The # 1 Investment Advice I Didn’t Follow

Though index funds are the #1 piece of investment advice that most follow, including myself, that’s not where this post is going.  Let’s talk about the other main piece of advice…
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Seriously, my decisions in the past few months have led me to quite the predicament for the upcoming month.   You see, up until 4 months ago, I only got paid from my airline gig once per month.  It was a choice I made years ago when I wasn’t working much and didn’t want a “draw” on my paycheck at the start of the month (5th) in the event I couldn’t cover it at the end of the month (20th).  We’ve all heard about writing checks your butt can’t cash – same idea.  
For those who aren’t familiar with what a draw is, in our case as hourly employees, we are paid for a certain amount of hours at the beginning of the month regardless of if we have worked them or not.  When the second check rolls around they calculate our total pay for the month then deduct the draw we had at the start of the month.  It is a great option for those who need help budgeting or for those that enjoy the twice monthly pay…I needed neither.  However, what I thought I needed was to get a hold of my money earlier each month so I could invest it sooner.  

Enter Dollar-Cost Averaging…

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According to Investopedia, “Dollar-Cost Averaging (DCA) ) is an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. It is also referred to as a constant dollar plan.”

My thought was if I could get my paws on some dough earlier in the month (and more frequently than once a month) I would reduce the amount of volatility and risk my money was subjected to by giving myself better odds at timing the market properly.

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And that is all fine and good – but the amount of money I am investing isn’t worth the amount of hassle my twice monthly paycheck turned out to be… 

As a once-a-month-paycheck kinda girl, my finances were on autopilot.  I knew how much was going to my 401K (20%), HSA, ESPP (Employee Stock Purchase Plan), Savings, Investments, and Checking account.  Whatever was leftover went directly into my savings account never to be touched again.  Easy peasey, had I kept it that way.  But once I switched over to a bimonthly pay schedule the shit really hit the fan!

Here is how it works – I get paid this month for the hours I worked last month.  So in July I am being paid for Junes hours.  With that in mind, I thought that meant they took my 5th paycheck of the month out of the same paycheck for the 20th.  I was wrong.  They took the money I was paid on March out of April 20th’s paycheck.  Example:

  • March 5 – draw $2800 from April 20th pay
  • March 20th – Pay from all hours in February
  • April 5 – draw $2800 from May 20th pay
  • April 20th – Pay all hours from March minus March 5th draw of $2800
  • May 5 – draw $2800 from June 20th pay
  • May 20th – Pay all hour from April minus April 5th draw of $2800
  • June 5 – draw $2800 from July 20th pay

Confused?  I was.  In fact, when I was paid that February 20th paycheck, I called payroll and told them they had forgotten to withdraw the money I had gotten on the 5th.  Yeah.  Right.  Free money?  That never happens (or does it…stay tuned).  She explained it was a draw for the future paycheck and, after her going over it a couple times with me, I pretended to know what the heck she was saying and hung up in agreeance.  I decided I would understand it in due time but, alas, it wasn’t until this month that I truly understood her explanation…more on that in a bit.

So – with a twice monthly pay schedule in place, I now had to change my direct deposit allotments as well.  If I had allotted $300 per month to my ESPP, I now had to change my allotment to $150 so each draw would now equal $300 for the month.  If not, I would continue to get $300 per PAYCHECK in turn purchasing $600 a month in my airlines stock…even at a 10% discount that thought was unappealing.  So I went through and changed all of my direct deposits and automatic withdraws to meet the new pay structure.  Done?  No…  The transition was anything but seamless and had me dodging curve balls for the next few months.  Here is how it all went down…

1.  Somehow, something glitched in payroll and they deposited the leftover savings to one of my accounts but not the one I had allocated it to. 

2.  Then, something went wrong with my ESPP and they didn’t deposit anything!  When I called to inquire the lady couldn’t figure out why it hadn’t been deposited but assured me the next month it would…um, so yeah, I missed out on a whole month of contributions.  

3.  Then, one of my other direct deposits started depositing DOUBLE the amount of deposits and essentially giving me free money.  Yes, free money!  I checked my pay stub against the bank deposits and there was extra money unaccounted for.   *This has since been straightened out but, had I not called again, who knows how long it could have gone on for!!  

4.  And, to top it all off, I had to keep on top of delegating my investment fund monies into the proper accounts now 2x a month instead of the one.  Ugh…first world problems  😉

So, yeah, all of this time and frustration was not adding up to saving me from the volatility I was trying to avoid – whether it were my money or my sanity, I was losing it big time.  I needed to smooth the curve once again.  And so I did.  After a few months of experimenting I decided the 2 paycheck deal wasn’t for me.

On June 20th, I set out to undo everything I had done and went back to the single pay period that I had been so used to.  I put in the request and watched the confirmation number pop up…and I immediately relaxed.  The ride of uncertainty was over –  I was home free!!!  For the past 30 days I have been looking forward to my July 20 paycheck.  I planned ahead with a small cushion knowing the July 5th paycheck would no longer be deposited.  I just had to make it through 30 days and I would be rolling in it.  All was going swimmingly…until the 20th came around and I realized my fatal financial flaw…

 I. Forgot. About. The. Draw.  
 
UGH…Remember that nice lady from payroll that I had spoken with on the phone?  Well, I didn’t.  When July 20th came around, I excitedly typed in my bank name and password and scanned the page for my newest payroll deposit.  There was none.  $0.  Zilch.  I forgot to deduct the $2800 from my monthly pay that I had received on June 5th…in turn, I came up short for that account.

  • June 5 – draw $2800 from July 20th pay
  • June 20th – Pay from all hours in May minus May 5th draw of $2800
  • NO JULY 5 PAYCHECK
  • July 20th – Pay from all hours in June MINUS June 5th draw of $2800.
 
Shit, double shit.  Thankfully I had enough to cover all of my usual savings accounts – HSA, ESPP, Savings 1 and 2, and my investment account.  Basically, though my paycheck was not a large one, I effectively saved 100% of it in those accounts.   Unfortunately, that left nothing to go into my checking.  Nothing.  Not a dime.  I had prepared with a narrow margin for missing the 5th paycheck but I had not prepared for missing that one PLUS $2800 from the next.  Adding insult to injury, in July I had some major expenses such as replacing my car radiator ($434), property taxes ($247) that needed paying, and a round trip ticket to Hong Kong that I couldn’t pass up (seriously, $461!!).  All together hat’s a lot of mazuma!!
So what did I do?  First, I flushed with heat and cursed my stupidity.  Next, I took my $940 in cash reserves (AKA an emergency fund) and deposited them to my checking account.  My taxes needed paying and I wasn’t going to incur a late fee.  Then, I took the $800 in my travel fund and transferred it to my checking so I could pay off my entire June statement balance which, thankfully, was only $251.69…momma don’t pay interest.  After that, my credit card balance dropped to $1041 and, it pains me to say, there it will stay until my next pay period on August 20th.  I refuse to pull from my savings and, since the charges were made after the closing date of the last statement, this balance is technically not due until 8/25.  Phew!!  In the meantime, I now have $1200 to get me through the next month including a 4 day road trip to Washington DC with my 93 year old Nana AND a wedding weekend in Lake Geneva, WI… guess I won’t be replacing my box of wine this week!  😦
box-wine
No judgment…via

I have painfully relived this past month for you in an effort to shine the spotlight on the fact that complicating things for a few pennies often times is not worth the time it takes to sort it all out.  Make your life as simple as possible.  Do as I say and not as I did…

Automate everything that you can.
Don’t trip yourself up on little distractions.  

 

Keep it Simple Stupid! 🙂
 
** Have you tried to simplify something that wound up having the complete opposite result?  Please leave a comment so we can wallow in our miseries together…I can’t afford to do much else!  🙂  **

 

5 Frugal Ways to Bust the Summer Heat

A heat wave is crashing down on my home sweet home Chicago for the next few days…and when I say heat I don’t mean that dry heat that all those Phoenix folks are always bragging about.  I am talking about the humid wet blanket kind of heat that wraps itself around you and smothers you to death.  Yes.  It is that brutal.  On the up side, as a long time resident of the nary-a-wind-in-sight city, I have found some frugal ways to keep cool whilst the city melts around me.

Must be wicked hot outside….



1.  Go to the Library!  Free fun for the whole famdamily…books, movies, CD’s, free wifi and interent, magazines, story times, and the list goes on.  One of the best features of the Chicago Public Library system is their museum passes.  You check them out like a book and they give you free entrance to local museums provided you have at least one child under 18 with you.  More info in the link provided above.  Which brings me to #2…
Come visit me!

2.  MuseumsWe have so many great museums in Chicago.  Of course, I have been to most many times over but there is always something new to see or do.  My favorite of the locals are the Museum of Science and Industry (they have a wall of babies, seriously), Chicago History Museum (I love the Chicago fire diorama), and the Art Institute (Picasso’s The Old Guitarist from his blue period is a real treat!).  
Yeah…not me…

3.  Hit the Beach We don’t get much use out of Lake Michigan come once Winter is Coming so it’s best to utilize it during our 90 days of summer.  Find some body of water you live by, wether it be a pool, pond, lake, or ocean, and get your butt out there!  I tried stand up paddle boarding (SUP for the cool kids) for the first time last year and had a blast!  Don’t forget the sunscreen and lots of water…or other types of frosty beverages.  😉
Also not me… 🙂

4.  Netflix and chill…literally…turn on the AC.  Haha – yes, this one is quite obvious to most, however, to my frugal self it is something I rarely do!  You can really adapt to most weather if you’re willing to be uncomfortable for a short time.  I love fresh air so having the windows open is important to me.  Bubba, on the other hand, loves to wear her fur coat year round…even in the house!  I’ve tried to get her to take it off but she is quite insistent and therefor we have had to come to an agreement.  Once the thermostat on the wall says 80 we close the windows and through the AC on.  
5.  Catch up on the 40+ pending posts you have started and not finished…  Oh, wait, that last one was for me!  I will definitely be busy in the next few days building content for my spankin’ new blog.  I hope you enjoy what I come up with and feel free to throw any ideas my way!  I can add them to my soon to be shorter list… 🙂
AND – Things NOT to do when it’s blazing hot outside…
Go to the Mall.  Seriously?  Don’t do this.  You will spend money you don’t have on shit you don’t need and be none the better for it.  If you have an abundance of cash you are looking to blow might I suggest you take your self down to the nearest grocery store, buy a slew of Popsicles, a bag of ice, and a rolling cooler, and roll that puppy down the street handing them out as you go.  If that sounds like too much trouble, try one of these:
  • head to a shelter and help pass out food to the homeless.  
  • Donate an AC unit to a family in need.  
  • Volunteer to walk a dog at a shelter.
There are so many better ways to spend your time and money than a day at the mall.
** So, what are you up to this week?  Dodging any weather bullets like I am?  Have any tips for the hottsy’s (that’s a new term I am coining for the hottest days of the year)?  Feel free to leave a comment and tell me what you’re up to!  🙂 **

Savings Rate Showdown…It’s a biggie!

Did you know that as of December 2015, the average personal savings rate of Americans is 5.5%??!!  Research says that number is on the rise, however, it is still much lower than the long term average of 8.34%.  That’s seriously nutty!  So, if the average American takes home 50K a year after taxes, they only save $2750 a year?!

 OUCH!  Ouch

Now let me preface the following with a few key points:

In terms of debt – I have none.  We’ve already discussed my lack of mortgage but, to add to that, I have never held a credit card balance, I missed out on student loans by skipping college minus a few semesters at a CC, my car is old but paid off and, thankfully, I have been healthy enough to have no past medical expenses…oh, and having no kids helps with keeping my costs down.

Though my debt (or lack of it) looks pretty rockin’, I am not without my financial failures and FICO score fuck ups…but for now, that’s a story for another day.

Ok…back to the showdown…

Let’s look at my savings rate for June:

Total net income: $5,964.81 (includes my work take home pay, 401K + company match, a few Craigslist sales, and a small side hustle).

Total savings: $5,615.28 (includes 401K + company match, Employee Stock Purchase Plan, bank savings, index fund and stock purchases, and HSA).

5615.28 / 5964.81 x 100 = 94.14% which includes my 401K pretax contributions…94.14%!!! 

That’s awesome!  But, unfortunately, not totally typical.  My actual savings rates varies greatly month to month depending on a lot of different factors including yearly and semi yearly bills, Dr visits, vet bills, and car issues.  June happened to be a good month.  My actual half yearly savings rate for 2016 is currently 81.47% including 401K and 76.8% not including it…more on that HERE.  
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As I posted last week, according to Mr Money Mustache, if I can keep this savings rate of 70%+ up, I will be able to retire in appx 6-7 years.  Unfortunately, many things can happen in the next 6 months to 6 years that could make my current bare bones cost of living spike with expenses.  But, dont worry,  I’m not going to worry about the what ifs just yet.  I’m am still going to take a leap of faith and declare that I will be Financially Independent within the next 7 years – this will give me some wiggle room in my calculations (including lots of travel!) and extra time to snowball my savings into the most abominable snowman ever known to man!

Folks, remember – as Paula Pant of Afford Anything recently pointed out – it isn’t always a matter of making more or spending less.  What you really need to keep an eye out for is the difference between the income and the spending.  Mind the gap, which is equal to your savings rate, and the rest will all fall into place!

So… ** Where are you at?  Have you  calculated your savings rate?  How are things looking?  What are you striving for? Feel free to add a comment about your savings rate and any problem areas you might have.  We’re all in this together! **

The Power of the Penny – 1 to 1 Million in 27.5 days!

Some people like to joke that they are worth more dead than alive.  Ummmm, no – no you’re not.  No matter how much insurance you have on your life, when you are alive you still have the power to make money and money MAKES money.  Perhaps your financial worth is less at this moment but it wont always be so…

Think about currency in our country’s smallest form – the penny.  One single cent.  Oh man, the poor penny gets a bad rap.  People leave them behind in tip jars, couches, and tossed on a floor.  I know many people who won’t bend over to pick one up…even when said penny is heads up!  Shame, I say!!  This is FREE MONEY from The Money Gods!!

Ugh… Regardless of what those people may think, the penny has great exponential power – let’s consider it as a jumping off point.  There are so many things you can do with pennies…

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But let’s talk money.  There is a simple concept of taking one penny and doubling it each day.  How long will it take to get to 1 million dollars?  1 month, 1 year, 10 years??  Feel free to do the math but I’ll help you out with the quick answer – somewhere between day 27 and 28 you’ll have reached one million.  Here it is in black and white:

Day 1: $.01
Day 2: $.02
Day 3: $.04
Day 4: $.08
Day 5: $.16
Day 6: $.32
Day 7: $.64
Day 8: $1.28
Day 9: $2.56
Day 10: $5.12
Day 11: $10.24
Day 12: $20.48
Day 13: $40.96
Day 14: $81.92
Day 15: $163.84
Day 16: $327.68
Day 17: $655.36
Day 18: $1,310.72
Day 19: $2,621.44
Day 20: $5,242.88
Day 21: $10,485.76
Day 22: $20,971.52
Day 23: $41,943.04
Day 24: $83,886.08
Day 25: $167,772.16
Day 26: $335,544.32
Day 27: $671,088.64
Day 28: $1,342,177.28

Not bad!!  Again, that is precisely why I stick with my money mantra – a million dollars starts with one cent!!  The power of the penny is HUGE! 

So, what have we learned today?  With the ability to earn money, you are no longer aloud to make the statement that you are worth more dead than alive.  Take this little idea and build on it.  Go find a side hustle or work some extra hours.  Build upon each penny and be mindful of how you invest it.  After all, Einstein was on to something when he said:

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t, pays it.”
Now go out there and earn it!!

** What math tricks have you used to motivate people to save?  I love how simple this is but how huge the impact!  Share with me a tip or trick you’ve learned along the way. **

Being Thrifty With Spendy Friends

Ugh – I made my friend cry.  And not the single tear shed type of cry but a weepy, snotty, high pitched squealy type of balling that can make some recoil in horror.  Mind you, these tears came a flowin’ after her polishing off a bottle of wine so regardless of the topic I am pretty sure the end result was inevitable…

Anywho, here’s how it went.

Her – Girl, I miss you!!  We need to hang out like this more often!

Me – Yes, we do!  But, I have to be honest, as much as I love seeing you, I can’t afford to hang out with you!  Every time we go out I come home with a spending hangover that takes me days (sometimes weeks) to recover from. 

Now her eyes start to tear up…

Me cont… – Well, that’s not true.  It isn’t that I can’t afford to go, I just choose to spend my money in different ways.  And that’s ok!  I have asked several times if you want to go for a walk or Ill bring wine up to your pool deck and we can hang and chat, but you always want to go out instead.  Going out like you do (everyday) is a major splurge for me and my lifestyle so it is something I have to limit myself in doing.

Her eyes are spilling over and the lip is quivering…here it comes!

Her – But we all have the same job and make the same amount of money!  I am sick of people saying they can’t afford to go out with me!!!

Apparently, I am not the only one telling her this…

Me – Yes, we all make the same amount.  But we all choose to spend it differently.  You like your nice centrally located apartment with the finest of furnishings, lovely labeled clothing, and fine meals out.  I love hanging with my dog, travelling on a dime, and my small Ikea furnished condo off the beaten path.  I love to cook and drink wine from a box (it’s a new thing I’m testing and although I love the environmental impact of less bottles and packaging, I am still not sold on the wine itself).  So we have a lifestyle conflict.  Of course, we are still friends, but I need to be more ME in this friendship.  

Now – if it wasn’t for our other friend at the table backing me up, I am pretty sure she would have gotten up and walked out.  But she didn’t and so the conversation continued.  We assured her that we love her no matter what but we were making choices in our financial lives that no longer align with hers (not that mine ever did but softening the blow in these situations is a more effective approach).  Our friend just had baby #2 and I am within 6 years of financial independence.  Those are OUR priorities.  She took a moment to listen and then declared:

Her – Well, I have chosen to live in the moment.  

Me – And I LOVE that about you!!

End scene.

All she needed was to realize that she was making a choice as well.  Now that she has a mantra, she will be able to go out and feel good about the choices she is making – regardless of what others think.  And besides my favorite money mantra, A million dollars starts with one cent, I have adopted a revised version of hers…

I will live in the moment provided I won’t regret it in the morning.  🙂

** Have you made a friend cry or do you have any spendy friends you are avoiding?  Have you made it work with them in another way?  Share your knowledge!!  I feel I may be up for round two with this friend in the months to come! 🙂 **

Thanks, Money Gods!

One of my money mantras that I constantly repeat to others is simple yet effective:

A MILLION DOLLARS STARTS WITH ONE CENT. 
So in following this, whenever I see a penny on the ground I pick it up. Not only do I pick it up but I also say “thank you” out loud and in earnest.  Of course, if it’s a nickel, dime, or quarter my “thank you” is at a higher decibel and excitement level.  It may be embarrassing to those around me but I don’t much care – this is my form of gratitude to the Money Gods and it feels important to show my appreciation out loud…and let me tell ya, it works!  Tonight they showed THEIR appreciation for MY appreciation by putting me in the way of this little green monster…
Bubbas paws – not mine. 😉

 

Um – yeah – I let out a little whoop!

And this isn’t the only 10 spot I found this summer. A few weeks back after a long and grueling hot hike, I spotted another $10 while crossing the street. Similar to today’s, it was sitting there as if it had been placed just for me!  How exciting!!

So there it is…Be grateful for each and every cent and you will be rewarded with money from the sky.

**  Have you found any bonus money lately?  Do you have a money mantra or ritual you follow?  Drop a line and share your story! ** 

7 Ways To Achieve Financial Independance

I am frequently asked how prioritize my savings.  And I frequently ask myself if I am taking the best course of action.  Well, I think the proof is in the pudding.  

Last year was my first introduction to the FIRE (Financial Independence and Early Retirement) movement.   I’m not sure which blog or blog post I read that lit my own fire, but I know the result was to set some new goals.  First on my list was to challenge myself to max out my 401k.  That was a big undertaking – it isn’t like money was falling from the sky…


It would have been much easier if I had had this stroke of genius at the beginning of the year, however, it took my mind some time to wrap my brain around socking away 18,000 dollars!!  That’s a lot of cabbage!!  I was already contributing 10% but in the last quarter of 2015 I had to up that to 30% to make it work out.  My new goal amounted to a few tough months but they were totally worth the sacrifice in the end.

With the new challenge, I also began saving more in general.  I started unplugging things in the house, I stopped being wasteful of food and other resources, I stopped buying stuff, and in November I opened an investment account with the extra savings.

Here was my financial plan of attack.  There are may ways to prioritize so by no means is the end all and be all, but here is what I suggest:

  1. Get an emergency fund together.   If you have debt as well as no savings, start small with your savings $50 a month or per paycheck until you reach $2k (I know this is double the Dave Ramsey amount) and put the rest towards debt.   Keep this money in a regular bank account or somewhere with easy access should you need it.  Don’t worry about the interest rate and do NOT invest it!!  AFTER your debt is gone – I think it is important to have at least 6 months worth of you monthly INCOME stashed away.  Not 6 months of living expenses.  If you were to lose your job or get hurt, you want to be able to live for 6 months as if nothing has happened to include continuing to build your savings.
  2. Contribute to your 401k.  If your company offers a 401k and a match, meet their match to 100%.  If they don’t offer a match, contribute at least 10% regardless.  If you can’t manage 10% start at 5% and work your way up.  If no 401k is offered then start an IRA of your own – see #5.
  3. If you have debt – start paying it off in earnest.  Pay at LEAST the minimum amounts but add every extra bit to get rid of this monkey on your back.  If it is a lot of debt, call the credit cards directly and try to negotiate a lower balance.  TIP:  If they hear you are thinking of transferring your balance after receiving a competitors 0% balance transfer offer, they will play ball so you better learn to catch! 🙂   Once you are done paying them off, try to only buy what you need.  I prefer to say don’t use credit, but credit is not a bad thing if you pay it off every month in full.
  4. Open an investment account and start to build a nest egg.  Start small – $50/month.  Invest in low cost index funds.  As I already stated, I am somewhat bias towards Vanguard (VTSMX or VTSAX) but also have accounts with Fidelity, TRowe Price, and Schwab.  Opening these accounts may require a minimum deposit so build it in your savings account until you have enough.
  5. Open a Roth IRA (if you qualify) – try to max it out!  $5500 as of 2016
  6. Go back to your 401k and max it out.  18k as of 2016
  7. Go back to your investment account and save save save!!
 
Thing you shouldn’t do that I fell victim to – individual stocks.  There is no point.  The index funds will usually out perform in the long run without fear of losing it all.  Simplify your investment plan so it can run on autopilot.  

That’s it!  I know it can be overwhelming, especially if you have step #3 to deal with, but it can be done.  Just know it will not happen overnight.  They say the first million is the hardest – let’s just start with $100.  Then $1000, then $10000.  You will see how quickly the ball will roll forward.

*** What is your plan of attack to saving/investing?  Still working on debt?  Do you have any tips for other readers on managing debt?  Feel free to leave a comment and share your thoughts! ***