upside when you look at the income side of the personal finance equation.

Growing your income can involve a number of things:

  • Taking courses relevant to your work
  • Changing jobs or industry
  • Going back to school for a new degree
  • Starting a side hustle
  • Picking up a second shift or second job

At the end of the day though, you want to become more valuable in the industry you are interested in working in.

I work in the financial industry, and for me, to become successful in my role, I’ve had to:

  • learn about different financial products and jargon
  • get certain credentials and degrees
  • work on my communication and big picture thinking
  • and learn how to automate and make efficient processes with programming

This didn’t happen over night, but during the past 5 years, I’ve nearly doubled my salary by having this “look to add value” mindset.

You can do this too through your intentional actions and figuring how what makes sense in your current or prospective role.

9. Understand Credit Scores

While the goal is to have no debt and to never have to be in debt, there are some times in your life where financing a certain purchase (houses could make sense here).

Understanding how credit scores work, and how you can increase your credit score, is a piece of personal finance which is easy to learn and improve upon.

There are five main factors that determine your credit score:

  • Payment History (35%)
  • Utilization (30%)
  • Length Of Credit History (15%)
  • New Credit (10%)
  • Types Of Credit Used (10%).

By focusing on improving each of these categories, you can improve your credit score.

With a better credit score, you can get lower interest rates and better financing options – saving money on your interest expense if you decide to take on new debts.

Related Posts for Understanding Credit Scores:

money making10. Build an Emergency Fund

Having funds set aside for emergencies is critical for being able to weather any unexpected expenses.

Saving up 3-6 months of expenses in a savings account, or having other liquid assets ready to go in times of need can be the difference between extreme stress and sleeping well at night.

Building an emergency fund is all about saving more money for an extended period of time until you are happy with your level of expenses saved up.

For me, I like having 6 months of expenses saved up, but you might like less or more. You’ll have to figure out what you are comfortable with for yourself!

11. Learn about Investing and Investment Accounts

While it is great to save money in traditional bank accounts, these days, banks are paying pennies in interest.

Learning about investing, and looking for other ways to grow you money over time, can help you build wealth after establishing your solid financial foundation.

There are a number of different assets and ways to invest and grow your money. Some of these asset classes include:

  • Real estate
  • Stocks
  • Bonds
  • Precious Metals
  • Small Businesses
  • Cryptocurrencies

By learning about the pros and cons of each of these asset classes, you can then make a decide on where to put your money to try to grow it for your financial future.

12. Explore House Hacking

In your 20s and 30s, house hacking is one of the best ways to build wealth fast and get into the real estate investing game.

For me, house hacking was my best financial move to date, and over a 4 year span, I was able to make $15,000 to live. 

That’s right I made money to live in my house – through buying a house and renting it out to friends, I was able to cover my mortgage and make some money on top of the mortgage.

As I mentioned above, in step 6, cutting housing expenses can have a huge impact on your financial situation, and with house hacking, you can cut your housing expenses in a huge way.

saving money for future13. Start a Side Hustle

Starting a side hustle can be incredibly rewarding, and can also be lucrative.

While side hustling is not for everyone, for me, it has definitely been a great way to gain exposure to new topics of interest, learn new skills, and grow as a person.

Over time too, your side hustle might be able to become your full time hustle!

Starting a side hustle can be as easy as mowing your neighbor’s lawn, signing up to do bookkeeping for a local small business, or refereeing a local sports league.

A side hustle could also be starting a business, a blog, or something with potential to scale!

Depending on what you want your life to look like, a side hustle might be for you, and if it is, then aligning your side hustle with your goals and dreams will lead to the best outcome.

14. Become Self Aware of What You Enjoy in Life

When you start diving into personal finance, learning the basics of personal finance, and becoming a personal finance geek, you will become obsessed with money.

Over time though, you might realize that life isn’t about money, and really, money doesn’t really matter unless you are able to use that money to live an enjoyable life.

The whole point of financial success and winning with money is so that you can live your dream life and do what you want with your time!

Becoming self-aware of what you like to do, understanding there should be a balance between work and play, and understanding money isn’t everything will lead to a successful life.

15. Stay Consistent with Your Actions

Doing the right action once, and never again will not lead to success in life.

Doing the right action over and over, and repeating this process for months and years, WILL lead to success.

Personal finance success isn’t hard, but the application of consistent actions can be tough to do.

Becoming successful financially can happen if you stick with it, keep learning over time, find balance in your budget and expenses, and look to grow your income over time.

Having this mindset of consistency and action, and having patience will lead to winning with your money and becoming a financial success.

Learn The Basics of Personal Finance and Start Winning With Money!

Hopefully this article provides you with a number of resources and ideas for getting on the right path for personal finance success.

What I’ve provided above are a lot of the basics of personal finance. My hope is you will go back now and click into some of the other articles to get more information on each of these topics.

While your financial situation will more likely not improve overnight, little by little, you can improve your financial situation and win with money.

If you have questions, please leave a comment below! Thanks for reading!

emergency fund

Saving up money for emergencies is a great first step in building a solid financial foundation. When saving up money for your emergency fund, cash is great, but there are other financial assets which might make sense to consider having as well.

In this post, you’ll learn how to create the ultimate emergency fund, and learn how you can save more money over time to improve your financial situation.

how to save for an emergency fund

Saving up an emergency fund is the first step in becoming financially successful. Having money in the bank will help you sleep better at night knowing you can pay your bills.

Many financial experts recommend saving and having at least $1,000 in the bank.

While $1,000 is a great starting point, I believe this is just a small baby step towards creating the ultimate emergency fund for you and your family.

The ultimate emergency fund I’m going to describe is a little bit out there, and you might think I’m crazy.

However, the probability of an emergency could be higher than you expect (and by preparing for the unexpected, you can prepare to weather any storm).

In this post, I’ll be describing what I believe to be the ultimate emergency fund, talk about steps you can take to build this emergency fund, and discuss other considerations to think about when building this fund.

Disclaimer: I’m not an investment adviser, a lawyer, or a certified financial planner. With all investments and things regarding money, it’s crucial you do your due diligence, realize that your financial situation is unique to you, and do the necessary research and learning before taking action. Personal finance is personal. While I believe that the assets I’m going to discuss are good to own and have, they may not make sense in your personal situation.

emergency fundWhy You Need an Emergency Fund

Before getting into the three assets which make sense to own for your emergency fund, I first want to share with you why it’s critical to have an emergency fund.

An emergency fund is just that: money saved for emergencies.

If you lose your job, could you still pay your bills?

If your roof gets damaged, or your car gets wrecked, could you afford to pay for the damages?

What would happen if you unexpectedly had to pay for a medical complication? Could you do it?

These are common situations where having an emergency fund is incredibly important. By having an emergency fund, you could successfully navigate these situations without getting into debt or other financial troubles.

In addition to these situations, there are a few other emergencies which might apply.

What if you have to leave the country because of a tyrannical government?

In the United States, this might seem like an absurdity, but in other parts of the world, things like this happen all the time.

Likewise, what if favorite bank goes bankrupt or closes down? How safe is your cash then?

I don’t have the answers to all of these situations, but want to get you thinking about the importance of an emergency fund, and also think about how this extends to unlikely situations.

personal finance successThe Three Assets Necessary for Your Ultimate Emergency Fund

Now that you understand the importance of building an emergency fund, let’s get into the meat of the article and discuss the three assets for your ultimate emergency fund.

After you’ve taken your first actions towards becoming financially successful, and have $1,000 saved up in the bank, you can start to think about creating your ultimate emergency fund.

Having $1,000 in the bank is necessary to break the cycle of living paycheck to paycheck, and will provide a solid base for future savings.

After getting this cash stash saved up, the next steps are to start investing for the future, and to work on solidifying your present situation.

Most personal finance experts recommend having an emergency fund which could cover 3-6 months of expenses.

If you spend $3,000 a month, then 6 months of expenses would mean you have $18,000 saved up for emergencies.

6 months of expenses in your emergency fund is a great start, but I’ve found having more than 6 months of expenses saved provides me with comfort.

This level of savings should depend on your job, your level of expenses, and your comfort with having money in the bank.

For your emergency fund, there are three assets which I believe will provide an amazing safety net for your financial situation are:

  • Cash
  • Precious Metals
  • Cryptocurrency

Let’s talk about each of these assets in detail.

Why You Should Hold Cash in Your Emergency Fund

Holding cash in your emergency fund is a pretty obvious suggestion.

You probably pay your bills with whatever currency is the main currency in your country, so having a checking or savings account with this currency certainly makes sense.

Depending on your level of comfort with different accounts, your cash can be held in a variety of ways.

I’ve already mentioned checking accounts, and savings accounts, but if you want to get a higher rate of return, you could opt for short term Treasury Bills or open up a high yield savings account.

Some people also will put cash in a Certificate of Deposit, but I’m not a huge fan of those as there can be restrictions on when you can access your money.

Cash is king, and by having a large cash position, you should be able to weather most financial storms.

However, with recent decisions by the European Central Bank (to cut interest rates further and start quantitative easing), and other central banks, the growth on your money in a traditional bank might not make sense going forward.

Before discussing the other two assets to own in your emergency fund, I want to touch on the absurdity of negative interest rates, and hopefully spark some new thoughts regarding cash flows.

On The Absurdity of Negative Interest Ratesfrugal living guide

In Europe, the overnight interest rate is -0.5%. What does this mean?

If I lend you $100, I have to pay you 0.5% for you borrowing my money.

On the face of this, why would I ever lend you anything?

For thousands of years, the purpose of lending and banking was that if I need a loan, then the lender is doing a service and taking on risk.

By taking on this risk, the borrower would pay an interest rate which would compensate the lender for lending out money.

Now, with negative interest rates in certain parts of the world, you have a completely distorted lending situation: lenders are quite literally losing money by lending (and taking on the risk of default from the borrower!)

One of the most mentioned arguments against precious metals and cryptocurrencies is how they don’t pay a dividend and do not have any cash flow.

Well, when banks are paying out 0%, or even charging you interest to hold cash in a checking or savings account, then you aren’t getting any cash flow for your savings anyway!

This is where it might make sense to consider these other two assets.

Why You Should Have Precious Metals in Case of Emergency Fund

Gold and silver, also known as precious metals, have been money for 6,000 years.

For a number of reasons, these shiny metals have stood the test of time, and have been coveted by different civilizations throughout different time periods all over the world.

Gold and silver satisfy a number of the essential qualities of money:

  • Proven Medium of Exchange
  • Unit of Account
  • Portable
  • Divisible
  • Interchangeable
  • Durable
  • Private
  • Default Proof
  • Naturally Limited in Supply
  • Millennial Long Stores of Value

You might think gold and silver are only things your grandma and grandpa own, but these assets have a position in your ultimate emergency fund.

If you need to flee the country, or need to protect your wealth from a rapidly depreciating currency, having physical assets is very important.

5 ounces of gold is currently worth over $7,500, and could easily fit in your pocket.

With the ability to concentrate your wealth into something physical, valuable and portable, this seems to make sense for an emergency.

One thing to note here is I’m not talking about buying GLD or SLV, ETFs which supposedly are backed by physical assets. These ETFs are digital and while could make sense in your investment portfolio, these have no place in your emergency fund.

I’m talking about physically having the physical coins or bars in a safe, hidden location.

There are a number of ways to buy gold and silver.

For me, I’ve purchased from sites such as SD Bullion and Apmex,. There are a ton of different coins and bars you could buy, but to start, I might look at something simple like Sunshine Mint bars, American Eagles or Junk (old quarters, dimes, etc.).

For you, you may not be comfortable buying at this point, but hopefully this sparks a thought into why you might want to consider buying these precious metals for your emergency fund.

Even $1,000 worth of precious metals could go a long way in making sure you stay financially resilient in a financial storm.

emergency fundWhy You Should Consider Cryptocurrencies in Your Emergency Fund

The next asset which might make sense for your emergency fund is cryptocurrencies.

At this point, you might think I’m crazy to even suggest this for your emergency fund.

Again, I’m looking to build the ultimate emergency fund, and if you live in a country with a volatile currency, or may need to flee your country, having a digital asset which isn’t tied to one specific currency may make sense.

Here, I’m not suggesting you go all in on one coin. What I’m saying here is it might make sense to allocate a little bit of your money into some of the bigger coins, such as Bitcoin, Litecoin, or Ethereum.

As with precious metals, even with $1,000 in something other than your home currency could be the difference between getting wiped out and having money in a crisis.

For buying cryptocurrency, you can use sites such as Coinbase.

One thing to note here is some governments have been cracking down on cryptocurrencies. While I don’t know what will happen in the future, this is definitely something to consider when thinking about buying these different assets.

At the same time, why should the government be afraid of something, and why should that stop different people from buying these assets?

I’m not sure, but with these three assets, you have the possibility to create an amazing emergency fund.

Now, let’s switch gears a little.

In the next section, I’m going to share with with 13 tips to save money to build your emergency fund.

13 Tips for Saving Up Money to Build Your Emergency Fund

There are a number of ways to save money each and every day.

Below are thirteen points you can look to implement in your life to save more money:

  • Destroy your Debt
  • Meal Prep and Eating in
  • Buy Last Year’s Model
  • Coupon at the Grocery Store
  • Impose Self Spending Limits
  • Planning Ahead for Vacations
  • DIY Projects
  • Using the Library
  • Unsubscribe From Subscriptions
  • Practice Smart Banking
  • Use What is Needed
  • Take Public Transportation
  • Take Advantage of Offers

Essentially, if you want to save money, you have to start living intentionally and being conscious of your spending.

One recommendation I have for everyone with regards to spending is to think about what isn’t necessary and cut it.

If you are doing something which doesn’t bring you joy, then maybe it’s time to stop spending money on that thing!

For me, that’s how I decide how to spend my money. If it brings me enjoyment, I won’t hesitate to spend money. At the same time, if the product or service won’t bring me enjoyment, I won’t buy it.

Saving money might seem like a tough goal, but I know you can make smart financial decisions over time and get there.

Here are some other articles which can help you with learn about saving more money:

Start Building Your Ultimate Emergency Fund Today

Getting a solid financial foundation in place is crucial for taking risks and becoming wealthy. A strong emergency fund is part of this solid financial foundation, and with this article, you now have some great background on what assets to own for your emergency fund.

Now, it’s your turn to start making changes in your life.

With a strong emergency fund, you will have a create foundation to start building your dream life.

Hopefully this article has given you some good food for thought regarding different ways to construct an emergency fund.

You may think my ideas in this post are out there and a little wacky, but this is my truth and I need to share it. If I don’t share these thoughts with you, I’m not being authentic.

Thanks for reading!

real estate

House hacking is a fantastic way to build wealth, achieve financial independence, or improve your financial situation. With house hacking, you can reduce you expenses, increase cash flow, and build equity. 

Why you should rent your spare rooms

What is house hacking? What’s the definition of house hacking? Can anyone house hack?

House hacking has been an integral part of helping me build wealth at a young age.

In this post, I will be sharing with you the basics for house hacking, and talk about my experience with house hacking.

I want to share with you my experience with house hacking – becoming a landlord and living with your tenants – and how this experience has had an amazing positive impact on my financial situation.

Below, we will cover:

  • What house hacking is,
  • How to house hack
  • My house hacking story
  • How house hacking gets you on the fast track to financial freedom

Let’s get started with the definition of house hacking.

House Hacking Gets You on the Fast Track to Financial Freedom

What is House Hacking?

House hacking is buying an owner-occupied property and getting paid to live for relatively cheap or free.

How are you able to live for relatively cheap or free?

House hacking allows you to live for relatively cheap, or free, by owning a house and renting out your additional rooms or units to other people (friends, Craigslist people, strangers, etc.).

By “hacking” your housing expense, you use other people’s money (your tenant’s rent payments) to pay down your mortgage and live for free.

House hacking allows you to get into the real estate game and also have your housing subsidized by roommates or tenants. This post will give you a “House Hacking 101” lesson, starting with the basics.

What are the Benefits of House Hacking and Real Estate?

There are many benefits of house hacking. House hacking helps with cash flow, and is also an investment in real estate. You improve your cash flow, and get invested in one of my favorite asset classes.

Why do I like real estate as an asset class? Real estate is:

  • Accessible
    • Anyone can buy a house
  • Appreciable
    • Your real estate can increase in value over time
  • Leverageable
    • You can buy real estate on margin and borrow against equity
  • Rentable
    • Cash flow is king!
  • Improvable
    • Through sweat equity or contracting out repairs, you can increase the value of your house
  • Deductible/Depreciable/Deferrable
    • Real estate has some amazing tax benefits

In addition to these great benefits of real estate, house hacking allows you to decrease one of your biggest expenses.

Housing is such a big expense for so many people, and by reducing it through renting out extra space in your house, you can save more money over time.

5 Reasons to Consider House Hacking for Financial Freedom

There are a number of reasons why you should consider house hacking. If you are looking to achieve financial freedom at a young age, house hacking will speed up your progress.

Below, I’ve listed 5 reasons for you to consider house hacking if you are looking to achieve financial success.

  1. Decrease your biggest expense
  2. Increase your income and savings rate
  3. House hacking helps you gain landlord experience
  4. Increased cash flow and financial flexibility month to month
  5. House hacking gives you ownership of property and land

Now, let’s touch on each of these reasons to house hack in great detail.

1. House Hacking Helps Decrease Your Biggest Expense

Housing is the biggest expense for people in American, with nearly 40% of their income going towards rent or a mortgage.

By house hacking, you can reduce, or completely eliminate, your housing expense.

When I started house hacking, my mortgage payment was $1,820, and my monthly rent was $1,650.

Instead of paying $1,820 a month, I was effectively paying $170 a month for rent – $170 is unheard of for rent these days!

In addition, with principal pay down and appreciation, I was living for free and making money with house hacking.

House hacking allowed me to use my decreased expenses to pay off my student loans and pay off my car loan.

2. House Hacking Increases Your Income and Savings Rate

Similar to the first reason to consider house hacking, house hacking increases your income and savings rate.

Each month, you will be collecting checks from your tenants, and with this, you will be increasing your income.

With an increased income, you can pay down debt, take a vacation, or buy more rental properties!

3. House Hacking Helps You Gain Landlord Experience

When I started house hacking, I had no landlord experience. One of the reasons many people don’t invest in real estate is because they don’t have the experience and knowledge to manage their properties.

With house hacking, you can gain this experience.

Also, since you are living in the house you are renting out, it will be easier to manage any repairs, talk with tenants, and make sure everything is going well.

4. House Hacking Increases Your Cash Flow and Passive Income

If you are working a day job, you probably get paid every two weeks or so. With house hacking, you give yourself another paycheck, and this helps your cash flow over time.

What is great as well about house hacking is this income is passive income, and you receive this extra paycheck without doing any work!

5. House Hacking Gives You Ownership of Land and Property

Finally, house hacking gives you ownership of land and property. While the American Dream isn’t necessarily what it used to be, it is really cool to own something which is real and tangible.

There is finite space on this Earth, and no one is making any more land.

By buying property and land, you can own something which is scarce and can grow in value over time.

house hacking calculatorHow to Buy a House to House Hack

Buying a house to house hack is very similar to buying a rental property.

A very common strategy for house hackers is to buy a duplex and live in one of the units. With buying a multi-family property, you don’t have to see your roommates, and can make repairs on your unit while bringing in rent.

However, before buying a house to house hack, it is important to have a real estate investing strategy for your money.

Real Estate’s One Percent Rule

The basic benefit of investment real estate is its ability to produce rental income. Before buying a property, it’s important to do some calculations and analysis to see if the prospective property will be a good investment.

The One Percent Rule for real estate is a very easy calculation to run to see if a rental property is a good investment.

If the monthly rental income is greater than 1% of the percent price, it could be a decent purchase for your rental real estate portfolio.

For example, if you are looking at a $200,000 house, then the 1% rule would mean the monthly rent would have to be $2,000.

For a house hack, if you plan to move out in the future, it might make sense to look at the 1% rule to see if the property could be a good investment for you. Other metrics might be cap rate, and net income after expenses.

With all houses too, since you are going to live in the house, you will want to think about location, repairs, potential tenants, and budget.

Your criteria should be based on the following factors: price range, discount, cash flow, and appreciation potential.

Buying a house is a big decision to make. While you will have wiggle room with rent coming in each month, you still want to make good decisions with your purchase.

How to Acquire Financing for House Hacking

Acquiring a mortgage and acquiring financing for house hacking is the exact same as getting a mortgage for an owner occupied house.

Real Estate Financing Options in the United States

The median home price in the United States is roughly $200k. Since most people don’t have that kind of cash laying around, they must go to a bank, a credit union, or online to acquire financing.

There are many types of loans. Let’s focus on the 3 main products most home buyers use: 30 year fixed rate mortgage, 15 year rate fixed mortgage, and 5/1 adjustable rate mortgage.

In addition to the type of loan, there are variations within each product: Conventional and FHA to name two.

30 Year Mortgage vs. 15 Year Mortgage vs. 5/1 Adjustable Rate Mortgage

Let’s discuss the 30 year fixed rate mortgage (yes, it is as simple as it sounds). For 30 years, you have the same (fixed) interest rate on your loan. Similarly, for the 15 year fixed rate mortgage, you have the same interest rate for the 15 year period.

Each month, you pay interest equal to the interest rate multiplied by the principal balance. The remaining portion pays off some of the principal.

Typically, the interest rate on a 15 year mortgage will be less than the 30 year mortgage, but due to the time difference, but the payment on a 15 year mortgage will be higher.

comparison of 15 and 30 year mortgage

Next, we have the 5/1 adjustable rate mortgage (ARM). This product probably sounds complicated but it really isn’t. For the first 5 years, you have a fixed rate. Then after 5 years, your rate will adjust each year after that.

The adjustment will typically be based off of LIBOR rates (a common one is 2.25% + 3 month LIBOR). The fixed rates on ARM’s are generally lower than mortgages with a fixed rate for the whole term since they can increase after the fixed rate period.

With these 3 products, after 15 or 30 years, your loan is paid off and you are debt free!

Conventional vs. FHA Mortgage Loans

As I mentioned above, there are a few variations of the mortgage products: Conventional and FHA to name two. Conventional loans are straight forward loans: lenders typically require a 5% down payment and rates are determined by the market and your credit score.

If you don’t make a down payment of 20%, lenders will have you pay Private Mortgage Insurance (PMI), which protects the lender from a loss if you default on your loan, until you get to 80% Loan-To-Value (20% equity) in the house. Once you get to 20% equity, you don’t have to pay PMI anymore!

FHA loans are mortgages insured by the Federal Housing Administration. Borrowers with FHA loans pay PMI. Since borrowers pay PMI, lenders offer FHA loans at attractive interest rates and with less stringent and more flexible qualification requirements.

Lenders will allow a 3.5% down payment for FHA loans. A big difference between FHA and conventional loans is with an FHA loan, you will always pay PMI, no matter how much equity you have in the house (until the loan is paid off).

How to Find Renters to Live With When House Hacking

Finding renters for your house hack can be as easy as asking friends and family, going on Craigslist or getting started with a service like AirBnB.

For me, I’ve used Craigslist for finding my house hacking tenants. For my Craigslist messages, I look to be descriptive and helpful about what I have to offer, and also, the price expectations for the unit.

If you plan on going with AirBnB for your spare rooms, then you will already have an existing system in place for acquiring renters.

So far in this post, I’ve provided information on house hacking in general. Now, I’m going to share with you my house hacking story.

house hacking fireHow I Started House Hacking After College

I’ve been house hacking the last 4 years after graduating from college.

In June 2015, I had just graduated with my Master’s in Financial Math in May, and had been working full-time for about 5 months. Life was good.

Over the few years leading up to that point, I’d been reading about different wealth creation strategies on different blogs. I was interested in building extreme wealth, and was definitely interested in real estate.

At this time, I was renting at the time with 5 other friends. 4 of us were looking to live together, and at the time, we were thinking about finding a place to rent.

The week before my 23rd birthday, I was hanging out with my friends in the house I was renting at the time. We were interested in moving over to the nicer part of town, but our 4 bedroom house or apartment search wasn’t going as well as we had hoped.

Then, a clever idea popped into my head. I was sitting on the couch with my buddy and said to him, “Hey, I know we are kind of striking out with the whole apartment search… I wonder what I could buy.” That set off a 1 week search for my house.

Can house hacking help you become wealthy? I was about to try and find out.

“I’m curious… I wonder what I could buy. Let me look at mortgages tomorrow and see what I can get”, I told my roommate.

I had just graduated from my Master’s program, had about $8,000 in student loan debt, but had a $63,000 salary.

Over the next week, I looked at a few houses and found a great one. Built in 1900, this two story house had been a rental for the past 8 years. The kitchen had been re-done, the bathrooms re-done, and the woodwork was in great shape.

Below are a few pictures:

backyard and deck
View off the back deck
clean kitchen with granite
Updated Kitchen

In addition to the back deck, updated kitchen and bathrooms, and the fact it previously was a rental property, there is a 3 season porch off the master bedroom and a 3 season porch off the front of the house.

The downside was there were only 3 bedrooms (and we had 4 people). However, there was a den, and I was hopeful we could turn it into another room.

The location of the property is in a vibrant area which is very walkable.

I had found a great property, but now had to get financing and get my offer accepted.

How I Financed My House Hack

When I started my search in June 2015, I didn’t know anything about financing a house through a mortgage.

First, I went online and went to my bank’s website and got pre-qualified. I typed in my income and monthly debt information and out spit a number! At the time, I was making $63,000 and had a student loan in the deferral period.

Mortgage lenders typically will try to keep your Debt-to-Income Ratio below 43% of your pre-tax income (per CFPB rules).

Given I was making $63,000 a year, this equates to $5,250 a month pre-tax. 43% of $5,250 is roughly $2,200. After determining the final debt number, the lender will do a calculation based on current interest rates.

According to the bank, I was pre-qualified for a loan of $330,000. Essentially, getting pre-qualified is code for “now the bank can contact you and try to get you to originate a mortgage with them!” 🙂

After being pre-qualified, I sat down with the mortgage loan officer and we chatted about different options. At the time, I only had about $3,000 in cash and was making payments of $2,000 per month towards my student loan.

Since cash was an issue, the lender suggested I do FHA financing and put 3.5% down. After doing a full credit check, I was pre-approved for a $300k loan. A 3.5% down payment on a $300k house is a $10.5k down payment. This would be tough to get to, but I was still optimistic…

After getting pre-approved, sellers and agents are more willing to work with you because they know you are serious: you already have thought about getting financing and have taken action.

Negotiating My Real Estate Deal for House Hacking

After getting pre-approved for financing, it was time to make a deal.

The list price on the property I described above was $289,900. I wanted to see if I could get the house for a little less than the full asking price. I initially offered $280,000, but ultimately paid $287,000.

the millionaire real estate investor, by gary keller

As I learned in The Millionaire Real Estate Investor,  as a real estate investor, it is important to negotiate everything!

In addition to price, there are numerous things to negotiate to ensure you get the best deal:

  • Contingent upon inspection
    • Any repairs from inspection
  • Contingent upon funding
  • Mortgage Closing Costs
  • Buyer’s Agent Fees

First off, you should always say the offer is “contingent upon inspection”. This protects you as the home buyer if the inspector finds something alarming, seriously broken or out of code.

“Contingent upon funding” is also used to protect the home buyer if the home buyer cannot obtain financing. If the home buyer cannot obtain financing, then the home buyer is not obligated to buy the house.

In my case, I was not in a position to pay mortgage closing costs and agent fees. These are two additional things a buyer can negotiate. Many times, if the seller is looking to move the house fast, they will pay your mortgage closing costs.

This usually is a few thousand dollars. In addition to the mortgage closing costs, you can ask if the seller will pay the buyer’s agent fees.

Usually the seller’s agent will charge 3% and the buyer’s agent will charge 3%. If you can get the seller to pay the buyer’s agent’s fees, you can save a fair amount of cash!

It never hurts to ask, I was able to get the seller to pay for my closing costs and my agent’s fees. This was very lucky for me and I look back and realize how fortunate I was. I was going to get into a $287,000 house for about $10,000 total in cash out of my pocket.

One last point, when you make an offer, it is good to put earnest money into an escrow account for the seller.

Earnest money is used to show the seller you will stay true to your word of following through with the purchase. If you don’t, you lose the earnest money. Typically, $1,000 will do. I did $1,500 for my earnest money. The earnest money goes towards closing costs and the down payment.

The Power of Sending a Letter to the Seller in Real Estate

Something that I’ve learned now is that letters work incredibly well in real estate. I’m 2 for 2 getting my offer accepted because I’ve written letters both times.

At the end of the day, people own houses, and with people, there are emotions involved. It’s not all about the numbers. 

Here was my letter for my current house:

Dear Current Homeowner,

My name is Erik and I particularly fell in love with the back porch and the kitchen that you have
put in. I can imagine having fun sipping drinks in the backyard with friends and then coming in to
socialize around the kitchen island. I hope that I have the opportunity to partake in these activities going
forward.

Currently, I work at a bank in risk management and believe in investing and growing for the
future. Currently, I have 3 other roommates and plan to rent the place to them while living with them.
After a few years, I would consider to have this become a rental property for myself. This property has a
lot of potential as I am sure you know: I researched that you have been renting it out for almost 10+
years now. The proximity to downtown, uptown, and the lakes makes it a fine location.

To further prove my commitment, I am offering 280,000, a strong purchase price, and 1,500 as my
earnest money deposit. Additionally, financing should go smoothly, as FHA loans are government
backed. If possible, I would gladly appreciate help with 1,000 of a down payment in exchange for a higher
purchasing price. If not, I am confident that my down payment will suffice.

If you accept my offer, I promise to show your home the same love and respect the previous tenants
have. Thank you again for considering my offer. I, Erik, respectfully look forward to hearing your
response.

Sincerely,
Erik

You might think it’s over the top, but all of that was what I loved about the property. What’s awesome is that after 3 years of living here, I’ve had some great moments in the backyard and in the kitchen.

Letters work when buying a property. Keep this in mind if you don’t have the strongest financial position.

The Importance of Getting a House Inspection When Buying a House

Before buying a house, it is very wise to get an inspection.

This is done by a professional inspector who will go around the property checking pipes, the HVAC system, the circuits, roof, insulation, and every other little thing you can think of in a house to ensure it is up to code. Anything which is not up to code will be listed in the inspector’s report.

After receiving the inspector’s report, as a buyer, you can request some of the items be taken care of. For example, there were some branches hanging over a power line.

I asked if the seller could hire a tree service to cut back the branches. Again, it never hurts to ask!

Negotiating when buying a house never hurts, and can lead to savings and less headache for you when you move in.

What to Expect When Closing on a House

After getting approved for financing, getting the house inspection completed successfully, and saving up for the down payment, it was time to close on the house.

For me, closing was set for a Thursday in late July.

A week before closing, I was stressed out. I had pain in my chest and was not feeling myself. I was feeling a lot of stress due to the closing and was very anxious. Going on a walk with my girlfriend at the time, I wasn’t feeling any better. I needed to relax, but it wasn’t working.

The next day, I went to work and again, I was feeling tightness in my chest. I was nervous and anxious.

To add to my anxiety about the house, I was thinking about how heart troubles run in my family: my grandpa had a heart attack at 52 (he is still living and healthy at 76 now).

This only made it worse… After work, I was with my girlfriend again and decided to have a doctor check me out. Chest pain is never anything to scoff at!

Well, long story short, I was healthy and it was stress. My heart was completely fine and I was not at risk of having a heart attack or heart troubles anytime soon. This was a relief and I was able to take a deep breath and prepare for the week ahead…

Finally, closing day came.

Closing isn’t that exciting. You sit around a table with your agent, the seller, the seller’s agent, and a person from the title company. You sign a bunch of papers (sign your life away… mortgage = death!), and receive the keys to your new place!

I finished up the paperwork around 4 P.M. and was off to the new place! I was a home owner!

How I Got Lucky with My House

When writing about personal finance and financial freedom, many people don’t talk about the environment they live in which allowed them to be successful.

What do I mean?

Something that is incredibly prevalent in the personal finance online community is how everyone is a millionaire and super smart for investing in the stock market over the last 10 years.

Here’s the thing: everyone looks smart in a bull market. 

Why do I bring this up?

I was very lucky in getting my house. What I mean by lucky, is a perfect storm of events had to occur for this to happen.

These events were the following:

  1. Interest rates were low, and I could afford a sizable mortgage.
    • My salary at the time was $63,000. When I was doing a job search, I had an offer at $55,000 as well, but instead took the higher salary. If I’d taken the other job, I wouldn’t have been able to afford the house.
  2. The Minneapolis housing market was tight, but not on fire.
    • In 2015, things were still turning up in the Minneapolis market. This property was on the market for 10 days before I put my offer in. My offer was less than asking and it stuck. If this property went on the market today (which I’m thinking about), it would be gone in less than a week.
  3. I had enough in savings, and also was able to get a small loan from my dad
    • With $7,000 in cash, and a $3,000 loan (not gift, I paid him back) from my dad, I was able to meet the FHA down payment requirement.
    • But even with enough savings, it was very risky for me to put only 3% down on a house.
  4. For the past 3 years before looking for property, I’d learned about real estate, investing, and had a goal of building wealth.
    • This can’t be ignored as many people at age 22 are still in school and have massive loans 🙁
  5. I had 3 friends willing to move in to reduce my mortgage payment
    1. Using this house hacking calculator, my “rent” was $270 starting off, much less than if I was renting from someone else!

Combining all of these things led to a successful purchase. If the year was 2016, I don’t think I could have gotten this done because the market was getting hot. In 2014, I didn’t have a solid salary.

Again, I don’t want to poo-poo my success. However, to say that it was all me and not recognize the economic scenario I was working with would be a failure to think big picture.

Financial Results from 5 Years of House Hacking

Over the last 5 years, I’ve brought roughly $50,000 in rental income through house hacking. This rental income has allowed me to build an emergency fund, pay down my debts, and build equity in my house.

During my house hacking, I paid off my student loan, I bought a 2014 Jetta for $13,000 and paid off the auto loan associated with it, and have maxed my Roth IRA for 3 years.

Below is my house hacking income from the last few years.

house hacking income

In addition to the other debts mentioned above, I’ve paid down my mortgage balance from $282,000 to just over $240,000. This results in an increase of $40,000 in equity gains just through using other people’s money to help pay my mortgage.

As I mentioned above, one of the benefits of house hacking is the tax benefits which come along with real estate.

With my house hacking, I have been able to deduct some of the home improvements I made against my rental income. These deductions have helped with my tax efficiency, and allowed me to save more over time.

Finally, the neighborhood I purchased my house in has started to gentrify and the value of my property has increased 10-20%.

All of these factors have contributed to a net worth increase of over $100,000.

House hacking has allowed me to pay down debt, increase my investments, and grow my net worth by over $100,000. What could house hacking do for your life?

Change Your Life with House Hacking

House hacking is amazing and I recommend anyone who has an interest in financial freedom to consider it. The real estate investing strategy of house hacking is definitely tough with student loans, the want to live in luxury apartments, and the increased responsibility of being a landlord.

However, at the end of the day, it is more than worth it financially.

House hacking has changed my life with this amazing income coming in each month.

House hacking has been my most successful side hustle and has allowed me to take risks at work and now with my business and other side hustle endeavors.

I’m on the path to financial independence, and house hacking has sped this process up considerably.

I’m very thankful I’ve been able to do this, but not sure it’s sense for everyone.

Would I try to house hack today? Probably not.

If I was 22 again, I’d probably try to do it, but again, it’s a different scenario and naively thinking things will magically turn out is a little short sighted. I took a lot of risk (low down payment and no real estate experience) and it paid off. I’ve had real estate friends on both sides of success spectrum (success and failure), and every situation.

At the end of the day though, House hacking is definitely a strategy to consider if you’d like to become wealthy. As I mentioned above, I increased my net worth by $100,000 just by living.

What could you do by house hacking?

Readers: are you interested in house hacking? Have you house hacked before, and what were the results? Will you push your kids to house hack when they are older?

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