Money Basics

Apache is functioning normally

What a long, strange couple of months it’s been for me. On the blog, things have been quiet. Behind the scenes, I’ve been as busy as I’ve ever been.

The good news is that this busy-ness will (eventually) lead to a number of interesting articles. I’ve been reading Cal Newport’s Deep Work, for instance, and have some thoughts on it. I’ve been thinking about the concept of “no speed limits”. Shocking but true: I’m going to write an article about my primary credit card. And I’ve been reading and writing a lot about “doing nothing”.

Today, though, I want to clear my head (and my inbox) by sharing five short financial anecdotes.

In the past month, I’ve had probably twenty deep discussions about personal finance and personal values. While some of these conversations lead to bigger things (like the three articles I mentioned above), most don’t. But they still produce intertesting concepts and ideas. They sometimes lead me to make changes.

Here are a five money-related topics that don’t (yet) warrant articles of their own, but which I still find interesting (and worth sharing).

Going With Google

During my ten days in Portugal for the FI chautauqua, cell phone service was a common topic of conversation. Some folks didn’t have any. Others were paying a small fortune just to get a tiny bit of data from their provider.

There were two types of people who didn’t have any trouble with their cell service in Portugal: those who use T-Mobile and those who use Google FI.

“What’s Google FI?” I asked. I’d never heard of it.

“It’s Google’s cell service,” Owen said. “It’s cheap and has lots of features, but you can’t use it with Apple phones.”

“Actually, you can,” Bill said.

“But the website says it doesn’t work with iPhones,” said Owen.

“The website is wrong,” said Bill. “I’ve been using it with my iPhone for months with no problems — even here in Portugal.” He showed us his phone and explained how much he liked Google FI.

“I’ll look into,” I said. And I did. Here’s what I learned:

  • Kim and I currently spend $117 (plus taxes and fees) for our shared T-Mobile plan. This gives us a limited amount of high-speed data (although plenty for normal needs), plus service for my Apple Watch. (When the watch dies, I don’t plan to replace it, so eventually that’ll save us ten bucks per month.)
  • If we were to move to Google FI, it’d cost us $120 per month (plus taxes and fees). That’s roughly the same price, obviously, with no real advantages. (We’d have access to more high-speed data, although we rarely need that. Plus, we’d get Google One, whatever that is.) And it doesn’t include service for my watch.

My conclusion? For T-Mobile customers like us, moving to Google FI doesn’t make much sense. But I suspect many people ought to consider their service.

Meanwhile, we’ve been struggling with our wireless network here at home. Although Apple no longer makes wireless networking equipment, our network is built with routers from when they did sell the stuff. Some of these routers are now a decade old (or possibly older). We have four of them.

For whatever reason, our network is constantly going down. It’s frustrating. It’s quite common that three of the routers will be up while a fourth will arbitrarily decide to stop working for a few days. (And when we changed the network name last spring? Nightmare!)

While visiting MMM HQ last weekend, I noticed that Pete uses the Google Mesh system to provide service in his co-working space. “Do you like it?” I asked. “I’ve heard other people rave about Google Mesh, but I don’t know anything about it.”

“It’s awesome,” he said. “Totally trouble-free.” So, I’ve ordered a starter set of Google Mesh devices. They’ll arrive tomorrow. I have high hopes that this will cure our wifi headaches.

Taming the Email Beast

After returning from my nineteen-day trip to Portugal, Wisconsin, and southern California, my email inboxes were swamped. (I have five separate gmail accounts. Crazy, right?)

Naturally, I complained about the situation on Facebook. My friend Charlotte sent me a private message: “Do you have time to hop on a video call?” she asked. “I’ll show you a way to tame your email.”

Charlotte spent twenty minutes walking me through an email system she recently adopted. It effectively divides your gmail inbox — and yes, you have to be using gmail — into five different inboxes, each of which is themed. Once a day, you tackle your main inbox, routing messages to sub-inboxes. Then, when you have time, you work through the other inboxes.

This is a minor change to the way I do things (and admittedly it mostly delays messages to later), but it’s effective.

I send myself email twenty times each week. It’s my note-taking system. It’s how I offload things from my brain. This is great…except that my inboxes tend to get flooded with book recommendations, article ideas, and reminders of upcoming events. It’s a mess. Using this system, I can still send myself messages, but I’m now able to flag these messages so they’re routed to the appropriate sub-inbox.

I’ve been following Charlotte’s advice for two weeks now, and I like it. It hasn’t solved my email woe, but it’s mitigated the problem substantially.

Dozens of Credit Cards

Last weekend, Kim and I flew to Colorado to celebrate the birthday of a certain mustachioed friend. While there, I had several memorable conversations.

For instance, I chatted with Amy from Go With Less about how she and her husband play the credit-card game. They have an insane number of cards — 34? 43? I can’t remember the exact count — and over three million credit-card points.

While our conversation touched on topics like manufactured spending (a concept that blows my mind and angers card issuers), I was more interested in how and why Tim and Amy juggle dozens of credit cards. Doesn’t this hurt their credit score? Turns out: No. Because they pay bills on time and never cancel cards, they have nearly perfect credit.

Here’s a video in which they address this topic:

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I wanted to ask Tim and Amy more about their crazy credit-card fueled lifestyle, but I didn’t have the chance. I look forward to picking their brains more in the future, though.

Health Shares for the Non-Religious

Last weekend, I also had a conversation with Ben, who famously gets his cars for free. Ben is super smart and doesn’t accept the status quo. He’s always looking for ways to challenge the system in order to make the most of his money.

Lately, he’s been doing this with healthcare.

For many people who have retired early, health insurance is thorny issue. It’s expensive. Take my case, for example. I pay $403 per month for shitty coverage. This year, I’ve met my $7900 out-of-pocket max, which means I’ll have spent $12,736 (plus co-pays and prescriptions) when the dust settles. I hate the U.S. healthcare system. It’s insane.

Well, Ben too thinks it’s insane. Rather than complain about it, though, he’s been seeking creating solutions.

“Have you looked at health-sharing ministries?” Ben asked me on Sunday morning. “They can be a great way to cut costs.”

“I have,” I said. “But they all require a statement of faith, which I’m not able to give.”

“I had the same problem,” Ben said, “so I searched for alternatives. I found Sedera. It’s basically the same as a health-share ministry. You still have to agree to abide by certain principles, but they’re not based on a religion.”

“Is it affordable?” I asked.

“Yes,” he said. “I’m paying $200 per month per person for my wife, my daughter, and myself.”

“That’s not bad,” I said.

“But here’s the thing,” Ben said. “Sedera is designed to work with a direct primary care physician.”

“A what?” I said.

“A direct primary care physician is just what it sounds like. It’s a doctor that you work with directly without a third-party intermediary. That means the doctor bills you directly, not an insurance company. When you combine this with a health-sharing program like Sedera, it’s a cost-effective alternative to traditional insurance.”

“Kim and I have an appointment to talk with an insurance broker next week,” I said. “I’ll have to look into this as an alternative.”

“Do it,” Ben said. “You won’t regret it.”

Downgrading My Motorcycle

Lastly, here’s a topic that comes from several different conversations and a lot of soul-searching on my part.

When Kim and I started dating, I was surprised to learn that she was a motorcycle enthusiast. After she bought her father’s bike from him, I decided to learn to ride myself.

I started with a low-power Honda Rebel, which was perfect for my needs. Then, a couple of years ago, I made an impulse purchase: I upgraded to a Harley-Davidson Street 750. The new bike gave me the power to keep up with Kim on long trips. (The little Rebel was always falling behind on the highway.)

Turns out, though, that for day-to-day riding, I wish I had my Rebel. Kim and I don’t make many long trips — about one per year. And when we do, I’m fine falling behind. I’d rather have a quick and easy bike for running errands or zipping downtown. My Street 750 is not the right bike for this. It takes a long time to gear up and get the Harley ready to go.

I’ve spent the past year trying to figure out my best move. I’ve talked with a lot of friends and considered several options. Do I just stick it out with the motorcycle I have? Do I buy a new Rebel? Do I do something else?

After much thought and contemplation, I’ve decided that my best plan for the motorcycle situation is three-fold:

  • Sell the Street 750. Use the proceeds to purchase two replacements.
  • Buy a (used?) scooter to use for errands and running downtown. Kim plans to sell her motorcycle, so long trips are no longer an issue. I want something quick and easy to ride. I want to be able to get on the bike and go.
  • Buy an electric bike for use around home. I already own a bike, but as I’ve mentioned before, I don’t ride it. For one, I am fat. For another, we are surrounded by hills. MMM has urged me to look into Rad Power electric bikes.

Making this move — which likely won’t happen until the spring, when people are looking for motorcycles — is much more aligned with my values and lifestyle. Currently, my motorcycle mostly gathers dust. I ride it maybe 1000 miles per year. I’d ride the scooter more often, and the electric bike would get me out slicing through these hills for exercise!

What about you? What financial conversations have you been having with your friends? What minor money moves are you making in your life?

Source: getrichslowly.org

Apache is functioning normally

Every time I get my hair cut, I’m faced with a dilemma — should I tip the barber or not? I usually get my hair cut in a small-town shop. I tip $2 on a $12 haircut. If I get to hear stories about Vietnam or histrionic political rants, I tip $3, even if I don’t agree with the barber’s viewpoints. (I tip because I’ve been entertained.) Sometimes, if I don’t have enough cash, I don’t leave a anything at all. Are these tips appropriate?

What about when I pick up Chinese takeout? Should I have tipped the guys who delivered our new gas range last fall? What about a hotel bellhop? A parking valet? Out of curiosity, I did some research on tipping practices in the United States. There’s actually significant disagreement about how much to tip for even common services.

For example, you know you should tip your waitress. But how much should you leave? Some people claim that 10% is adequate. Others claim that 20% is standard. But I suspect that most of us learned to tip 15%, and to give more for exceptional service. (The wikipedia entry on tipping currently contains the bizarre claim that “18% is generally accepted as a standard tip for good service”.) Which amount is correct?

The concern around tipping stems from the need to get it right — offer too little, and you run the risk of offending someone; offer too much, and you needlessly impact your budget. Plus, there’s actually significant disagreement about how much to tip for even common services.

After browsing dozens of pages, I drafted the following guide. The amounts listed are based on averages or on consensus, when possible.

“Tip: (noun) — a small present of money given directly to someone for performing a service or menial task; gratuity” — Dictionary.com

Food Service

It’s common knowledge that you should tip your waitress. But how much should you leave?

Some people claim that 10 percent is adequate; others believe that 20 percent is standard. But a majority of us learned to tip 15 percent, and to give more for exceptional service. (The Wikipedia entry on tipping contains the rather bizarre statement that “18% is generally accepted as a standard tip for good service.”) So which is it?

Service

Tip Suggestion

Comment

Barista

None

Many people suggest putting coins in the tip jar.

Bartender

15% of total bill or $1/drink

Pre-tip for better service

Delivery Person (including pizza)

10%

$2 minimum

Maitre d’

$5

(… up to $25 for special effort)

Takeout

None

None

Waiter

15% for adequate service

20% for exceptional service. For poor service, leave 10% or less.

General holiday tipping guidelines

  • Holiday tipping is never required. Even when it’s the social norm, you shouldn’t tip if you can’t afford it or you don’t feel the person deserves it.
  • Tipping tends to be more common (and on a larger scale) in big cities than in small towns. The best way to determine the etiquette in your area is to ask around.
  • In general, you should consider giving a holiday tip to the folks who take care of your home and family, especially those you see often. The more often you see someone and the longer you’ve known them, the more you should tip. (Someone who works in your home regularly — such as a housekeeper — usually expects a tip.)
  • For personal services like manicures, massages, pet grooming, and fitness training, tip up to the cost of one session, but only if you see the same person regularly. For example, if you get a $60 massage every six weeks, your holiday tip should be about $60.
  • Public servants are not allowed to accept cash tips in the U.S., but it’s acceptable to give a non-cash gift of up to $20. You might give a plate of cookies to your mail carrier, for example, or a book or a gift certificate to your child’s teacher.
  • When you give a tip, include a card or a hand-written note thanking the person for their service.
  • If you tip cash, crisp new bills make a better impression than old wrinkly ones.

Home Care Service

Here’s a list of people who often receive holiday tips and what they typically receive:

Service

Tip Suggestion

Comment

Babysitter or Nanny

One week’s pay

None

Housekeeper

One week’s pay

None

Building Superintendent

$20 – $100

It varies. Some people think this helps to keep a harmonious relationship with the super.

Doorman

Holiday gift

Bottle of wine

Furniture Deliverer

$5 – $20

It varies. Some people recommend offering cold drinks.

Garbage Collector

$15

(… up to $25 for special effort)

Gardener

One week’s pay

None

Mail Carrier

$15

(… up to $20 non-cash.)

Newspaper Delivery Person

$15 to $25

(… up to $25 for exceptional service.)

Personal Care

Service

Tip Suggestion

Comment

Babysitter

One week’s pay

It varies. Don’t pay this for one-time babysitting.

Barber or Hairstylist

10-15% or 15-20%

Some people recommend $5 to each person who shampoos or blow-dries your hair, and others recommend up to the cost of one visit for the holidays.

Coat checker

$1 per coat

It varies. Some people recommend $2 to $5 upon retrieval.

Home Health Employee, Private Nurse or Personal Caregiver

(… up to a week’s salary)

Check with the agency as some prohibit gifts.

Manicurist

15%

None

Masseuse

10%-15%

None

Nanny

One week’s pay

None

Personal Trainer or Yoga Instructor

$20-$50

Tip discreetly.

Shoe Shiner

$2 or $3

None

Spa Service

15-20%

None

Office Service

Service

Tip Suggestion

Comment

Janitor

$15-$25

None

Parking Attendant

$15-$25

None

Travel

Service

Tip Suggestion

Comment

Bus Driver (not mass transit)

$1-$2

(… if he handles luggage.)

Cab Driver

10%

($2-$5 minimum)

Chauffer

10%-15%

None.

Gas Station Attendant

None

(or $2 -$4 – there’s no agreement on tips).

Porter or Skycap

$1 per bag

(… $2 for heavy items, if the porter brings luggage to counter)

Hotel Staff

Service

Tip Suggestion

Comment

Bellman or Porter

$1-$2 per bag, $5 minimum

Or $1 per bag, $2 minimum

Concierge

$5

(… up to $20 for something exceptional; nothing for directions.)

Housekeeper

$2-$5 per night, paid daily or as a lump sum at checkout

Most suggest you tip daily.

Parking Valet

$2-$5 paid when your car is retrieved

Some say to pay when it’s parked too.

Room Service

$5 minimum

(unless the gratuity is included in check)

Most of these relate to holiday tipping, but some suggestions are appropriate any time of year. Of course, giving a tip is an individual decision. J.D. Roth used to tip the barber extra if he got to hear an entertaining story about Vietnam or histrionic political rants. What influences you to give a larger or smaller tip? Do you have any suggestions to add?

Source: getrichslowly.org

Apache is functioning normally

Friend-of-the-blog Wilhelm texted me this week:

I’m actually trying to pay off the house in 10 years while simultaneously growing our tax-free account to the equivalent amount of today’s mortgage. It’s a trial run of the “work hard when the baby is young and won’t remember a damn detail about those vacations anyway” double-whammy tactic.

Dumb?

The one problem is that I literally have no money left for today’s fun money, but my adventures can be quite local and free for entertainment while the baby is growing up.

Wilhelm

Wilhelm is faced with the eternal struggle of personal finance. Many choices, fewer dollars. How do you balance:

  1. Fulfilling today’s necessities
  2. Enjoying each day you’re given (and spending some money to do so)
  3. Achieving long-term goals

A dollar can only be spent once. Once spent, it cannot be saved. What to do? We struggle with today’s choice only to discover it might not apply tomorrow, dragging us back down the hill to decide all over again.

There are various rules of thumb to give us a starting point. But ultimately, this topic puts the personal into personal finance.

Rules of Thumb

One of the most common “rules of thumb” for balancing your spending is the 50/30/20 rule. It states that:

  • 50% of your income should go toward needs (housing, food, transportation, insurance, bills, utilities, etc.)
  • 30% should go toward wants (travel, entertainment, dining out, hobbies)
  • And 20% should go toward saving (emergency fund, long-term investing)

It sounds like Wilhelm is currently executing a 70/0/30 budget. All needs and saving, zero wants. Surely that can’t be ideal?!

Getting Flexible on the Mile High Club

But the 50/30/20 rule was designed for the faceless masses, not for unique individuals. It’s just like the apocryphal story of the U.S. Air Force’s initial fighter jet designs: when you design for the average, nobody fits. Instead, you need to have flexible designs.

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Wilhelm is unique. As are you. There are a few important highlights in Wilhelm’s note:

  1. “It’s a trial run.” He’s experimenting. He’s not locked in forever. He’s being flexible!
  2. “Adventures can be quite local and free.” So true. An alternative to expensive fun is free fun. What a great (and flexible) mindset.

While the 50/30/20 framework is a starting point, it’s not the finish line. My honest feedback for Wilhelm was this:

There’s nothing wrong with budgeting trials, including those that trim your fun money down to zero. The real work is stepping back to examine your life and ask, “Am I happy with this? Or does it suck?”

Each and every one of us could exclusively eat rice and beans for every meal. It’d cost $20 per week. What a financial win! But would we be happy with that? Or would it suck? I know my answer…

That’s the struggle. Step back, review your life, your choices, your happiness…are your financial decisions bringing you some joy?

Are you in the “Valley of Drudgery?” Of floating on the “Sea of Simple Pleasures?”

We need to understand the math, too. For example, Wilhelm wants to pay off his mortgage in 10 years. The mortgage interest rate is a vital component of that “early payoff” calculus.

If Wilhelm has a 7% interest rate (thanks, 2023), his debt payoff makes sense financially. But if he only has a 2.5% rate (hey there, 2021), the math would point him away from early payoffs. The psychological relief of debt payoff exists in either case, but the financial math differs greatly.

Further reading: The Simple Math of the Mortgage vs. Invest Debate

[For example: rather than pay off a 2.5% debt, Wilhelm could instead deposit those additional payments into a money market fund earning close to 5% as of this writing.]

Further reading: An Easy $4600 From Money Market Funds

Every financial decision comes with pros and cons and opportunity costs. The eternal struggle of personal finance is evaluating those many options and choosing a single financial plan to execute…at least for today. The plan can (and should) stay flexible for the future.

Know the math, know thyself, and make a choice you feel is in your best interest.

Thank you for reading! If you enjoyed this article, join 6500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

Want to learn more about The Best Interest’s back story? Read here.

If you prefer to listen, check out The Best Interest Podcast.

Source: bestinterest.blog

Apache is functioning normally

Table of Contents
show

Highlights and Takeaways

  • The average millennial is 35 years old, earns $54,000 per year, and has a net worth (including any home equity) of around $130,000
  • 45% of millennials have student loan debt, with an average balance of $40,600
  • 52% of millennials are homeowners, with a majority of those home purchases occurring over the past 5 years
  • 55% of millennials have children, with a total U.S. birthrate in 2021 of 1.66 children per woman (it takes 2.00 children per woman for the population to replace itself, so we might be in trouble there…)
  • There are simple steps you can take to become better-than-average financially, including focusing on increased income, measuring your monthly cashflows, using tax-advantages investing vehicles, and more.

The Stats

I’m a Millennial. Many of you reading this are too. Millennials – also called Gen Y – are people born between 1981 and 1996. The average millennial is currently 35 years old.

Let’s walk through some vital financial statistics for American millennials. Then we’ll talk about how we can improve our own financial life to become above average.

Using income data and net worth data from the website DQYDJ, we can see that the average 35-year-old earns $55,000 per year and has a net worth (including home equity) of $130,000.

If we add in data from this Business Insider article, we also learn:

  • Just under half of American millennials have student loan debt. Roughly 45% of millennials have loans, with an average remaining balance of $40,600.
    • I’m sure this data skews younger. The oldest millennials are 42 years old, while the youngest are 27. Not only have college costs continued to rise in the past 20 years (affecting younger Millennials more than older), but there’s also the plain fact that older millennials have had more time to pay their loans off.
  • According to a RentCafe study, 52% of millennials own a home.
    • 18.2 million Millennials now own, or share ownership in, a home, vs. 17.2 million millennial renters (note: this data looks at the 110 largest American metro areas, thus does not include all millennials)
    • Again, this data likely has an age skew. The chart below shows how millennial homeownership first increased in the early 2000s – when the youngest millennials were still in elementary school. The oldest millennials have had a long time to buy.
    • That said, 7.1 million millennials became homeowners in the past 5 years (including yours truly). More and more younger millennials are looking to purchase homes.
    • An important caveat…home ownership might be the so-called “American Dream,” but it’s not mathematically optimal for all people, nor a great investment in general. I’m a huge proponent that your primary home is “a home first, an investment second.” You need a place to raise a family. You don’t need a 7% real return on investment.
  • According to an older (2019) Pew Research study, fewer millennials are starting families than previous generations. Pew found that 55% of millennial women had had a live birth, compared to 62% of Gen X women and 64% of Baby Boomer women in the same age range.
    • What does this have to do with personal finance?
    • First, kids are expensive. Having kids is financially challenging. And not having kids can be a symptom of an already-challenging financial life e.g. “I’m not having kids because I couldn’t afford to give them a good life,” or, “My goddamn student loans were so high we delayed having kids by 5 years.”
    • Second, birthrates drive economies. Children grow into adults – who work, consume, and oil the economic machine. Personal finance is tied to that economy.

How to Be a Better-Than-Average Millennial…At Least Financially

What can you do to rise above the average?

First, adopt a stoic mindset. If you’re “worse” than average, you’re not a bad person. And whatever happened in the past – those events that brought you to this moment – is immutable. You can’t change it. All you can do is forge on and blaze a better trail ahead.

So let’s blaze that trail.

Salary and net worth are easy-to-measure metrics, so let’s start there.

Improving Your Salary

One of the worst pieces of financial advice I see all too often is, “Did you consider increasing your income?” …as if there are raises hiding in your office cabinets if only you’d look for them!

The better advice, instead, is encouragement that you can increase your income. You just need the right approaches and tactics. What are some examples?

  • Talk to your manager. Is there a path for increased pay in your role or at your company? Ask them: what does that path look like? Get them to agree that if you follow the path, a pay raise will follow.
  • More education. Maybe there isn’t a positive path at your current job. It’s a dead end. You need to find ways to get on a better path, and further education is highly effective. BUT! You need start with the end in mind. Get a degree or certification that will truly further your career and your income. Computer science? Yes. Underwater basketweaving? Not so much.
  • Look outside your current role, too. One of the fastest ways to higher pay is by switching jobs. Or using a potential job switch to negotiate a raise.
  • Side hustles can work. But choose carefully. I know too many Uber drivers who, if they ran the numbers, would realize their side hustle barely pays them minimum wage.
Getting some inflation-adjusted raises would help, too…

Increasing Your Net Worth

Salary is a one-trick pony. All it measures is incoming cashflow in. Net worth is far more comprehensive, as it’s a function of:

  • inbound cashflow
  • outbound cashflow
  • changes in asset values (e.g. investment growth)

There are many ways to increase your net worth, most of which are within your control today (unlike increasing your salary, which might take years to successfully execute).

  • Learn from the #1 lesson I’ve found from the various financial experts I’ve interviewed on my podcast:
  • Measure your cashflow – a.k.a. budgeting. You can’t manage what you don’t measure. The only way you’ll ever decrease your spending is if you measure your spending. You need a budget – it can be detailed, or simple. But you can’t not have a budget.
  • Follow the financial order of operations. Learn how to prioritize your financial to-do list.
  • Put in more “work” to combat financial disorder. You’ll need to read this article for context.
  • Remove the negatives. Personal finance is a “negative art.” Increasing your net worth is more about avoiding mistakes than taking huge steps forward.
  • Bucket your money, then put it to work. Determine the timeline for the various expenditures in your life, then invest the money you don’t need in the short term.
  • Take advantage of tax advantages and “free money,” like 401(k) or Roth IRA accounts.

Housing and Kids

How can you be “better-than-average” in terms of housing and children?

If you’re thinking, “Homeowner plus 3 kids is better than renter with zero kids,” I think you’re doing it wrong. Instead, consider the financial (and more importantly, non-financial) acumen that goes into making those decisions.

For example, I think rent vs. buy calculators – like this one from Nerdwallet – are fantastic tools. If the math points you toward renting, then rent. There’s no race to be a homeowner, nor do I think homeownership is intrinsically good. “Better than average” doesn’t apply here.

But I think it’s more important to look yourself in the mirror and be honest with answers like:

  • How many years do I plan on living here?
  • Do I love this house? This neighborhood? This school district?
  • If this home never appreciates in value, am I ok with that?
  • Or the alternative: Since rent doesn’t build equity, am I ok “throwing my money away” in exchange for flexibility and less responsibility?

Children are even more personal and less financial. The only major financial question, in my opinion, is: do we have the financial means to provide for this child? Every other important question is personal.

Again, there’s no such thing as “better than average.” Instead, I see child-rearing in a binary way: are you giving your children a good home? Or not?

If you are, then you’re doing it right. Whether you have 10 kids or 1, you need to give them a good home. What’s a “good home” vs. a “bad home?” Everyone’s opinion will differ. But you know it when you see it.

Millennials are getting their financial life in order. It’s a wonderful thing. And through smart, patient personal finance decisions, you can carry on to become a “better-than-average” financial millennial. Investing in knowledge is a great place to start.

Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

Want to learn more about The Best Interest’s back story? Read here.

If you prefer to listen, check out The Best Interest Podcast.

Source: bestinterest.blog

Apache is functioning normally

Table of Contents
show

Highlights and Takeaways

  • The average millennial is 35 years old, earns $54,000 per year, and has a net worth (including any home equity) of around $130,000
  • 45% of millennials have student loan debt, with an average balance of $40,600
  • 52% of millennials are homeowners, with a majority of those home purchases occurring over the past 5 years
  • 55% of millennials have children, with a total U.S. birthrate in 2021 of 1.66 children per woman (it takes 2.00 children per woman for the population to replace itself, so we might be in trouble there…)
  • There are simple steps you can take to become better-than-average financially, including focusing on increased income, measuring your monthly cashflows, using tax-advantages investing vehicles, and more.

The Stats

I’m a Millennial. Many of you reading this are too. Millennials – also called Gen Y – are people born between 1981 and 1996. The average millennial is currently 35 years old.

Let’s walk through some vital financial statistics for American millennials. Then we’ll talk about how we can improve our own financial life to become above average.

Using income data and net worth data from the website DQYDJ, we can see that the average 35-year-old earns $55,000 per year and has a net worth (including home equity) of $130,000.

If we add in data from this Business Insider article, we also learn:

  • Just under half of American millennials have student loan debt. Roughly 45% of millennials have loans, with an average remaining balance of $40,600.
    • I’m sure this data skews younger. The oldest millennials are 42 years old, while the youngest are 27. Not only have college costs continued to rise in the past 20 years (affecting younger Millennials more than older), but there’s also the plain fact that older millennials have had more time to pay their loans off.
  • According to a RentCafe study, 52% of millennials own a home.
    • 18.2 million Millennials now own, or share ownership in, a home, vs. 17.2 million millennial renters (note: this data looks at the 110 largest American metro areas, thus does not include all millennials)
    • Again, this data likely has an age skew. The chart below shows how millennial homeownership first increased in the early 2000s – when the youngest millennials were still in elementary school. The oldest millennials have had a long time to buy.
    • That said, 7.1 million millennials became homeowners in the past 5 years (including yours truly). More and more younger millennials are looking to purchase homes.
    • An important caveat…home ownership might be the so-called “American Dream,” but it’s not mathematically optimal for all people, nor a great investment in general. I’m a huge proponent that your primary home is “a home first, an investment second.” You need a place to raise a family. You don’t need a 7% real return on investment.
  • According to an older (2019) Pew Research study, fewer millennials are starting families than previous generations. Pew found that 55% of millennial women had had a live birth, compared to 62% of Gen X women and 64% of Baby Boomer women in the same age range.
    • What does this have to do with personal finance?
    • First, kids are expensive. Having kids is financially challenging. And not having kids can be a symptom of an already-challenging financial life e.g. “I’m not having kids because I couldn’t afford to give them a good life,” or, “My goddamn student loans were so high we delayed having kids by 5 years.”
    • Second, birthrates drive economies. Children grow into adults – who work, consume, and oil the economic machine. Personal finance is tied to that economy.

How to Be a Better-Than-Average Millennial…At Least Financially

What can you do to rise above the average?

First, adopt a stoic mindset. If you’re “worse” than average, you’re not a bad person. And whatever happened in the past – those events that brought you to this moment – is immutable. You can’t change it. All you can do is forge on and blaze a better trail ahead.

So let’s blaze that trail.

Salary and net worth are easy-to-measure metrics, so let’s start there.

Improving Your Salary

One of the worst pieces of financial advice I see all too often is, “Did you consider increasing your income?” …as if there are raises hiding in your office cabinets if only you’d look for them!

The better advice, instead, is encouragement that you can increase your income. You just need the right approaches and tactics. What are some examples?

  • Talk to your manager. Is there a path for increased pay in your role or at your company? Ask them: what does that path look like? Get them to agree that if you follow the path, a pay raise will follow.
  • More education. Maybe there isn’t a positive path at your current job. It’s a dead end. You need to find ways to get on a better path, and further education is highly effective. BUT! You need start with the end in mind. Get a degree or certification that will truly further your career and your income. Computer science? Yes. Underwater basketweaving? Not so much.
  • Look outside your current role, too. One of the fastest ways to higher pay is by switching jobs. Or using a potential job switch to negotiate a raise.
  • Side hustles can work. But choose carefully. I know too many Uber drivers who, if they ran the numbers, would realize their side hustle barely pays them minimum wage.
Getting some inflation-adjusted raises would help, too…

Increasing Your Net Worth

Salary is a one-trick pony. All it measures is incoming cashflow in. Net worth is far more comprehensive, as it’s a function of:

  • inbound cashflow
  • outbound cashflow
  • changes in asset values (e.g. investment growth)

There are many ways to increase your net worth, most of which are within your control today (unlike increasing your salary, which might take years to successfully execute).

  • Learn from the #1 lesson I’ve found from the various financial experts I’ve interviewed on my podcast:
  • Measure your cashflow – a.k.a. budgeting. You can’t manage what you don’t measure. The only way you’ll ever decrease your spending is if you measure your spending. You need a budget – it can be detailed, or simple. But you can’t not have a budget.
  • Follow the financial order of operations. Learn how to prioritize your financial to-do list.
  • Put in more “work” to combat financial disorder. You’ll need to read this article for context.
  • Remove the negatives. Personal finance is a “negative art.” Increasing your net worth is more about avoiding mistakes than taking huge steps forward.
  • Bucket your money, then put it to work. Determine the timeline for the various expenditures in your life, then invest the money you don’t need in the short term.
  • Take advantage of tax advantages and “free money,” like 401(k) or Roth IRA accounts.

Housing and Kids

How can you be “better-than-average” in terms of housing and children?

If you’re thinking, “Homeowner plus 3 kids is better than renter with zero kids,” I think you’re doing it wrong. Instead, consider the financial (and more importantly, non-financial) acumen that goes into making those decisions.

For example, I think rent vs. buy calculators – like this one from Nerdwallet – are fantastic tools. If the math points you toward renting, then rent. There’s no race to be a homeowner, nor do I think homeownership is intrinsically good. “Better than average” doesn’t apply here.

But I think it’s more important to look yourself in the mirror and be honest with answers like:

  • How many years do I plan on living here?
  • Do I love this house? This neighborhood? This school district?
  • If this home never appreciates in value, am I ok with that?
  • Or the alternative: Since rent doesn’t build equity, am I ok “throwing my money away” in exchange for flexibility and less responsibility?

Children are even more personal and less financial. The only major financial question, in my opinion, is: do we have the financial means to provide for this child? Every other important question is personal.

Again, there’s no such thing as “better than average.” Instead, I see child-rearing in a binary way: are you giving your children a good home? Or not?

If you are, then you’re doing it right. Whether you have 10 kids or 1, you need to give them a good home. What’s a “good home” vs. a “bad home?” Everyone’s opinion will differ. But you know it when you see it.

Millennials are getting their financial life in order. It’s a wonderful thing. And through smart, patient personal finance decisions, you can carry on to become a “better-than-average” financial millennial. Investing in knowledge is a great place to start.

Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

Want to learn more about The Best Interest’s back story? Read here.

If you prefer to listen, check out The Best Interest Podcast.

Source: bestinterest.blog

Apache is functioning normally

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Money is entirely fungible. Despite my earlier misconceptions, this idea has nothing to do with fungus.

Instead, fungibility is a synonym for replaceability, or the capability being used in place of another. While a crispy, fresh $100 bill might feel better than an old, wrinkly $100 bill, they can be used precisely the same. They are fungible with one another.

Many money mistakes occur when people don’t understand monetary fungibility. Let’s fix that today.

A Penny Saved…Is Less Cool Than A Penny Earned

Much more ink gets spilled on earning and investing than on simple saving and budgeting.

I’m guilty of that here on The Best Interest. I love writing about investing. But budgeting? Eh. I have a few articles, but it takes a back seat to investing.

Yet Ben Franklin understood fungibility when he wrote, “A penny saved is a penny earned.” If you can save $100 per month via a budget, that’s equivalent to a 10% annual return on $12000. It’s not as cool as investing, but the fungibility of money doesn’t care about coolness.

A dollar is a dollar. The invested dollar might feel cooler, but it has the same buying power as the uncool saved dollar.

Gift Cards – Not Ideal

This next lesson is going to sound crass: giving a gift card is the same as saying, “here’s a cash gift, except I’m actively taking away your fungibility.”

Again, I’m guilty of this. I’ve given gift cards. I completely understand the sentiment. “I know you like [insert hobby, store, restaurant, etc. here], but I don’t know precisely what you’d buy from there. So here’s a gift card.”

But gift cards steal choice. They steal the fungibility of money. A cash gift can be used to buy anything in the world. A GolfWorld gift card cannot.

My two cents: just buy your loved ones an actual item, and include a gift receipt.

Dividend Bros

I’ve taken down dividend bros before on The Best Interest. Their arguments are varied. One of the dumber pro-dividend arguments is that dividends provide a level of liquidity that non-dividend-paying stocks cannot provide.

This argument is, in short, made in ignorance of fungibility. Dividends are fungible with stock ownership (exclusive of taxes). The same income provided by dividends could be created by selling a portion of the stock itself. Stocks are fungible, cash is fungible, and thanks to the efficiency of the market, stocks and cash are fungible with one another.

(In fact, once taxes are considered, dividend payments are almost always worse than simply selling stock.)

“Buy Yourself Something Nice”

When Grandma gives you $20 to “buy yourself something nice,” she’s missing a lesson in fungibility.

In reality, Grandma’s $20 gets comingled with all the other available dollars to you, and any future $20 purchase is drawn from those comingled dollars. Grandma’s contribution only paid a small role in that purchase. Sorry, Ethel!

All the other purchases you make in the future – good, bad, or ugly – will use Grandma’s contribution too.

The same idea applies in other arenas:

  • Charities use a percentage of donations for their own administration. Every charitable dollar is comingled and then drawn against. Nobody’s contribution goes 100% to the charitable cause.
  • Many citizens use government assistance to purchase necessities (e.g. buying food with food stamps) and then use cash to purchase other items. That food stamp money is partially fungible. Food dollars can be replaced by food stamps, though food stamps cannot be sold for real dollars. If someone receives $200 in food stamp aid, they can spend $200 real dollars elsewhere. In short, a percentage of every real dollar spent is subsidized by the food stamp dollars.
  • When you find a $100 bill sitting in the parking lot and decide to test your luck with Lottery tickets. Hey, it wasn’t your money in the first place, right? Again, money is fungible and this line of thinking misses an important lesson.

Splurging

A sudden windfall gives you an unexpected $50,000. What do you do with the money?

A common idea is to splurge on something nice – say, with 10-20% of the windfall – then save the rest. I’m on board with this idea from a psychological perspective. But this splurge does not jive with the concept of fungibility.

Because if you wouldn’t spend your own hard-earned dollars on a $5,000 – $10,000 splurge, you shouldn’t spend windfall money in that way either. These dollars are all fungible. Windfall money should be treated exactly the same as the other money in your life.

Now, perhaps you were already slowly saving for such a splurge. You were already setting aside hard-earned dollars for the splurge. The windfall simply accelerates your timeline. That makes sense.

What doesn’t make sense is for someone to say,

“I would never spend my own money this way, but I’m fine spending a windfall this way…”

Money is fungible. It is spent fungibly. It should be thought of fungibly.

Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

Want to learn more about The Best Interest’s back story? Read here.

If you prefer to listen, check out The Best Interest Podcast.

Source: bestinterest.blog

Capital Gains Taxes 101

Capital gains taxes are a bit dry…but important to understand! Let’s cover the basics and correct the common misconceptions.

42% of Workers Earning Over $100,000 Share This Money Woe

You might think earning six figures or more puts you on Easy Street. Find out why that isn’t so.