2019 – Paid Off $96,000 Debt & Increased Net worth by +$140,000

Woohoo! Looking back at 2019, what a year it was! The year my wife and I got on the same page about money, got on the same page about our health, took our heads out of the sand, and executed a plan with amazing results.

We didn’t start 2019 with the expectation of paying off all our consumer debt or changing our health around. There were no “new year resolutions” of “losing 10 pounds” or “paying off the car”. No, those “resolutions” never worked for us, the drive and determination would always quickly fade by the end of January.

We were already “aggressively” paying off our debt, but the timeline of being “debt free” was still 5 years out, we were looking at the year 2023! The debt burden was taking a negative toll on our health, almost suffocating us if you will. We thought we were doing it right too, save a little money here, invest a little money there, pay off more than the minimum on the monthly debt payments. The slowwww grind, because that’s just the way it had to be. At the time, we had over $60,000 in student loans, and around $30,000 in auto loans remaining.

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My wife and I were not yet on the same page about money either, there was no budget to refer to, no automated financial systems in place. No hard number of our total debt. One was a spender and the other a saver. So what happened?

A random Dave Ramsey YouTube video changed it all in late January 2019. This single video was the spark that made us have a serious discussion about our finances. This video literally changed our lives and our financial futures forever. You would think if that video had such an impact on us, I would remember it. I don’t! Ha! (We’ve watched hundreds since then). I think the message we took from it was that we weren’t alone, there were hundreds, thousands, even millions of people just like us trying to dig their ways out of debt. The “baby steps” that Dave recommends gave us a blue print to follow. Did we follow it to a “t”? No, but it was a jumping off point.

The discussion we had that night was hard for both of us. I grew up in a single parent household were money was a not always plentiful, so as an adult I viewed having money in the bank as a “comfort blanket” against struggle, against job loss, against being vulnerable. So when it came to executing Dave Ramsey’s baby step of having only “$1000” in an emergency fund and throwing everything we had at the debt it terrified me. $1000? Ha! A car repair or an issue with the house or god forbid a health issue could easily wipe out a $1000 in a blink of an eye. It felt like standing on a diving board above a pool and being afraid of heights.

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We took the plunge. We took our savings, liquidated our taxable investment account, tax refund, bonuses, and as much of our paychecks as we could while still being able to “keep the lights on” and “being able to eat” and threw it at our debt with vigor.

Throughout 2019, we posted entries that highlighted bits and pieces of our plan, and the thoughts behind it…

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Getting on the same page with your significant other is the bedrock of our success. If one is a saver and the other is a spender, neither having limits, you won’t succeed. Most folks see talking about money as a taboo but you need, need, NEED to have that tough conversation in order to succeed.

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We developed the 35/45/20 rule that gave a framework that was different than the average run of the mill 50/20/30 rule that you hear so much of. After ridding ourselves of our consumer debt, we quickly went at increasing our emergency fund. Which came in handy when an unexpected medical event and auto repair took place in late 2019.

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Paying off debt instead of investing outside of our retirement accounts was a massive moment for us. We didn’t follow Dave Ramsey’s advise here by stopping contributions to our retirement accounts, we thought the negative implications such as increasing our income tax liabilities and the mental effort of re-starting contributions again was too much of a risk. We actually went in the complete opposite direction, MAXING out our retirement accounts! This allowed us to also enjoy the stock market rise of 2019.

We developed a fancy excel sheet that tracked our net-worth and monthly expenses which became an exciting moment every month were we came together to see our progress. We made some free printables this year for others to start on their journey as well.

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One of the many positive side effects of ridding our debt was the ability to focus on our health. Instead of going out to eat a few times a week, we decided to consistently cook at home, making large and healthy batches of chicken, vegetables, with rice or pasta. We were able to find a local instructor lead fitness center that we were more readily able to afford, and over the course of the year we were able to lose 70 lbs combined! Improving our blood pressure, increased our tolerance to stress, and shrunk our waistlines!

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We are excited for 2020, we plan to continue to follow the 35/45/20 rule, and focusing on our health. Here’s to the new year!

Remember, we are not financial advisers and are merely sharing our experiences. 

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

 

 

2019 Stock Picks In Review

Wow, 2019 started with a whimper and appears to be ending with a bang! There was doom and gloom in the air, with the threat of recession looming in December 2018. Federal Rate inversions were happening, high yield savings accounts were approaching 2.5%. The sky was falling. Fast forward to December 2019 and the champagne is flowing. “One of the best yearly returns of the S&P 500 since the Great Depression!”

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Now if you are a prefect market timer and were able to get out of the market in late Sept 2018 and THEN jumped back in the beginning of 2019, you are looking pretty with a “28% gain” in the S&P 500.

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Now, if you are like most folks… there is a good chance you were invested in an index fund tracking one of the major indices like… the S&P 500 and it was more likely you road the wave, achieving an 11% gain since the September 2018 peak. Yes your retirement account statement is showing a great year to date return but sometimes you need to step back and look at the big picture when you hear Bob from accounting exclaim his 401k is up 25% this year!

2019 was full of opportunities to buy great companies at crazy low valuations compared to their historic norms.

Be fearful when others are greedy, and greedy when others are fearful. – Warren Buffett

We focused primarily on what we know and understand the best, cyclical “tech” type companies. Namely companies focused in…

  • Mobile devices
    • Smart phones, laptops, tablets
  • Computer components
    • Processors
    • Memory chips
    • Graphics cards
  • Internet focused companies that have a large probability of scale
    • Cloud storage/solutions
    • Online merchant storefronts
    • Online advertising
    • Cyber security solutions

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Lets see how we did looking back on our portfolio performance for 2019.

Company Ticker Percentage Gain/Loss Purchase Month
Advanced Micro Devices AMD 62% August
Apple APPL 80% January
CVS CVS 19% February
CyberArk CYBR 20% September
Google GOOG 25% January
Micron MU 60% June
Nvidia NVDA 40% July
Shopify SHOP 35% October
Splunk SPLK 25% June
The Trade Desk TTD 50% June
Zillow ZG 40% September
Average return 41%

Will the good times flow into 2020? Who knows! How was your 2019?

Remember, we are not financial advisers and are merely sharing our experiences and make no recommendations to invest in any of  the above mentioned securities. 

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

Be Above Average – Steps to Increase your Net Worth

What is the best way to check your financial health?

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Your credit score? Blah! No, that’s just the banks way of grading on how well you handle your debt addiction.

You can have a credit score of 850, paying your bill every month on time, collecting those HUGE cash back allowances… and be broke with zip, nada, in your checking and saving accounts. No matter how much you see it advertised every day by the likes of Credit Karma and the like. Remember, when something is advertised, its because there is money to be made on YOU, not to help you. So, no, not your credit score.

Something the financial industry is not shoving in your face everyday is your net worth.

Your net worth is the best way to evaluate your financial health.

So what is your net worth then? In layman terms… your net worth is the difference between your assets and liabilities.

An asset is anything of value that can be converted to cash. Think, a home with positive equity, rental properties, businesses, stocks, bonds, savings, checking accounts, etc.

A liability is typically something that you owe to somebody else. Think, credit card debt, student loans, auto loan, home mortgage, personal loans, etc.

Net Worth = Assets – Liability

So what is yours? You can figure it out easily by trying out our free net worth health check printable in our new Free Downloads section.

Where do you stand?

So are you worth something? Or are you sitting in the red?

In accordance to a study performed by NerdWallet and reprinted by MarketWatch earlier this year the median and average net worth by age is below:

  • Under 35: Median net worth: $11,000 (average net worth: $76,000)
  • 35-44: $59,800 ($288,700)
  • 45-54: $124,200 ($727,500)
  • 65-74: $224,100 ($1,066,000)
  • 75+: $264,800 ($1,067,000)

I personally would not compare myself against the “average” numbers as they can be skewed heavily by your millionaire/billionaire buddies, think the Mark Zuckerbergs of the world.

Don’t worry, no matter where you are in your financial journey there are always ways and time to improve your standing.

Live Below Your Means

You hear this one all the time, but are you actually doing it? Are you living paycheck to paycheck? Are you keeping up with the Jones down the street, you know, the ones who are maxing out their 5, 6, or 7th credit card buying that new iPhone?

Do you know where your money is going? If you don’t, give our Free Monthly Budget printable a try to see where your hard earned dollars are going.

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After writing everything down, give it a a real hard look. What are your biggest culprits? Are you spending too much on going out to eat every night? Is that cable bill outrageous? How much are you paying every month for that new car?

If you want to see where you can cut back on your current expenses head on over to our Ultimate Budget Guide to learn some tips and tricks.

Attack your debts!

If you want to turbo charge increasing your net worth PAY OFF THAT DEBT. Any debt you have is acting like a vampire on your finances, constantly sucking money out of your pockets in  the form of interest payments. Every time you pay off a debt your basically paying your future self in saved interest payments, with a guaranteed return.

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For example, we paid off over $160,000 in student loans in a 4 year span, about $60,000 this year alone. If we did the normal payment schedule we would be handing Sallie Mae almost $10,000 in interest a year! Now that money is going back into our investments and savings, turbo charging our net worth.

““Whatever interest rate you have — it might be a student loan with a 7 percent interest rate — if you pay off that loan, you’re making 7 percent. That’s your immediate return, which is a lot safer than trying to pick a stock or trying to pick real estate, or whatever it may be,”

Mark Cuban (Billionaire)

Automate Your Savings

One of the easiest ways to remove the temptation of spending your paycheck the second its pay day is by automating where you money goes. Take out the worry of trying to save X dollars every pay check. Have your paycheck automatically send money to your savings or investing accounts.

Give your paycheck a purpose! Take a look at our 35/45/20 rule to maximize your growth potential.

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Maximize Retirement Accounts

If your primary income comes from a W-2 (your 9 to 5 job) a good chuck of your gross income is going to either Uncle Sam or your primary state of residence in the form of taxes.

You can put more of that money in your pocket by maximizing your retirement contributions, either through your 401k retirement plan or a traditional IRA.

You reduce your current tax liabilities by reducing taxable gross income by increasing your pre-tax contributions. By even increasing your contributions by even 1 to 2 % you could end up putting thousands of dollars back into your retirement “pocket”.

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Give Yourself an Allowance

One of the greatest concepts that helped us turbo charge our net worth this year was giving ourselves money to spend on whatever we wanted.

Yes, we gave ourselves an allowance. A fixed amount of money that we could spend on anything!

That $4 Starbucks coffee? Yup, went for it. New video game? Fancy pair of pants. No sweat. As long as it fitted within the allowance.

By not depraving ourselves, we didn’t feel like we were punishing ourselves on our financial journey.

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Remember its a marathon, not a sprint. Think of it kind of like how folks typically fail a dieting, because they deprave themselves of simple pleasures instead of doing what is right by developing a long term, sustainable, life style change to achieve their goal.

By creating a balanced sustainable system you are sure to succeed.

What you set as your allowance is up to your given scenario. Could be $20 a week or $500, you may have to play around it until you hit that sweet spot. I recommend cranking it down until it hurts and then adjust upward.

Invest in Appreciating Assets

Make your money work for you by creating multiple streams of income.

Rental properties, stocks, bonds, high yield savings accounts, starting your own business.

All of the above investment instruments have their own barriers of entry and each come with their own levels of risk.

The lowest barrier to entry and lowest risk is definitely a high yield online savings account. In a Federal Reserve interest rate cutting world, what we define as “high yield” is around 1.90%. Look into online high yield savings providers to get the best rates. I recommend Synchrony Bank, but there are plenty of alternatives, just be sure that they offer FDIC insurance!

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The second lowest barrier to entry to grow your money would be in the world of stocks and bonds.

It’s actually even cheaper and easier than ever, as of October of 2019, many of the major trading houses have reduced their commission fees to $0. The risk increases though, stocks and bonds can go to zero, so due diligence is required here, but the growth potential is huge. If you are unfamiliar with the stock market start with Investopedia.com and SeekingAlpha.com to get investing savey!

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Investment properties are another method of increasing your wealth. You’ve probably seen the infomercials or YouTube videos of 20 year old millionaires flipping or renting out houses, sounds almost too good to be true!

When you step up to looking at investment properties the up front cost and risks amplify. Do you have $200,000 laying around? No? Okay looks like your taking out a loan. Oh shoot, the kitchen needs to be gutted? $20,000. Plumbing problems? $10,000. New roof? $15,000. But wait! You can rent it out for $1200 a month! Wow a 30 year pay back period!

Obviously I am being a little harsh here and plenty of folks are successful with investment properties, but there are plenty of horror stories, so due diligence is required here as well. You may end up being a millionaire on paper but when you only have a net worth of $100,000 and have $900,000 in mortgage liabilities, do you really want that hanging over your head?

Avoid Expensive Liabilities

Do you really need that $50,000 Silverado? You a business owner? No? Office job? Then why are you driving a $50,000 truck? Oh I am sorry your driving a $45,000 BMW sedan, my mistake.

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New cars are money pits that add very little value to building your net worth. Since most folks are financing the crap out of these new cars its a double whammy. Getting whacked on terrible depreciation, long 7-8 year loan terms leading to being upside down on a depreciating asset. These are anchors on your net worth growth.

When it comes to most consumer goods if you can’t by it in cash, you shouldn’t be buying it at all.

If an automobile is a necessity in your next of the woods, look into to a reliable low mileage used one. If you can pay for it in cash, even better!

Delayed Gratification

Did you see the new Iphone 11 Pro? Wow what a looker! Three cameras you say? No Way! How much?

$1100.

Well… that’s a sure fire way of going in the wrong direction in increasing your net worth.

Do you really need it? Like REALLY really? How about just holding on to that old iPhone 8 just a little while longer.

One of your best tools to increasing your net worth doesn’t have to be how many dollars and cents are coming in to your home every week. Its your mindset in the form of delayed gratification. Resisting the temptation of an “immediate reward” for your long term growth goals is key to your success.

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Bring it all together!

By living to the above topics we were able to supercharge our net worth growth by over 50% this year alone!

Remember, it’s never too late to change your mindset! Take charge today and stick to it. In 3 – 6 – 12 months from now you’ll be amazed by your progress.

Let us know your ideas, tricks, success stories below!

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

 

Free Financial Printables To Get You On Track!

We are kicking off a new page here at The Debt Rebellion aimed at helping you become more money savey!

If you found this site you are no stranger to hearing and seeing financial gurus spout on about how to manage, how to track, or how to give your “money a purpose”, with not a whole lot of substance or action to get you off your phone or off the couch and get you actually doing something about it!

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I don’t know about you, but I learn by doing. Example problems to use… followed by a whole lot of practice worked for me and it may work for you too!

So to help our readers learn by DOING we’ve added a couple of FREE worksheets to get you going in the right direction. From tracking your net worth (your financial score card) to putting your monthly budget all in one place our goal is to help you develop the skills you need to elevate your financial prowess.

Let us know what you think! If they help you or you have a suggestion on how we can improve them please let us know below!

We plan to add more worksheets in the not too distant future as well so stay tuned!

 

Get on the same page about money! Become Unstoppable

One of the biggest hurdles on our road to becoming debt free and turbo charging our net-worth growth wasn’t the size of our monthly payments on our cars or the interest rate on the credit cards.

It was us.

My wife and I were just on totally different wave lengths all together when it came to money.

One of us was a penny pinching saver playing the “invest instead of paying off debt” game, and the other was a spender who paid the monthly payments but pretended the debt mountain wasn’t really there.

We saved money.

It was mostly by accident.

We used credit cards.. to earn “cash back” thinking we were smart and sticking it to the man.

Little did we know we were sticking it to ourselves.

SO much waste, on student loan and car loan interest, and spending WAY too much every month on the credit cards chasing that “cash back”.

Spender vs Saver

If you are the spender and they are the saver or vise-versa no matter how hard you each may try individually you’ll end just spinning your wheels making absolutely no progress.

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Not being on the same page lead to arguments and unneeded stress in our relationship. Per a 2018 study performed by Dave Ramsey we weren’t the only ones, money problems are one of the leading issues leading to failing marriages. Luckily, we had an “aha!” moment earlier this year and it happened on accident.

I stumbled upon a YouTube channel run by this guy named Dave Ramsey and a random episode was playing on our family room television when my wife came home from work. Our interests both peaked when the episode talked about a caller who had $200,000 in student and auto loan debt. We both sat there and intently listened to Dave’s recommendations.

After the episode ended it just “clicked” in both of us that we needed to get serious. It was a difficult discussion, a complete change in mindset. No more thoughts about investing and playing the game of beating out the interest rates on our loans, and both of us coming to realization of our total debt.

What We Did

We developed a Net-worth tracker spreadsheet that outlined all of our assets, liabilities, and monthly expenses. This spreadsheet gave us the “big picture” on our financial health and helped us track our progress.

We developed the 35/45/20 rule to follow. Which gave us a structure that we could both follow by giving us each an allowance that we could spend how ever we wanted while also automating our savings and investing.

We also put the credit cards away. Took them out of our wallets and switched completely to debt cards. Cash Back, Points, and/or airline mile rewards is a suckers game.

To jump start this new effort we also decided to use our emergency fund and started throwing all other income at the debt, any money left over from bills went to debt, including our tax returns.

Become an Unstoppable Team

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When both partners get on the same page and understand how both effect the big picture you become unstoppable. No financial hurdle is too big.

For us, not only did we pay off both cars, and all of our student loans, we increased our net-worth growth rate by 50% year over year. For example, hypothetically if we increased our net-worth by $20k last year, we are growing at a rate of $30k this year! Getting on the same page shook up 50% more money that previously was just being wasted!

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

Does it still make sense to “cut the cord” in 2019?

You may be asking yourself… “Wait…2019? Why didn’t you cut the cord like every other millennial 10 years ago?”

Short answer – We did.

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Long answer, we cut the cord way back in 2011 in our first apartment, living off of just the digital equivalent of Ramen noodles – 25 mbps Internet, Netflix, and some over-the-air local channels. The internet package at the time was $60 per month plus a $5 per month rental fee on the modem and a Netflix subscription, which at the time was $7.99 a month. Life was good.

Grand total… we were looking at a little under $75 per month.

Fast forward to 2017 and there we were… signing up for a cable & internet bundle!

You..what?! What changed?

We moved to our first home! Yay! Home ownership!

The not so good news was we found out that our previous internet provider was just out of reach, we are talking a less than a mile outside of their coverage map. When asked if they would come our way we were told it would cost a “over a million dollars” to run lines to our area…

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So, we begrudgingly had to start shopping around comparing the whole 1 cable provider, 1 DSL provider, and 1 Satellite provider that had service in our area. Like comparing Apples to Apples right? Not quite. The DSL provider had a terrible reputation for quality and the Satellite provider required an ugly dish and a monthly data cap of 100 Gb! That may sound like a lot, but not so… as our average monthly data usage currently is over 400 Gb. So Satellite was out. Who was left?

Good ol’number 15 on America’s most disliked company list – who we will call the “cable company”.

The Hook…

They were offering a sweet deal on an internet/cable combo for $55 per month “for the first 12 months.” Too good to pass up.

…and before you know it we are waiting for the installation. It took about a week and when the first technician showed up it was what you’d expect, he said he didn’t have the right tools he “needed” and said he would “be right back.”

He never came back.

So my wife and I had a cynical laugh, called “the cable company” and had to arrange another on-site visit another 5 days later.

Line…

Fortunately the next install guy was awesome! Extremely friendly and helpful in the whole process of setting up our own modem and router, where to locate it in the house, and how to use a cable box we haven’t had to operate it 5 plus years.

Having super fast internet, to us, a whole 150 Mps was sweet and having one of those remotes that you can speak into was pretty neat. I have a soft spot for techy things.

Sinker!

After the technician left we soon realized that the $55 per month was not really $55 per month.

“High Definition” service was not included, there was an extra $10 monthly fee for that… in the year… 2017. As well as another $12 per month in taxes and other fees. Thankfully we supplied our own modem and router which saved us another $10 per month in fees.

The actual grand total came to a little under $80 per month, a 45% higher price tag that we originally planned.

Time Flies…

Overall we were happy with the service and the first 12 months flew by. Soon 2018 came around and the cable bill did it’s first jump to $99.50, up almost 30%. Alright, we were under contract… it is what it is, we were still happy with the service.

Fast forward to 2019, 2 year contract is over and the bill jumps again to $126 per month, another 25% plus increase.

At this point we just laughed and said okay this is over. We started looking back into cutting the cord.

Clever Gir..Cable Company

Cable companies have gotten smarter regarding the whole “cut the cord” movement in the last few years and are doing all in their power to limit that reduction in revenue by pricing their “internet only” packages to be only a “few” dollars less than a “bundled service”.

As an existing customer we had to jump through hoops to see what the “internet only” prices even were. Information is no longer available for existing customers on pricing online from the big cable company directly, only promo deals for new customers. We had to go to our local cable store to find out what the prices were for existing customers.

Just as I said earlier… we were told, “Oh, where do you live? Oh hmm… well if you just want internet its only going to be a few bucks cheaper than what your currently paying….”

How is that even possible?

Alright, so we had to look into lower tier internet packages to bring the cost down. The lowest tier service was pitiful for 2019, $35 for 15 mps download and 1 mps upload, not very useful for a household full of streaming internet connect devices.

The next tier up was for 60 mps download and 5 mps up for $75, doable and no additional fees. We turned in the cable box, remote, and we were on our way to internet only living again.

So many choices…

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So the internet streaming landscape has changed quite a bit since we first cut the cord in 2011.

There seems to be dozens of streaming choices to choose from! Not only are there more choices than ever, the costs to stream has changed as well.

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Wow… we are looking at big bucks to have access to many (not all) options currently available.

Wait it gets better… each service has their own “anchor” show(s) that no other platform can carry, creating an incentive to subscribe to their service.

Remember HBO and a little show called “Game of Thrones”?

Just look at what Disney and Netflix are doing. In the past, Netflix had access to the Marvel franchise including the movies and Marvel branded TV series, creating an incentive for consumers to subscribe and gain unlimited access to an incredible brand that appeals to all ages.

Well, not too long ago Disney decided they wanted a bigger portion of the streaming pie and plan to come out with their own streaming service while not renewing Netflix’s rights to Disney products. Ouch. Good for Disney, bad for consumers.

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So when you start adding up all the great shows you watch and all the different services you need to do it… things are starting to look a little pricey again.

But, unlike cable you ultimately have a more of a voice and choice on what you really want to pay for.

What we did…

For our household we wanted to improve the cable experience we previously had.

We had a few channels that are our favorites, such as the History, Discovery, Comedy Central,and HGTV channels.

The service that ultimately gave us that and a few other channels of interest was streaming app – Philo, for $20 per month we got 50 live channels and on-demand shows with unlimited recording in High Definition (No $10 HD Fee!). Some of these channels were “extras” that we would have to pay extra for in our old cable package.

To replace the role of our old cable box we picked up a 4K capable Roku Premiere Plus for a one time cost of $35 (Walmart deal at the time) for our living room and another Roku Express for $24 for our bedroom TV which did not have cable originally (to avoid another cable box fee).

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To bring our entertainment center all together we topped it off with a new Universal Remote for $10.

Savings – BIG and small

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When we added up the monthly cost of our new streaming setup we were looking at a new cost of around $95 per month, or a 30% reduction in our monthly expenses. The Roku boxes and remote would be paid off in savings by the first 2 months of service. Over the next 12 months we are looking at freeing up $360, or $720 over the next two years.

Not huge numbers, but we are proud that we were able to improve our services while paying less to the cable company. While ideally stabilize the shock and awe rate increases the cable company was throwing our way every year.

We’ve shared this with our family and friends who are in a similar bind and have convinced them to follow a similar path, some of them will have savings larger than our own, going from $280 per month to around $100 per month. A savings of over $2000 per year, a substantial sum to anyone.

Conclusion

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So does it make sense to cut the cord in 2019?

The answer… it depends. It depends on you and what you want.

You can reduce your costs substantially if you focus on what you really want to watch like we did. Imagine what you could do with another $300 – $2000 per year, or another way to put it – $9000 to $60,000 in savings over 30 years! You could pay off debt, invest… maybe save for something special!

Or, if you want to check all the boxes on the major streaming services your bill may be as high or higher than your old cable bill.

It is ultimately up to you…

Just know that if you want to make the change and cut the cord the upfront effort and initial roadblocks are totally worth it in the end.

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

Give Your Income a Plan – The 35/45/20 Rule

So you want to start making real progress on getting out of debt or building wealth, right? But where do you start? I’ll tell you…it’s not buying stocks or consolidating your student loans and it’s especially not by buying another lottery ticket.

No. You need to start on the ground floor by looking at yourself and streamlining how your most important tool, your income, is working for you.

If you are like most people… you’re itching for payday. As soon as the check clears your feeling pretty good, maybe even a little too good. A big lump sum, $500, $1000, $2000 or more, in your bank account that immediately starts burning a hole in your pocket… just wanting to be spent on new cloths, gadgets, or experiences. Hey, you earned it right?

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But what happens when the weekend is over or it’s the end of the month and your bills are due? How big is that pile of cash now?

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The problem is physiological. That single shot of cash is giving you an artificial high of “wealth” by feeling that you have more money than you really do.

So how do you avoid this trap?

You have to give your paycheck a purpose by developing a plan.

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I am going to give you the thought process that my wife and I currently use that helped crush our debt and accelerated our net-worth growth rate by almost 100% year over year.

You may have heard of the 50/20/30 rule – 50% of your post-tax income goes to needs, 20% goes to savings/debt, 30% goes to wants – i.e. fun stuff.

Why would you want to be normal? If you really want to change your life you have be different. We flipped the ratios around and currently live by the 35/45/20 rule. (A mouthful, I know!)

The 35-45-20 Plan

35% is your needs, or living expenses – rent, utilities, food, etc.

45% goes to debt payments or savings and investing. This portion swings wildly from debt payments to savings & investing depending on where you are in your financial journey.

20% is your wants – night out with friends, new shoes, movie tickets, etc.

If you think it’s nuts to only live off of 35% of your income check out our Ultimate Guide on understanding your budget and trimming the fat. 

Build a system of Accountability

How we held ourselves accountable to the above ratio was by developing an automated system for our income.

Instead of having our paychecks dropping into one checking account we started thinking of multiple accounts. This was taking “making a budget” to the next level, instead of putting the onus on us to constantly juggle and really blurring the lines of where the money was going from a single account we instead set our paychecks to direct deposit into 5 separate accounts…

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Checking Account #1 Fixed Expenses
Checking Account #2 Debt Payments/Investing (eventually)
Checking Account #3 Allowance
Savings Account #1 1 Month Emergency Fund
Savings Account #2 5-12 Months Emergency Fund

Checking Account #1 – Fixed Expenses – 35%

What are your “fixed expenses”? Think of the items that have a recurring bill, such as your rent or mortgage, utilities (water & electric), cable/internet, cell phone, groceries, etc. Think of expenses that typically don’t fluctuate significantly month to month. Write these expenses down… and add them up. Now, since some of these expenses fluctuate slightly due to external factors, such as hot summers and cold winters (i.e. A/C, Heating) electricity usage, and food prices, add another 10% to the total to cover that flux.

For example, if your fixed expenses add up to $1000 per month add another 10% on there, so you’ll have $1100 per month going into this account. If you get paid bi-weekly you will need $550 per paycheck going into Checking Account #1.

Checking Account #2 – Debt Payments – 45% to 0%

Depending on your income level, the status of your current emergency fund, or debt level this account will change in meaning as you progress on your financial journey. Like what was stated before…if you are getting paid bi-weekly whatever your total debt payments are every month you’ll need at least half of it going into this account per paycheck.

Checking Account #3 – Allowance – 20% 

So now take that lump sum of money and send 20% of that to what we will call your “allowance” fund. The money that you can use to spend how you want, going out to dinner, buying that fancy coffee every once in a while, or that new gadget. This is where living within or below your means comes into play.

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When my wife and I started living within 20% for the “fun” expenses our mindset started to change, we started adding more weight and value to the items or experiences we were buying. We don’t feel as if we are restricting ourselves here, we just ended up focusing on things that actually held value to us. Ultimately, we came to the conclusion that we were wasting so much money with our old habits, adding up thousands of dollars per year!

Savings Account #1 – Easy Access – 1 Month Expenses Emergency Fund

As we talked about earlier, having an emergency fund helps you handle life’s unexpected moments by giving you the money you need when you need it to avoid taking on additional debt. This account should equate to about 1 months worth of living expenses and should be easy to access, within less than 24 hrs. This account will be available when an appliance breaks down, or unexpected doctors visit. This account should not be touched unless an “emergency” happens.

Savings Account #2 – (5 – 12 Month) Emergency Fund – Online High Yield Savings Account

So this account should equate anywhere from 5 to 12 months worth of living expenses and should be accessible within 3 days or less. So we should be thinking of online savings accounts here. Your money is in a safe spot that is just out of immediate reach to prevent you from making impulse decisions.

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Photo by Pixabay on Pexels.com

Steps to using the 35/45/20 Rule – From Debt to Wealth

Alright, so lets go through an example of using the 35/45/20 Rule…

Step 1 – Build 1 Month Emergency Fund

If you are starting out without an emergency fund of at least a one month’s worth of expenses your first goal should be to create one. This may mean paying the minimums on your debt payments at first, with the remainder of the 45% going to building up that small emergency fund. Remember, you can’t focus on aggressively paying off your debt if your constantly reaching for your credit card to cover small expenses that popup outside the norm.Step 1

Step 2 – Eliminate Debt

When you’ve completed your small emergency fund can you now attack your debt with the full salvo of 45% of your income. Step 2How you go about this is up to you. What worked for us was “The Debt Snowball” method outlined by Dave Ramsey. Take all your debts ordered smallest to largest and contribute more than the minimum to the smallest debt until it is paid off. Then roll that money over and put it toward the next smallest debt, and so forth and so on until your debt is eliminated.

Step 3 – Build Up a 5 – 12 Month Emergency Fund

After successfully eliminating your non-mortgage debt your next goal is to strengthen the rest of your emergency fund. Start throwing that 45% into Savings Account #2 until you hit that 5 to 12 month equivalent number. It is up to you what that amount is… be it 5 months, 12 months, or any number in between. This account is your fall back for extreme emergencies, job loss, significant health issues, etc.

Step 3

Step 4 – Wealth Building & Investment

So now this is where the fun starts to happen… Your non-mortgage debt is gone, you have a strong emergency fund set aside… now what?

Don’t fall into the trap of seeing all this freed up income as giving you the right to start a shopping’s spree. Stay focused!

It’s time to start building real wealth.

Checking Account #2 changes it’s meaning now to “Investing”.

Step 4

How you define “Investing” is up to you.

You may start saving up for your first home or your first investment property.

You may start to dabble in index and mutual funds in a taxable investment account.

Or maybe a little bit of everything… that is ultimately up to you.

What matters is that when you start to leverage 45% of your post-tax income to “investing” and wealth generation you are now way outside of the normal. Stay there.

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Plan, Automate, Execute!

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If you made it this far.. congratulations! Hopefully you followed all that…

So in conclusion, by giving our income a plan and a purpose while also automating our paycheck we changed our mindset, and ultimately our path to financial success. The 35/45/20 rule may sound like a challenge but you have to break outside the norm if you want to achieve above average results. This process has amplified our net-worth growth by 100% year or year by eliminating our debt and supercharging our investing potential.

Let us know your thoughts on the 35/45/20 Rule or whats plans you’ve had success with! We would love to hear from you.

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

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Millionaire Status? Better get that Emergency Fund First

Alright, so you want to be a millionaire as soon as possible right? So your looking at all different ways of leveraging your income, be it real estate with income properties, maybe investing in the stock market, or even starting your own business.

It all sounds good on paper. Someone else paying the mortgage on your rental, or the stock market averaging X% percent a year. Hey…you can’t lose right?

What happens when Murphy’s Law slaps you right in the face? You get a call from your rental that the furnace went out, or your tenant just left and now your paying the mortgage, or the stock market just took a dump? Or heaven forbid you just lost your job. Ah! Are you going to run to the credit card at 20% APR or take out a personal loan at 15% APR?

Nothing is ever perfect so you need save yourself from…. yourself by establishing a safety net in the form of an emergency fund.

So What is an emergency fund?

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So what is an emergency fund? Well it is money set aside to cover those life surprises that will come up. Not may or might, but will. It’s purpose is to improve your financial security by giving you access to cash to handle those unexpected events while allowing you to avoid the need to take on high-interest debt options like credit cards or personal loans.

An emergency fund should not be considered a fund that is accessible for investing. You DO NOT touch it unless you need to cover an emergency. Sounds boring earning 1-2%, but you’ll be happy it’s there when you need it.

So How Much?

Your emergency fund should ideally be equivalent to a minimum of 3 to 6 months of expenses. Depending on what your threshold for risk is….strive for 6 to 12 months of expenses. Having an empty rental or job loss will have big dollar signs, so more is always better.

The average mortgage payment is around $1500 per month! If a tenant left and your struggling to find a replacement do you have $1500, $3000, $4500, lying around to pay the mortgage? Yeah, $4500 is only 3 months.

What about if you lost your job? Not only are you covering the mortgage but you have all your other liabilities, such as your car, student loans, food expenses, utilities, etc.

Start putting dollar signs and amounts on those monthly expenses and it starts to be eye opening how much you need to tuck away. Three months of expenses may be $10,000 or more! Do you want $10,000 sitting on a credit card just dragging you down into a debt spiral?

Automate – Out of Site – Out of Mind

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So where do you keep your emergency fund?

Keep your stash somewhere that your impulses can be kept in check. Look into online high yield savings accounts, as they typically require a 3 day transfer period to allow you access to large sums of funds, this gives you a chance to control that impulse of buying that shiny new thing you saw on Amazon today.

Also, make it painless by automating your savings plan to cushion your fund. Have a percentage of your income direct deposit into your emergency account. If you don’t see the money initially in your checking account your more likely to keep yourself accountable.

Conclusion

If you want to stay on the path of tremendous wealth building and financial success an emergency fund is an essential cornerstone to your overall financial health as it prevents you from making costly mistakes such as liquidating your investments, taking on credit card debt, or loans.

If you don’t believe me on the importance on having an emergency fund listen to an inspiration for my wife and I, Dave Ramsey, below.

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.

Pay off debt early or invest?

You see it everywhere, invest, invest, INVEST. Invest early or you’ll never retire!!

How do you invest effectively when your handing your hard earned money hand over fist to creditors or lien holders? If you have student loans, credit card debt, and/or auto loans are you just running in place? Don’t get me wrong, it’s great that you’re thinking about investing but are you seeing all options with eyes wide open?

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The average annual percentage (APR) rate on a undergraduate loan is around 4.5%, up to 6 to 7% for a graduate loan!

According to the Federal Reserve the average APR rate on a credit card is 15%.

The average APR rate on a 60 month auto loan is around 5.4%.

The average return of the S&P 500 over the last 20 years was 6%.

Do you play the “making money on debt” game? “Well, after my retirement contributes, and other essential expenses I have $1000 extra per month to allocate, my $35,000 auto loan only has an APR of 5% with a $660 monthly payment and I can put the remaining $340 into the stock market every month which typically returns 6-8% per year…so I am in the green! Right? Right…?”

On paper, that may be true. It is generally recommended that if your investments are projected to generate higher returns than the interest generated from your debt it would make sense to invest in those funds in lieu of paying extra on the debt.

But!…

There are no guarantees in life especially when it comes to the stock market. If you invested that $35000 in an index fund tracking the NASDAQ at the height of the dot.com bubble in 2000 it would have taken you all the way to 2015.. 15 years to break even (back to a gain of 0%), or another way of looking at it…your money would have performed worse than a savings account or CD.

But you know what is guaranteed? That car payment that comes out every month. It is SO guaranteed that if you fail to pay the bank can take that car right out of your driveway. Not only will you be without your wheels but all the money you paid up to that point.

Now I am not saying not to invest, investing is an incredible tool for wealth generation but you need to weigh that option to where you currently are in life.

So let’s fleshing out the scenario above.
Scenario 1 – Regular Debt Repayment Schedule with Remainder Invested:

Each month after paying off your rent and all other bills you end up with $1000 to do with what you want. Your car, “old reliable”, just bit the dust and now your looking for a new ride.

You end up getting bit by the “new car bug” and end up with a shiny new car that costs around $35,000 (the average price of a new car in the United States). You didn’t put anything down because why would you do that! You were approved for a “new car loan” with an APR at 5% with a loan term of 60 months. The same month your first car payment comes due you realize you should start investing! So you also open up your first investment account and put the remainder of that $1000 to work each month, approximately $340.

Now let’s see how the numbers shake out over the next 5 years…

Car Loan Typical Payment Schedule

Investing Remaining Monthly Funds

During your standard loan payment period you end up paying around $4630 in interest and have an investment account balance of around $23,700 using an average return of 6%.

Doesn’t sound too bad, so let’s look at how the numbers turn out by focusing on debt repayment first.
Scenario 2 – Accelerated Debt Repayment Schedule with Remainder Invested:

Alright, so you just bought that shiny new car and you just realized you REALLY hate car payments and wondered why you didn’t just fix “old reliable”. So you decide to try to pay off your loan as quickly as possible by forfeiting investing and focusing all $1000 per month to the car loan.

Car Loan Accelerated Payment Schedule

Investing All Funds Starting at Month 39

It takes you 38 months to pay off the balance and end up paying $2,915 in interest.

At month 39 you open up that investment account and start investing aggressively using all $1000 per month. At month 60 you end up with an investment balance of $23,194. Wait a second… if I just invested $340 a month like Scenario 1 it would have $23,700 in my investment account, what gives!

In Scenario 1 you paid $4630 in interest, over $1700 more than in Scenario 2. Where as your investment account in Scenario 1 only generated $500 more than your investment account in Scenario 2 by the end of year 5. By aggressively paying off your debt early and then aggressively investing not only did you have a car that is free and clear owned by you 2 years earlier but you also came out ahead overall by $1200, the difference in interest paid and investment return between Scenario 1 and 2!

Granted this scenario can be played out a million different ways. You could have received 0% financing, crazy 15% financing, the stock market gaining 0% per year, or 20% per year, or even losing 20% per year. If you try this out on different types of debt such as credit cards with 20% APR or student loans at 12% (yes, they do exist), it can blow your mind.

Depending on your financial health your miles may vary. Also, no plan is perfect and past performance should not be used a predictor of the future. The stock market typical behaves in cycles, with ups and downs, booms and busts.

On paper everything can look great, awesome lets do it! But when it comes into putting it into practice that is when all hell can break loose. People are emotional and are prone to making decisions not on clear and concise thought but on joy, anger, and fear etc.

“No battle plan survives first contact with the enemy. Not when the enemy is me.”

Lois McMaster Bujold

By focusing first on aggressively paying off debt not only do you have the added benefit of actually owning your car, or no longer having to think about your student loans, or credit cards, you end up having this incredible feeling of freedom and piece of mind. No longer will you have the weight hanging over your head of monthly payments.

““Whatever interest rate you have — it might be a student loan with a 7 percent interest rate — if you pay off that loan, you’re making 7 percent. That’s your immediate return, which is a lot safer than trying to pick a stock or trying to pick real estate, or whatever it may be,”

Mark Cuban (Billionaire)

…..Or your the above average person, read the above, and decided to squash that “new car bug” and ended up creating Scenario 3 – fixed old reliable, had no debt at all, and invested that $1000 per month for 60 month instead and now sitting on a nice little nest egg. Cheers!

So what are your thoughts? We would love to hear from you! Leave a comment below or send us an email via our Contact Page.

If you liked what you’ve read please be sure hit the “like” button and share! If you want to receive the latest articles please be sure to subscribe.