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Saving Spending Uncategorized

Money Lessons from the Pandemic

The COVID-19 pandemic has been a sobering experience, to say the least:  Lockdowns, supply shortages, skyrocketing unemployment, a stock market plummet, and, worst of all, over 58,000 deaths in the U.S. caused by a virus that is not fully understood.  I’ve been fortunate to remain employed and maintain the same income, but if the lockdown continues for an extended period of time, my employment becomes more and more uncertain.  The increased risk of losing my job has motivated me to examine my life to see what I can do to lessen the impact of unemployment and to take preventative action to ensure I can cover my essential expenses for as long as possible in case I’m laid off.

Lesson:  Use Anxiety, Fear, and Stress to Reduce Expenses

Hopefully you share my experience of not having your income impacted by the pandemic.  If you’re like me, though, anxiety and concern about “what if” have entered your mind after seeing 20% of the U.S. file for unemployment:  What if I lose my income or my income is impacted?  Let the “what if” motivate you to examine your expenses to see what you can cut out.  I’ve been focusing on reducing my expenses to the bare minimum so that I can pay for essential expenses (home, food, and transportation) for a longer period of time should I lose my job.

Eating out has long been one of my largest monthly expenses, with me sometimes eating out multiple times daily, so the pandemic and associated restaurant closures have presented a great opportunity to buy groceries and prepare meals at home.  In the past, I’d accomplish my goal of eating out less for three or four days in a row, at most, but then would slide back into old habits.  During the pandemic lockdown, I’ve loved seeing the savings of eating at home and prepping multiple meals when cooking, since I can quickly run to my fridge for food when I’m hungry and want to eat quickly.

Subscriptions and memberships to various services have also been on my chopping block.  Subscriptions are sneaky because they’re often not large expenses and aren’t attention grabbing, so often we pay them blindly every month.  In this pandemic, I evaluated many of these subscriptions that I “just pay” monthly to see if I really valued them:  Amazon Prime, credit card annual fees, Netflix, a Wall Street journal subscription, and more.  I cancelled some of these that I don’t really, really value, including unused gym memberships (I had four at one point which, yes, is ridiculous) that have been reduced to two memberships, both of which I use on a frequent basis.  In part two of the Personal Finance Foundation series (you can check it out here:  https://wp.me/p2zuKS-eo), I described how expense cutting can help you build net worth.  Reducing expenses during the pandemic has left me with more cash to save and invest, both of which build net worth, and both of which are very fulfilling to do.

Lesson:  An Emergency Fund Fosters Peace of Mind

Emergency funds are a basic component of a financial plan and for good reason.  An emergency fund serves as a buffer when you have an interruption in income or when you have unexpected expenses.    In times like these, if you lose your job but have an emergency fund, that emergency fund can tide you over.  Specifically, you can determine how long your emergency fund will tide you over by taking your monthly expenses and dividing it by the size of your emergency fund.

For example, if your expenses total $2,500 monthly and your emergency fund is $7,500, you could afford to live solely off your emergency fund for three months.  Of course, if you pick up a side hustle after you’ve been unemployed and generate some income, or if you crunch down on expenses, you’ll make your emergency fund last that much longer.

If you’re fortunate and haven’t lost your primary source of income, though, the emergency fund provides you peace of mind.  When it’s not needed, the emergency fund is a soft landing for you on a rainy day that reassures you in trying times.

Lesson:  Generosity is a Calling that Lifts Our Spirits

“Then the king will say to those on his right, ‘Come, you who are blessed by my Father. Inherit the kingdom prepared for you from the foundation of the world.  For I was hungry and you gave me food, I was thirsty and you gave me drink, a stranger and you welcomed me, naked and you clothed me, ill and you cared for me, in prison and you visited me.”

Matthew 25:34-36

A good friend and coworker of mine teaches his children that it’s advantageous to be good stewards of financial resources so that they can bless others when others are in times of need.  He emphasized to his children, “how would you feel if your brother or sister needed money but you were broke due to having mismanaged your money?”

I’ve found a degree of joy and peace during the pandemic by giving financial help to friends who lost their employment and by giving to Catholic Charities, who does a wonderful job of allocating cash donations to folks who are struggling.  Catholic Charities recently informed me of a case where a struggling mother contacted them informing them she’s unable to pay her electric bill due to losing employment.  Catholic Charities not only paid her current month’s electric bill but went above and beyond to pay all her current month’s utility bills.

If you have the ability to help others financially, I highly recommend doing so, especially if you’ve struggled spiritually, emotionally, or mentally during the pandemic.  The act of giving helps others and it also lifts you spiritually, emotionally, and mentally.  I’m a huge believer in the concept of building myself into the person I admire so that I can give him away, and I’m proud I’ve built a solid financial foundation so that I have the ability to help others in times of critical need.  If you’re not in a place to help others currently, remember the feeling of not being able to help and use it as motivation to strengthen your financial situation so that you’ll be better prepared to help in the future.

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Uncategorized

Personal Finance Foundation – Part 3 – Grow Income

This is the third part of my Personal Finance Foundation series that serves as a starting place for those who are looking for an organized way to approach their finances.  It’s easy to find personal finance articles, but it’s much more difficult to find an organized approach to personal finance.  To read Parts 1 and 2 of the series, go here:

Personal Finance Foundation – Part 1 – A Starting Place (Calculating Net Worth)

Personal Finance Foundation – Part 2 – Easy Money: Spend Less


When it comes to moving the needle in your financial life and growing net worth, increasing income is one of the three primary steps you can take (with the other two being reducing expenses and investing).  You can make an immediate impact by cost cutting, but there’s a limit to how much you can cut spending.  On the other hand, although increasing income takes more effort, there’s no upper limit to how much you can earn.

Grow Your Career

One obvious way for you to grow income is to grow your paycheck at your current job or in your current career.  There are many ways to do this, with a few highlighted below.

Be Kind

You likely don’t expect “kindness” to be part of the advice you read on a personal finance blog.  That being said, with the hiring decisions I make, my number one criteria is bringing somebody on board who is kind, gets along well with people (even during disagreements, gasp), and reflects my organization’s culture (including and especially qualities of kindness and servitude).  No supervisor wants to be a babysitter, and no coworker wants to be around a bad coworker who exhibits any number of negative qualities:  Negative self talk, blaming, shaming, energy sucking, passing the buck, etc.

On the other hand, we all like people who are kind to us and generous with their time and effort.  Who doesn’t like that coworker who will take time out of their day to facilitate a project you’re working on?  Also, guess who management will promote when a position opens?  It certainly will not be someone who’s difficult to get along with, no matter how smart.

Work More Than Expected

I’ve observed colleagues whine and whine about not being paid enough, all the while showing up late and leaving early on a regular basis.  One thing’s for certain:  This doesn’t look good to managers.

Putting in more effort than is required is a simple way to build credibility while building your reputation.  Stack the cards in your favor by demonstrating to coworkers that you go above and beyond.  You’ll build a reputation for being a hard worker and your boss will notice, giving you an additional piece of justification for a pay raise when you next ask for one.

Learn Continually

Learning continually about your business vertical and your job responsibilities allows you to grow closer to being a subject matter expert.  Expertise in a given field can be parlayed into being a “go to” person, and this usually entails commensurate financial compensation.   For example, there are certain niches of engineering-related knowledge I pride myself in knowing well and I’ve become a go to person in my organization for this knowledge.  This means more recognition as a subject matter expert and an additional feather in your hat when asking for a pay raise.

Change Directions

You may determine that increasing your income in your current line of work isn’t feasible.  Whether it be that you hate your current job, have a limited income ceiling, dislike your boss and/or coworkers, a change of direction may be in order.  There are several ways to increase your income while choosing a different line of work.

Get an MBA

A Master of Business Administration (MBA) degree is a common way for professionals to change careers.  I’ve had MBA classmates change directions from technical roles to managerial roles.  I’ve also seen  other classmates completely change verticals, from software engineering to finance, and greatly increase their income.  I completed an MBA well into my professional career and found that it generated many opportunities, especially related to leadership, as I moved from a role with a technical focus to a leadership role.  An MBA is a great way to learn about the many aspects of leading and managing an organization and, as a result, organizations looking to fill leadership roles often filter resumes and LinkedIn profiles based on this credential.  Hint:  Look for an employer who pays for graduate education and leverage this benefit to further your career.

Learn a Trade or Become an Apprentice

There are many, many ways to earn a good living while not wearing a white collar.  A Google search for plumber and certified welder salaries indicates $50,000 annually is feasible, with much more compensation available for folks willing to specialize further.  Of course, as with any skill, it takes time, training, and patience to become proficient.  An apprenticeship under a well-experienced tradesperson could be your ticket to accelerating growth in expertise, career change, and income increase.

Develop a Side Hustle

You may be thinking, “thanks, buddy, but an MBA and trade school aren’t free.”  While I’m a big, big fan of having someone else pay for either, (whether it be through an employer, a government program, the GI bill, or another avenue), you can immediately boost your income  by picking up a side hustle or part-time job while you pursue education.  There are any number of side hustles you can pursue that you can jump into immediately:

  • Drive for a ride sharing company (i.e., Uber, Lyft, Sidecar, etc.)
  • Walk dogs through Rover or a similar app
  • Post your gig skills on Fiverr.  Many of the skills posted on Fiverr can be used from the comfort of your home.
Categories
Investing Retirement Uncategorized

Why You Should Use Index Funds in Your Retirement Accounts

When I first started learning about investing and retirement accounts, I struggled to determine where I should invest my money.  Thankfully, several great personal finance web sites (including Motley Fool and Bogleheads) agreed that investing in index funds led to the most benefit for most people.  Index funds are mutual funds that track what is called a market index, like the Standard and Poor’s 500, and maintain small slices of companies in proportion to the companies’ share of the index.  For example, if Apple currently makes up 2% of the S&P 500, an S&P 500 index fund would place 2% of its holdings in Apple.

Why is indexing preferred over investing in actively managed funds, where fund managers buy and sell stocks on a frequent basis?  The frequent buying and selling of stocks generates commissions for the fund managers and their companies (this is your money going to pay the fund managers).  Additionally, there are often fees associated with the initial purchase of actively managed funds.  At the end of the day, actively managed funds must increase in value not only to match the gains of index funds, but also to cover actively managed funds’ much higher expenses.

Study after study indicates that index funds outperform actively managed funds:

http://www.cnbc.com/2015/06/26/index-funds-trounce-actively-managed-funds-study.html

http://www.usatoday.com/story/money/personalfinance/2016/03/14/66-fund-managers-cant-match-sp-results/81644182/

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=88005

I recommend Vanguard Funds (www.vanguard.com) for index funds, as Vanguard’s funds have the lowest expense ratios.  One fund that is highly recommended by many proponents of indexing is Vanguard’s Total Stock Market Index Fund (VTSAX), which has an extremely low expense ratio of 0.05%.  In comparison, many actively managed funds have expense ratios of over 1.00%.  While this extra percentage point may not seem like a lot, when compounded over time, this extra 1.00% may result in you paying fund managers tens of thousands, if not hundreds of thousands, of dollars that could have been used to grow your retirement nest egg.