Book Review – The White Coat Investor: A Doctor’s Guide to Personal Finance and Investing

The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing

  • Dahle, J. M., & Bernstein, W. J. (2014) The White Coat Investor: A Doctor’s Guide to Personal Finance and Investing. S.I.: White Coat Investor
  • Category: Finance
  • Recommended Financial Literacy Level: [Novice]
  • Recommended Audience:
    • practicing physicians
    • aspiring physicians (students considering medical school, medical students, & residents).
    • parents of students interested in medicine

Admittedly, I’m a big fan of Dr. Jim Dahle, the founder of the White Coat Investor. Victoria and I actually first heard the term “Financial Independence” from him. We thoroughly enjoyed reading his book and are regular listeners to his podcasts. It may be cheesy, but we reserve the even-numbered episodes for when we are in the car together – it’s one cog in the machine of keeping us excited about talking about finances and retirement together. Honestly, I find his ethics, candor, and no-nonsense attitude not only refreshing, but also quite favorable amongst the financial blogs/podcasts out there.

While his book is obviously centered toward physician finances, I believe most individuals would benefit from reading it, especially if you consider others (such as friends, family, children, etc.) that may be interested in the medical field or other fields requiring professional school. The book is written in such a way that it is easily readable, avoids overwhelming its audience, and can easily be read in a few hours (took me ~4 hours while taking notes). Dr. Dahle does a great job of briefly explaining each of the chapters in the White Coat Investor, so to take a page from his book (quite literally, and two pages at that):

  • Chapter 1 – The Big Squeeze
    • How increasing tuition, decreasing reimbursement, and regulatory hassle are trying to ruin your life.
  • Chapter 2 – Millionaire by 40
    • How to have a seven-figure net worth five to ten years out of residency.
  • Chapter 3 – If I Had a Million Dollars
    • How to convert income to wealth and vice versa
  • Chapter 4 – Medical School and Your Wealth
    • How picking the right school and specialty can affect your bottom line
  • Chapter 5 – Residency and Your Wealth
    • Which financial chores you must do as a resident
  • Chapter 6 – The Secret to Becoming Richer
    • How to get out of debt, buy your dream home, and hatch a nest egg within five years of residency graduation
  • Chapter 7 – The Retirement Number You Control
    • Why your savings rate matters more than your investment returns
  • Chapter 8 – The Motorway to Dublin
    • How to quit throwing your money away on stupid investments
  • Chapter 9 – Getting Off the Money
    • What you need to know about investing in real estate, whole life insurance, private investments, and your own house
  • Chapter 10 – Paying the Help
    • How to get good advice for a fair price
  • Chapter 11 – The Basics of Asset Protection
    • How to protect your hard-earned money from lawsuits
  • Chapter 12 – Estate Planning Made Simple
    • How to avoid estate taxes, protect your heirs, and avoid probate
  • Chapter 13 – Income Taxes and the Physician
    • Why you pay too much in taxes and what to do about it
  • Chapter 14 – Choosing a Business Structure
    • Why incorporating will not protect you from malpractice suits or save you much in taxes.
  • Chapter 15 – Enjoying the Good Life
    • How to quit worrying about your finances
  • Chapter 16 – The Mission of the White Coat Investor
    • How to help doctors quit getting ripped off.

Jack’s Biggest Takeaways:

  • I particularly enjoyed Chapter 4, which discusses the ins and outs of applying to medical school, including the costs/risks, and ways to mitigate that cost/risk. What I appreciate the most, though, was his effort to address the stigma of going to the cheapest school available to you and getting over the name-dropping mindset. It’s easy to get wrapped up in the social status or other appeals of a particular “dream” school, but Dr. Dahle really provides a strong argument for considering the potential financial impact of that decision. I believe his argument extends beyond medical school to all post-secondary education. Most of us probably have someone in our circle that either paid too much for their education or is still paying for it via student loans. I know more than one. In reality where earn your degree isn’t all that important in the grand scheme of things and certainly isn’t worth going more into debt for than necessary for.
  • Dr. Dahle’s “Live Like a Resident” (for 3-5 years after residency) mindset is highly valuable and not limited to just physicians. We can all benefit from growing into our income slowly (or if you’re part of the Financial Independence movement perhaps never). The math is arguably fairly simple: spend less + save more = reaching Financial Independence, and perhaps much sooner than you thought.

Whether or not you decide to add this book to your collection, The White Coat Investor community is free to be a part of, and I highly encourage you check it out! I’m certain you’ll take something beneficial away from doing so. Victoria and I subscribe to his blog, and I am a regular visitor to the WCI Forum.

If you’d like to support our mission and are interested in purchasing The White Coat Investor: A Doctor’s Guide to Personal Finance and Investing, please click here for your purchase!

Have you read The White Coat Investor: A Doctor’s Guide to Personal Finance and Investing? What are your thoughts, likes/dislikes, and biggest takeaways? Do you know anyone who spent too much on their education?

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How risky is too risky?

[Editor’s Note: This is an independent post written by Jack. This post may contain affiliate links. Please read our disclosure for more info.]

We all have different risk tolerances. Some of us speed or text when driving, smoke cigarettes or drink alochol, skydive or climb to great heights, etc. Within each “risky” activity we engage in is a spectrum of tolerance. Investing in the stock market is no exception! “Knowing thyself”becomes increasingly important when deciding how to invest your money. In the wise words of George Goodman (AKA Adam Smith):

“If you don’t know who you are, this [the stock market] is an expensive place to find out.”

Risk vs. Reward

The fact of the matter is you’re going to have a hard time outpacing inflation (~3.15% on average since 1913) if you don’t engage in some sort of risk by investing money in the stock market. Consider the information on following chart, Figure 1, provided by Wealth Management:

Figure 1

DISCLOSURE: past performance is NOT a predictor of future performance. Even though the above information is based on historical returns for 91 years, NOONE knows what tomorrow will bring, let alone the next 91+ years.

Is cash really king in terms of returns when investing? Let’s put some context to the above chart by hypothetically investing 10,000 over 30 years :

  • 100% cash @ 2.2% APR (Currently Ally Bank’s savings account rate):
    • $19,209.98
  • 90% bonds / 10% cash @ 5.1% APR
    • 44,471.47
  • 90% stocks / 10% cash@ 11.2% APR
    • $241,625.97

If you haven’t seen it before, you can see how just a few percentage points (or fractions of percentage points) of APR compounds with a large enough time horizon. Don’t just focus on the “average return”, though! I would argue the most important column is actually the first one, “Largest Loss“, because bear markets are where investors find out who they really are. How would you stomach if your $10,000 endured the largest loss during those same time frames (note: the losses would actually be greater in the moment since the balance of the acct would not have be $10000 at the time of the loss):

  • 100% cash @ 2.2% APR:
    • $10,000 ($0, 0% loss)
  • 90% bonds / 10% cash @ 5.1% APR:
    • $9,580 ($420, 4.2% loss)
  • 90% stocks / 10% cash@ 11.2% APR:
    • $6,110 ($3890, 38.9% loss)

Turning $10,000 into six-figures sounds nice, right? BUT WAIT! Can you stomach watching 40% of the account balance essentially disappear overnight? Many people can’t, which is why you’ve got to be very honest and realistic with yourself when deciding your risk allocation. Think about how many people bailed out (sold their stock holdings at a significant loss in a panic and held them in cash) during the Great Recession 2007-09 and are now suffering the consequences of minimal growth since the market recovery. The key to capatilizing on the compounding growth of the market is NOT bailing out during bear markets. Instead, have faith in your plan and continue to invest/[rebalance] your portfolio according to your desired asset/risk allocation (outlined in your Written Financial Plan).

Jack & Victoria’s Asset/Risk Allocation

Figure 2

Victoria and I currently have an overall risk allocation of 80/20:

  • 55% US Stocks (40% large-caps and 15% small-caps)
  • 5% US Real-Estate Investment Trusts (REITs)
  • 20% International Stocks
  • 20% Bonds/Cash

In a future post I’ll dive in to the details of our portfolio and asset allocation, but for now just understand with an 80/20 risk allocation our portfolio is fairly aggressive. 

How did we react during the most recent bear market?

Albeit brief, the market dropped around 21% between September and December of last year (2018). How did we react? Honestly, we weren’t phased, because we were comfortable with our risk allocation and offset some of that risk by diversifying into bonds/cash, international funds, and real-estate funds. We actually decided to tax loss harvest over $20k in losses that we can now write off on our taxes for the next several years ($3k/year); furthermore, we stuck to our guns with our asset allocation, continuing to reinvest and rebalance according to our written financial plan. As a result, not only have our previous holdings been recovering since the new year, but also the new holdings we purchased have grown significantly.

How do I know what my risk tolerance is?

You can’t. At least not until you’ve been through a bear market or two. I don’t believe in reinventing the wheel, so I’ll share an excerpt from Jonathan Clements book, “How to Think About Money” to get the conversation started:

“For starters, if you were investing in 2008 and 2009 [or the last quarter of 2018], check whether you bought, sold, or sat tight. Our memories are often unreliable, so dig up your old account statements and take a close look at the trades you made. While our investment savvy should improve over time, we shouldn’t fool ourselves: Probably the best indicator of how we will behave in the next bear market is how we bahaved the last time around.”

“What if you haven’t lived through a major bear market? Imagine the stock market fell 50 percent. Try thinking about the consequences in terms of raw dollars lost. Let’s say you have $500,000 in savings, including $400,000 in stocks. Suddenly, your $500,000 portfolio is worth 300,000. The money is gone and, for all you know, it isn’t coming back. Indeed, there is every chance your [now] $300,000 could soon be worth $250,000 or even less. How would you feel – and how would you react?”

So, how risky is too risky?

It’s your call. You’ll need to factor in contributions to your retirement portfolio and your investment horizon, but where to draw the line is ultimately up to you. I just hope you don’t find out the hard way where your risk tolerance begins and ends. I believe it’s better to hedge on being 10-20% more conservative than you believe you are and adjusting based on your response during bear markets.

What is your current risk allocation and why? Have you been through a bear market yet? If so, how did you react?

Book Review – The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

  • Stanley, T. J., & Danko, W. D. (2016) The Millionaire Next Door: The Surprising Secrets of America’s Wealthy.
  • Category: Budgeting
  • Recommended Financial Literacy Level: [Novice]
  • Recommended Audience: Great entry level book for people looking to understand what actual millionaires across the nation are doing to save money and build wealth.

If you want to be a millionaire, you need to know what it takes to live like one… it may surprise you! What I probably enjoyed most about The Millionaire Next Door is the entire book is based on a research study conducted over 20+ years by the authors, Dr. Thomas Stanley and Dr. William Danko. Many “financial books” can often times be based purely on anecdotal evidence, but every claim in The Millionaire Next Door is based on the reports of the research study’s participants. Who were the participants? Over 500 millionaires were interviewed and over 11,000 high-net worth and/or high-income individuals were surveyed. A quick reminder, which the authors also bring up on a multitude of occasions, before we dive more into the book:

INCOME ≠ WEALTH

Just because you have a high-income does not mean you’re wealthy. You can’t build wealth if you spend all (or more) of your money! Adversely you don’t NEED a high-income to build wealth or become a millionaire. The authors use a simple formula to split their participants up into two categories: Under Accumulator of Wealth (UAW) or Prodigious Accumulator of Wealth (PAW). Most millionaires are PAWs. Their formula is income-based, meaning the more money you make the more you need to have saved/invested to be considered a PAW.

Are you a UAW or a PAW?

To determine where you fall simply multiply your age by your pre-tax income and then divide by 10 (age x income / 10). If you’re above the threshhold you’re a PAW and if you’re below you are a UAW. As I write this post, I am a UAW (current income ~$49k) since my individual net worth is a bit lower than the $142,100. I was not surprised given some of the mistakes I made early on. What’s interesting, though, is if I use my average income since I started teaching (~$41k), then I would cross into PAW territory, since my invididual net worth is over $118,900. Regardless, it’s a decent assessment of your savings rate.

Each chapter of the book compares the lifestyles of UAWs and PAWs using case studies and data (often provided in chart format) to dive into the choices each made and how those choices impact their financial success (or lack thereof):

Chapters.

  • Chapter 1 – Meet the Millionaire Next Door
  • Chapter 2 – Frugal Frugal Frugal
  • Chapter 3 – Time, Energy, and Money
  • Chapter 4 – You Aren’t What You Drive
  • Chapter 5 – Economic Outpatient Care
  • Chapter 6 – Affirmative Action, Family Style
  • Chapter 7 – Find Your Niche
  • Chapter 8 – Jobs: Millionaires versus Heirs
  • Appendix 1 – How We Find Millionaires
  • Appendix 2 – 1996 Motor Vehicles: Estimated Price Per Pound
  • Appendix 3 – Businesses/Occupations of Self-Employed Millionaires

Jack’s Biggest Takeaways:

  • I particularly enjoyed Chapter 4 – You Aren’t What You Drive. Listen, cars are expensive and aren’t really an investment given they depreciate over time for the most part. PAWs tend to pay cash for their cars and a surprising amount buy used. UAWs typically finance their car, replacing them often. PAWs tend to not drive the luxurious, high-maintenance vehicles. UAWs generally do. I found the case studies presented very relatable. In fact, I plan to test out one of the methods a participant shared when trying to obtain the most competitive quote with the least hassle. The more into the FI movement I get, the more I realize every dollar I don’t spend on my car is a dollar I can put toward building wealth.
  • Some other tidbits I found valuable:
    • “Never purchase a house [or finance/borrow an amount for a house] worth 2x or more of your realized income.”
    • “A household divided in its financial orientation is unlikely to accumulate significant wealth.”
    • “Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.”
    • “Even the best financial plans are innaffective if you don’t follow them.”

Final Thoughts

There is an interesting dichotomy between looking wealthy and being wealthy. Most millionaires don’t live excessively – they actually have very modest lifestyles and often times their neighbors aren’t aware of their wealth. Most of us just need to ask ourselves then, Do I want to LOOK wealthy, or do I want to BE wealthy? I’ll leave you with this quote from the authors:

“The majority of people do not have the ability to increase their income significantly. Yet income is a positive correlate of wealth. What, then, is our message? [How do you become financially independent?] If you cannot increase your compensation significantly, become wealthy in some other way. Do it defensively. Inoculate yourself from contracting the high-consumption lifestyle that many have adopted.”

If you’d like to support our mission and are interested in purchasing The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, please click here for your purchase!

Have you read The Millionaire Next Door? What are your thoughts, likes/dislikes, and biggest takeaways? Do you know anyone who spent too much on their education?

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Book Review – The Bogleheads’ Guide to Investing

The Bogleheads’ Guide to Investing

  • Lindauer, M., Larimore, T., & Leboeuf, M. (2014) The Bogleheads’ Guide to Investing. Hoboken: Wiley.
  • Category: Investing
  • Recommended Financial Literacy Level: [Novice]+
  • Recommended Audience:
    • EVERYONE who is interested in becoming more financially literate. If you intend to become DIY investor like us… great! This book will provide you with the tool/info to get started. If you intend to hire out… great! This book will make sure you aren’t getting ripped off by your advisor. Regardless, it should be on your shelf at home! Personally, it’s one of our go to gifts for friends and family.

The Bogleheads’ Guide to Investing is roughly 300 pages in length and jam-packed full of substantiated information, including data tables from credible sources and wisdom from some of the most knowledgeable players in the game. What makes this book so informative, yet readable, is the use of well-crafted sequencing, relatable metaphors, and thoughtful writing. The book not only does a great job instilling confidence and encouraging its readers, but also empowers them with the information/tools necessary to make informed decisions about their finances, investments, and retirement planning. If this is your first dive into becoming financially literate then I’d recommend you really take your time reading this book, take notes as you go, and consider reading it more than once.

  • Part I:
    • Chapter 1 – Choose a Sound Financial Life
    • Chapter 2 – Start Early and Invest Regularly
    • Chapter 3 – Know What You’re Buying: Part One
    • Chapter 4 – Know What You’re Buying: Part Two
    • Chapter 5 – Preserve Your Buying Power with Inflation-Protected Bonds
    • Chapter 6 – How Much Do You Need to Save?
    • Chapter 7 – Keep It Simple
    • Chapter 8 – Asset Allocation
    • Chapter 9 – Costs Matter
    • Chapter 10 – Taxes: Part One
    • Chapter 11 – Taxes: Part Two
    • Chapter 12 – Diversification
    • Chapter 13 – Performance Chasing and Market Timing Are Hazardous to Your Wealth
    • Chapter 14 – Savvy Ways to Invest for College
    • Chapter 15 – How to Manage a Windfall Successfully
    • Chapter 16 – Do You Need an Advisor?
  • Part II
    • Chapter 17 – Track Your Progress and Rebalance When Necessary
    • Chapter 18 – Tune Out the “Noise”
    • Chapter 19 – Mastering Your Investments Means Mastering Your Emotions
    • Chapter 20 – Making Your Money Last Longer Than You Do
    • Chapter 21 – Protect Your Assets by Being Well-Insured
    • Chapter 22 – Passing it On When You Pass On
    • Chapter 23 – You Can Do It
  • Appendix I – Glossary of Financial Terms
  • Appendix II – Books We Recommend
  • Appendix III – Financial Websites We Recommend
  • Appendix IV – Vanguard Asset Allocation Questionnaire and Pie Charts

The book also discusses the Bogleheads.org website and community. With over 75k members, their forum is top-notch and arguably the best out their for FREE personal finance and investing advice. It’s a safe place for you to ask questions and get valuable feedback. I actually have the Bogleheads Forum bookmarked and am a regular visitor. The members really go above and beyond to answer questions and engage in a wide variety of informative discussions. I would encourage you to make an account and spend some time on the forums, searching and/or asking about nearly anything financial.

Jack’s Biggest Takeaways:

  • For one reason or another, I was jaded (and truthfully still am a bit) about insurance since my teenage years when I started paying for it… to the point where until the last year or two I’ve been arguably underinsured. Don’t get me wrong, I had home insurance, full-coverage car insurance, the standard life insurance policy my jobs have come with, etc.; however, I had always declined disability coverage (I’m young, what could happen, right?) and never agreed to increase my liability limits on things like auto-insurance or take out an umbrella policy. Chapter 21 (Protect Your Assets by Being Well-Insured) has aided in opening my eyes to how lucky I’ve been to not have become disabled during my working years when I’m heavily reliant on my income or been in a serious accident where I was liable beyond my limits. The chapter not only describes and explains the different types of insurance, but describes which types you should or should not consider and why. More than that, it provides information on how to screen potential insurance agents to make sure they have your best financial needs in mind when it comes time to make those decisions. Noone likes paying for insurance, but it’s there to prevent some other catasrophe in your life from also becoming a financial catasrophe as well.
  • Windfalls are something I never anticipated having to deal with and still don’t (I don’t play the lotto, no anticipated inheritances, etc.). We don’t choose who we fall in love with, though, and this is a “problem” my fianceé had. Fortunately she had no interest spending the money nor a need to do so anytime soon, so it just kind of set there for quite some time until we finally decided to invest it according to the written financial plan. In fact, a component of our written financial plan is directly from Chapter 15 (How to Manage a Windfall Successfully), which describes the emotional (sounds weird, I know) experiences people have when receiving windfalls, how they are generally mismanaged, and tips/steps to take to properly manage one.

Final Thoughts:

When Lindauer, Larimore, and LeBoeuf wrote The Bogleheads’ Guide to Investing they really did have your best interests in mind. Jack Bogle and Vanguard’s mission were not lost on this book. In a not-so-subtle overstatement, I would compare reading their book to hiring a large group of the best some of the best fiduciary financial advisors. The best part? It’s less than $20.

While this book has no shortage of valuable information regarding investing and financial planning, tackling debt is not addresssed (a problem many Americans are faced with). So depending on your situation, you may want to consider supplementing The Bogleheads’ Guide to Investing with another resource to create a written financial plan that meets all of your family’s specific needs.

If you’d like to support our mission and are interested in purchasing The Bogleheads’ Guide to Investing, please click here for your purchase!

Have you read The Bogleheads’ Guide to Investing? What are your thoughts, likes/dislikes, and biggest takeaways?

Can You Afford Not to Budget?

[Editor’s Note: This is an independent post written by Jack. This post may contain affiliate links. Please read our disclosure for more info.]

The majority of Americans are in debt… roughly 80% according to several reports. WOAH! Kudos if you’re in the minority; however, can you say the same about all of your coworkers, family, and friends? Chances are that even if you aren’t treading water that you are surrounded by people drowning in debt.

IT DOES NOT MATTER HOW MUCH MONEY YOU MAKE!

This will be a hard pill to swallow for some, but there are several studies and books out there providing data to support such a claim. One of the more notable books, The Millionaire Next Door, dives into the incomes of most millionaires. SPOILER ALERT: They don’t make anywhere near a million dollars a year.

INCOME ≠ WEALTH

The sooner you come to terms with that fact the sooner you can actually start building wealth. We live in a world of consumerism. We get wrapped up in our image, often times defining ourselves by the clothes we wear, the car we drive, and the home we buy. It may surprise you to take a step back and truly look at how many celebreties go broke, “high-earners” file bankruptcy, and people work until social security age or beyond. Guys, it doesn’t matter how much money you make if you spend it all. Building wealth is about SAVING money now to access it later (and hopefully “work for you” in the meantime via compounding interest/growth).

Where to Start

To start building wealth you need track your spending to some degree. This will look different for each person, but before you can start making your hard-earned dollars work for you to build wealth, you first need to figure out where those dollars are going. I started really tracking my spending when I landed my first teaching gig back in 2012. Good thing, too, because if you read my first blog post, you know I was pretty strapped – I bought a new car in 2011 and way too much house in 2013. I used google sheets (excel) from that time until early last year to track every purchase I made. Before I threw any of my receipts away I would input the amount into one of the categories found in the spreadsheet below:

These figures are from tax year 2017, the last full year I tracked my spending using excel.

Keep in mind there are MUCH better spreadsheets out there that are downloadable and free with a quick google search. My goal in using mine was to track major expense categories that were important to me. I know people who have a line for every category imaginable. Use a template to start, but then modify it to your own needs. Here are some actionable tips to get started:

  • WRITE IT DOWN (paper, spreadsheets, whatever).
  • Estimate/determine your monthly income.
    • I had a very predictable income as a teacher (~4k/month gross)
  • Subtract the non-negotiable items.
    • For me that was federal/state tax witholdings, 5% mandated pension contributions, rent, phone bill, student loan interest, insurance, etc.)
  • “Pay yourself first”.
    • Things like IRAs, 401k/403b/457b, HSAs, etc.
  • Control and mitigate what expenses you can. Examples:
    • Renting gets a bad rap. You’ll notice I didn’t have an electricity, water, or internet bill in 2017, because I negotiated those expenses as part of my rental agreement). I also didn’t have to worry about landscaping, appliances failing, etc. 
    • Don’t upgrade your phone every chance you can (and put a case and screen protector on it).
    • Not having a car payment is nice! Try to keep it that way.
    • Meal-prep!

Low Maintenance, FREE Budget Software

The reason I didn’t have a full 2018 excel sheet for budgeting was because I finally stumbled across mint.com. I’ll admit I was a little late to the game, but boy did it change my life… no more inputting receipts one at a time! Not only is it free, but once you link all of your accounts/assets/liabilities it automatically does the following:

  • Tracks all of your transactions, organizing them by category.
    • You can customize the categories.
  • Updates your account balances everytime you log on.
  • Calculates your net worth.
  • Customizable alerts:
    • Bills/payments
    • Large deposits/purchases
    • Approaching/exceeding budget limits (set by you).

Mint’s software is user-friendly for a wide range of platforms (computer, tablet, mobile phone, etc.). Believe it or not, we are NOT sponsored by mint.com. I just love their software that much and truly believe most people would benefit from the use of it or similar software.

Our “Budget”

Victoria and I use mint.com to track our categorical spending habits and inform our future decisions/goals, but we do NOT keep a strict budget anymore. Our budget at this point is more or less a priority list for spending:

  • Non-negotiable bills (taxes, rent, utilities, insurance, phone).
    • We both drive cars that are 6+ years old and intend to keep those cars for a long time.
  • Pay ourselves first (max out ALL retirement vehicles available to us including IRAs, TSP/401k, 457b, HSA, & Pension).
  • Eat out no more than once a week (including lunch).
  • Groceries:
    • Stick to whole-food items and avoid processed foods where possible/feasible. 
    • Meal-prep lunches for the week.
    • When cooking dinner, always prepare 2-3+ nights worth of servings.
    • Buy in bulk when possible.
  • Spend money on things that really matter to us (mostly experiences/traveling and not material goods).
  • Save the rest and invest it according to our Written Financial Plan and [Asset Allocation].

So, can you afford to not budget?

I would argue you can’t. I guess that depends on your definition of “afford”, though. Keep in mind that social security, pension programs, and minimal retirement contributions are NOT designed to provide you the same lifestyle you have now in retirement. You’ll either need to make adjustments now or later. Doing so now at least provides you with the opportunity to capitlize on the compound interest/growth that time in the market allows. Don’t be part of the 80% of people in debt. MAKE YOUR MONEY WORK FOR YOU!

How do you track your spending? What actionable tips do you have to save money? Reflecting on spending, what are some recent purchases you’ve made that really matter to you or enhanced your life?

Failing to Plan is Planning to Fail

We’ve all heard Benjamin Franklin’s famous quote, “If you fail to plan, you are planning to fail.” His mantra is no less applicable when it comes to financial/retirement planning, and unfortunately many of us fall short on this crucial area of our lives. Whether you’re making your own plan or paying someone to make one for you, keep the wise words of Dr. Thomas Stanley, author of The Millionaire Next Door, in mind: “Even the best financial plans are ineffective if you don’t follow them.”

Financial Plans

Financial Plans come in many forms (written list, word docs, spreadsheets, etc.) and many have different names (Written Financial Plans, Investor/ing Policy Statements, Personal Financial Plan, etc.). Don’t be overwhelmed or intimidated by this. What your plan is called and the medium by which it’s recorded are far less important than starting the conversation and setting some reasonable goals that will ensure your financial success; furthermore, the more plans you look at the more you’ll realize they don’t all look the same. Use a template to get started, but the more you sit down and hash out your priorities and goals the more personalized your plan will become.

Here are a few tips and forums with templates to get you started:

Our Written Financial Plans

We want to practice what we preach here at TeachFI. In an effort to do just that, and to also continue to be as transparent as possible with our readers, we are posting our own Written Financial Plans below:

[pdf-embedder url=”https://teachficom.files.wordpress.com/2019/12/d52df-jack-wfp.pdf” title=”Jack WFP”]

[pdf-embedder url=”https://teachficom.files.wordpress.com/2019/12/0da28-jj-wfp.pdf” title=”JJ WFP”]

Share Your Plan

Once you’ve written a plan, share it here or elsewhere and try to get some feedback! There are many forums and facebook groups that are happy to have you share your plan and give you constructive feedback. Speaking of feedback, what do you think of our plans? Our upcoming posts will include our own tips/tricks for tracking spending, budgeting, and asset allocation. Keep an eye out and subscribe or give us a shout if you haven’t yet – we’d love to hear from you!

If you already have a Written Financial Plan, what are some of the goals you have included in it? How is your progress going on meeting those goals? If you don’t have a Written Financial Plan yet, what are some of the goals you find valuable?

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My Bumpy Road to a Six-Figure Net Worth by 30

Even though I didn’t cross paths with the term “Financial Independence” until 2018, it’s a notion I felt I have been naturally gravitating toward since a young age… at least I thought so until looking at the numbers for this post. I was a natural saver since childhood UNTIL going to and graduating college. “Net Worth” is an interesting and sometimes abstract concept. I say that because it’s easy to wrap our heads around its calculation (net worth = $$ assets and savings – $$ liabililties and debts); however, I think a lot of us, myself included, are guilty of letting those liabilities and debts hang out in the back of our minds. To be honest, until reflecting on what exactly I wanted to share in my first EVER blog post, I had not thought much about my own net worth and its evolution over the years. In an effort to be as transparent with our readers as possible, I think it’s important to share my journey so far. We just flipped our calendars to January 2019 as I’m writing this, AND I’m not married yet (April can’t come soon enough!). That being said, I’ll stick to my individual figures (estimations). As a consequence of choosing a career in education, my life has never really stopped revolving around a school year, so I think it’s appropriate to use that as my gauge instead of a traditional calendar year (at least for now):  

Even though these are estimated figures, reflecting on my net worth was a very valuable, enlightening, and humbling exercise. I would encourage you and your partner (if applicable) to do the same! You might be surprised what you see. Without going into too much detail (yet), I would like to elaborate on the above chart:

  • I worked full-time over summer and winter breaks to help fund my expenses during college. I did not work during the fall/spring semester of my undergraduate years (2007-2011).
  • My savings rate include things like IRA’s and brokerage accounts toward the latter years.
  • You’ll notice a lot of red. I spent most of my 20’s living in debt like roughly 80% of Americans do today. You probably also noticed I had a net worth of zero upon graduating college and could have kept it that way by using my savings to pay my student loans off at the time. Instead I took that savings and put a down-payment on a car [a dumb mistake and one I’ll go into more detail about in a future post].
  • 2011-2012 I spent studying for my Master’s Degree. I worked as a graduate assistant (tuition covered + small stipend), part-time as a substitute, but I took more loans out [a story I’ll save for a future post].
  • 2012-2013 was my first year teaching. My folks were gracious enough to let me stay at their place for most of that school year, which enabled me to allocate most of my income to paying off my car. How’d I reward myself for paying down that debt? I took my “whopping” 3k of savings and recently adjusted credit score to take out an FHA loan and buy a house. So, as a teacher my debt to income ratio is now approaching 4:1 (didn’t think about it that way at the time).
  • Moving forward I stopped buying shiny new things, increased my savings (both at the bank and by opening an IRA), and started paying down my debt. I also decided to get my Ed.S., which I paid for with cash over the ~16 month program rather than taking out new loans. Between earning my M.A. and Ed.S., I boosted my income by ~$10k+ per year for as long as I teach.
  • In 2016 I sold my house and rented for a year, cutting my living expenses by well over half. I started investing some of that money in a brokerage account at Vanguard. Why didn’t I go ahead and pay those pesky student loans off? I did… kind of. I was paying down the interest quarterly (notice they didn’t grow) until I qualified for [Federal Teacher Loan Forgiveness]five years into my career.
  • So, 2017 marked the year I was OFFICIALLY debt free finally. Zero debt. I can’t even describe how good that felt and still feels going on two years later.

It’s obvious that I made several financial mistakes. I still do. I want you to see that. YOU can still put your debt behind you, increase your net worth, and reach financial independence… even on a teacher salary! The most important thing is having a reasonable [plan] in place to follow. In essence, I just increased my savings rate by cutting expenses and increased my income by getting advanced degrees. I’m going to swim a little against the current, and maybe catch some flack for it, by saying you shouldn’t complain about teacher pay. Would I like to get paid more? Of course! Do we deserve to get paid more? Most would argue yes. Simply complaining, though, does nothing to increase your net worth – action does. Focus your energy by controlling and changing what you can. If I can do it, you can too.

Financial Independence doesn’t look the same for all of us. I think it’s extremely important before you embark on this path that you sit down and reflect on what it means to you. I’m going to conclude by sharing some of the goals Victoria and I share on our pursuit to FI:

  • Strive for an overall healthy lifestyle, including work-life balance, healthy eating, exercise, etc.
  • Increase and maintain our financial literacy, including managing our own finances/investments, retirement portfolio, and filing our own taxes.
  • Become financially independent of our jobs. Not so we can quit/retire necessarily. We currently love what we do; however, we do want the financial freedom (savings) to decide whether or not we work and under what conditions. Our goal is to earn/save (through employment and investment income) 40x our annual spending by 2035; furthermore, we need to have roughly 40% of that savings accessible prior to the age of 59 ½.
  • Fund our (future) kids higher education, providing them the opportunity to graduate debt-free.

In the next week we will be writing a post discussing the importance of creating an Investor Policy Statement (Written Financial Plan). JJ and I will be sharing our own written plans with you in that post, which will include not only our goals, but also our investing philosophy and steps we plan to take to achieve those goals.

{Reader Questions} What does Financial Independence mean or look like to you? If this path interests you, where do you stand now? What steps are you taking to move toward FI?