If you love cat pictures, today is your lucky day. Because I’m back!
As longtime readers will recall, I contributed to Get Rich Slowly from 2009 to 2013. I often wrote about more “technical” (i.e., boring) topics, such as taxes and IRAs. In order to provide a reprieve from the technical-ness, J.D. occasionally sprinkled in cat pictures. I tried not to take it personally.
Photo: ZUMA Press
But for the record, I think other creatures would have been more appropriate. Such as the blob fish.
For those who remember me, it’s great to see you again. For those who don’t, here’s my Cliff’s Notes tale of priesthood, eating pre-chewed food, reproduction, and why I know a thing or few about money.
I hung up my GRS writing boots last year because I had overloaded my life with new ventures, which included more actual financial planning for folks. But things have settled down, which allows me once again to be a part of this self- and other-bettering community. But here’s the thing about financial plans: They’re really financial projections, using just your current numbers — the size of your IRAs and 401(k)s, how much you add to those accounts, your current Social Security benefit estimate, and so on. A financial adviser — or you, using a retirement calculator — inputs a bunch of figures and out comes the verdict: You’re guilty of not saving enough, or you’re innocent of all financial wrongdoing.
I wholeheartedly believe that everyone should do just such an analysis annually to estimate whether they have a reasonable shot at retirement, or other financial goal, and to determine what they can do if things aren’t looking so hot. However, these analyses also have their limitations because they only care about what can be quantified.
So more and more over the years, I’ve found myself using financial-judging software as the basis for starting a discussion, and then wading into more fluid factors that are also crucial indicators of future financial freedom. Here are five of those factors, oh-so-briefly explained. I could devote an entire article to each. (Yay, more cats! Or blob fish! Or a sitcom about them getting married but their parents not understanding!) But what follows will give you an idea.
Your non-portfolio assets. We all have a lot of stuff. In fact, that’s why we have a house, according to the late, great comedian George Carlin, who said, “Your house is nothing more than a place to keep your stuff while you go out and get more stuff.” For some, a house is not enough. According to the Self Storage Association, 9 percent of American households were renting a unit as of 2012. Chances are, you have stuff you either don’t need or that could be replaced with a less-expensive option. It starts with your stuff-container (your house) but can involve a wide and diverse range of property: other real estate, collectibles, electronics, appliances, household items, vehicles (including bikes and boats), and the many gifts of Christmases past. You can fall back on hawking these wares in a pinch, but it is even better to turn depreciating dust-collectors into growing assets now by selling them and investing the proceeds. An investment in the Vanguard 500 index fund would have grown to almost 19 times its value over the past three decades. And unless you’re a 95-year-old javelin catcher who smokes, you should think of your investment time horizon in terms of decades.
Your human capital. Regardless of what advertisers or Wall Street might say, your biggest asset isn’t what you buy or own. Your biggest asset is you — what you can do, what you know, what you’ve accomplished, and who you know. In financial terms, this can be considered your human capital — your ability to earn an income (including the variety of ways, the amount you would earn, and how easy it is to move in and out of the workforce), the things you can do that you would otherwise have to pay someone else to do, and your social and professional network. A sub-category is your financial literacy, i.e., how smart you are with your money.
Your health. A recent study from gerontologist Ken Dychtwald and Merrill Lynch found that good health is the No. 1 ingredient of a happy retirement. It is hard to enjoy your golden years if your creaky bones have you in tears. But there is also a financial component: Healthier people spend less money on health care. They keep the money that would otherwise go to hospitals, pharmacies, and the medical equipment industrial complex. Of course we are all very fortunate and grateful such things exist, but they don’t come cheap. Plus, healthier folks feel better, can do more, and can work later in life if they want to — as opposed to the approximately 25 percent of retirees who left the workforce at least partially for health reasons.
Your habits. Financial success is determined largely by financial behavior. As “The Millionaire Next Door” — the study of real-life wealth by Thomas Stanley and William Danko — and Stanley’s follow-up “Stop Acting Rich” taught us, monetary security doesn’t just happen. The majority of Americans who earned their millionaire-hood did so by having a plan for where their money would go, maintaining a system for making sure they are on track, living on 80 percent or less of their income, and not buying homes in high-priced neighborhoods. Only 30 percent of the variability of wealth among households is explained by income, so the truly well-off are doing something right besides bringing home a bunch of bacon.
Your family’s assets. When it comes to stuff, you may have heard that you can’t take it with you (even though many people think shopping is a divine experience). You might be in line for an eventual inheritance. But for many families, the biggest “asset” is the support they give one another, such as child care, elder care, professional expertise, hard-earned wisdom, and a safety net. However, to keep wealth of all kinds in the family as seamlessly and cheaply as possible, you and your relatives should have frequent and open discussions as well as the properly executed financial documents.
The Roth 401(k) may appeal to workers willing to forego a tax break now in return for getting one at retirement. As its name implies, the Roth 401(k) combines features of a traditional 401(k) with those of a Roth IRA. If you have access to both, which one is best for you? Let’s take a closer look at a Roth 401(k) vs. the traditional 401(k).
Like a traditional 401(k), workers enjoy the convenience of contributing through payroll deduction. But similar to a Roth IRA, contributions are made on an after-tax basis and withdrawals after age 591⁄2 are tax free and penalty free for workers who have maintained their account for five years. There is also a Roth 403(b) plan for workers in the nonprofit sector.
How a Roth 401(k) Works
The Roth 401(k) follows many of the same rules as a traditional 401(k). For the 2010 tax year, federal laws permit a maximum annual contribution of $16,500, although your employer may impose a lower limit. Your employer may provide a matching contribution as part of a Roth 401(k) offering, although you will be required to accept the matching contribution in a traditional, and not a Roth, account. If you are age 50 or older, you may contribute an additional $5,500 for a total of $22,000 in 2009. You may continue to maintain a traditional 401(k) while directing all or a portion of new contributions to a Roth 401(k). Your contributions to a Roth 401(k), however, are irrevocable—once made, they cannot be transferred to a traditional 401(k) account and funds in a traditional 401(k) cannot be switched to a Roth 401(k). Both Roth and traditional 401(k)s require distributions after age 701⁄2. There is a 10% penalty for early withdrawals prior to the age of 591⁄2, and taxes may apply for traditional IRAs.
Planning for Retirement
Choosing Between Traditional 401k Vs. Roth 401k
A Roth 401(k) may present a significant benefit when it’s time for retirement—the funds can be rolled over directly to a Roth IRA with no tax payment. Assets in a traditional 401(k) can now be converted to a Roth IRA, but the conversion requires you to pay taxes on the portion of the rollover that has not yet been taxed.
To Roth or Not to Roth?
If you’re considering a Roth 401(k), you may want to review the following points before making your decision:
Although future tax rates are difficult to predict, you may benefit from a Roth 401(k) or 403(b) if you anticipate being in a higher tax bracket during retirement.
Even if your marginal tax rate remains relatively stable, you may face a higher tax bill in retirement if you will no longer claim deductions for dependents, mortgage interest and others frequently utilized by families. If this sounds like a likely scenario, a Roth 401(k) may be to your advantage.
Will you need your retirement assets for living expenses during your later years? If not, a Roth 401(k) offers the opportunity to roll over funds directly to a Roth IRA, which does not require distributions after age 701⁄2. This situation may enhance the potential tax-free growth of your assets and enable you to bequeath a larger portion of your assets to your heirs.
You are not required to meet income thresholds to participate in a Roth 401(k). In 2009, Roth IRAs are limited to single taxpayers with $120,000 and married couples with $176,000 or less in adjusted gross income. A Roth 401(k) may have some appeal if you desire tax-free withdrawals but your income exceeds the threshold for a Roth IRA.
The longer you remain invested in a Roth 401(k), the more you are likely to benefit from tax-free growth. If you plan to retire in five years or less, a shorter-term time horizon may limit the benefit of tax-free withdrawals, whereas your account may get a bigger boost from tax-free savings if you plan to continue working for a longer period of time.
Capitalizing on every option available to you may make it easier to pursue your long-term savings goal. If tax-free withdrawals could potentially benefit you and your employer makes a Roth 401(k) available, consider adding it to your retirement planning mix.
Points to Remember
A Roth 401(k) offers the option of investing for retirement on an after-tax basis. In return for foregoing a tax deduction when the contribution is made, participants are able to make withdrawals free of penalties and income taxes during retirement.
Workers may elect to make all or a portion of their 401(k) contribution to a Roth 401(k). Once made, however, a contribution cannot be transferred to a traditional 401(k) and assets in a traditional 401(k) cannot be switched to a Roth 401(k).
The annual maximum contribution for 2009 is the same as for a traditional 401(k): $16,500 plus an additional $5,500 catch-up contribution for employees aged 50 and older.
Employers who provide a matching contribution are required to allocate the match to a traditional 401(k), not a Roth account.
With 12 million members, Navy Federal Credit Union services U.S. military members, veterans, Department of Defense members, and their spouses. Navy Federal offers a full suite of services, including checking accounts, savings accounts, certificates of deposit accounts (CDs), and money market accounts.
But even if you qualify for an account, it’s not your only choice. It’s important to take a close look at the fees, interest rates, and overall bank experience to make sure it’s the best choice for your finances.
Overview
Navy Federal Credit Union is available for service members, veterans, Department of Defense employees, and their families. Although Navy Federal does offer fee-free accounts and competitive rates on loans, their interest rates on savings, CDs, and credit cards aren’t competitive with online banking options. It’s important to shop around before settling on any lender, and Navy Federal is no exception.
What Is Navy Federal Credit Union?
Credit unions are like banks in that you can deposit and withdraw funds, earn interest on your savings, and borrow money. But banks are for-profit institutions. Credit unions, on the other hand, are nonprofits that typically limit membership to a specific business, organization, club, or geographic location. Members are considered owners, with a voice in how the credit union operates.
Navy Federal Credit Union began in 1933 as a lender serving a small group of naval officers and their families. Over the decades, though, membership expanded. Today, membership is open to:
Enlisted members and veterans of all branches of the military
Family members of former and enlisted military
Department of Defense members and their families
Navy Federal is member-owned, which means that any earnings go back to members. Often, these dividends are put toward reducing interest rates and improving offerings, but they’re also given to members in the form of account credits. Cashflow is publicly disclosed on Navy Federal Credit Union’s website.
Types of Accounts
Navy Federal Credit Union’s members have access to a variety of account options, from checking to savings to money markets and CDs. Their fee-free structure is typical of credit unions, and with most accounts, you’ll have no minimum deposit or balance requirement.
Here are some details on the accounts Navy Federal offers:
Checking Accounts
Navy Federal Credit Union offers a free checking account option to members. There are several checking accounts to choose from, and your choice will likely relate to your own unique needs.
All of Navy Federal Credit Union’s checking account holders enjoy checking with no monthly fees, a Navy Federal debit card with zero-liability protection, and access to 30,000 ATMs located throughout the U.S. and Canada.
Here are the current checking account options at Navy Federal:
Free Active Duty Checking: For both active duty and retired military members, this bank account issues ATM fee rebates, 0.05% annual percentage yield (APY), and a 0.05% dividend rate.
Free Easy Checking: For all your everyday banking needs, there’s this account, which includes ATM fee rebates, a 0.05% annual percentage yield, and a 0.05% dividend rate. This account comes with overdraft protection options.
Free Campus Checking: Designed for service members and family of service members ages 14-24, this account also includes ATM fee rebates, a 0.05% annual percentage yield, and a 0.05% dividend rate.
Free EveryDay Checking: This account is available to all credit union members as a simple, fee-free everyday checking account that has all the basics. It only comes with a 0.01% APY and a 0.01% dividend rate, however.
Flagship Checking: A Flagship checking account is for those members who want to earn more on their money. You’ll get a 0.35% to 0.45% APY and a dividend rate of 0.35% to 0.45%. However, this account comes with a balance requirement of $1,500 or more. A service fee of $10 a month applies for balances of less than $1,500.
Savings Accounts
A Navy Federal savings account comes with 0.25% APY. There is a $5 minimum balance requirement for the account to earn dividends, but it’s fee free. You can also divide this basic savings account into segments, naming each one. This allows you to set up an emergency fund, a vacation fund, a home buying fund, a Christmas gift account, or whatever else you need.
If you have specific savings goals, Navy Federal Credit Union also offers both Traditional and Roth IRAs. Self-employed members and those who work for participating employers can set up a simplified employee pension (SEP). These have higher contribution limits than IRAs.
Navy Federal members with children may want to take a look at the education savings accounts offered by the credit union. These Coverdell Education Savings Accounts (ESAs) allow you to put money into a tax-advantaged account for the specific purpose of paying for education expenses.
Certificates of Deposit
Investing can be a valuable part of financial planning. One low-risk way to boost your earnings is through a certificate of deposit (CD). Current rates range from 4.55% APY. Navy Federal has four tiers of CDs, each with its own yield and terms:
Standard Certificate: Get started saving with this CD that offers a competitive interest rate with terms of up to seven years. You can earn as much as 4.55% with only a $1,000 minimum deposit.
EasyStart Certificate: You can add money to this CD at any time, making it a great savings vehicle. Yields go as high as 4.45%, and you can choose terms from 6 to 24 months. Best of all, you can deposit as little as $50 to start.
Special EasyStart Certificate: Another CD that allows a $50 opening deposit, this option can earn up to 4.85%. It only comes with a 12-month term.
SaveFirst Account: Step up from a basic savings account with this CD, which offers up to 4% interest with terms of only three to 60 months. You can set up this account with a deposit as low as $5.
Money Market Accounts
If you want to boost your earnings without locking your money down, a Navy Federal money market account could be the perfect solution. You’ll need at least $2,500 to earn interest, but once you reach that threshold, interest rates are higher than the Navy Federal basic savings account.
Navy Federal Credit Union offers the following current rates on money market accounts:
$2,500-$9,999: 0.95% APY
$10,000-$24,999: 1.06% APY
$25,00-$49,999: 1.10% APY
$50,000 and over: 1.50% APY
If you have at least $100,000 to put into your account, you can earn even higher rates with one of the jumbo money market accounts Navy Federal offers. Those rates are as follows:
$0-$99,999: 0.25% APY
$100,000-$249,999: 1.65% APY
$250,00-$499,999: 1.85% APY
$500,000-$999,999: 2.05% APY
$1 million and over: 2.25% APY
Credit Cards
As a federal credit union member, you’ll get access to a variety of other account offerings. One such offering is a full suite of credit cards. Currently, you can earn $200 cash back with the CashRewards card as long as you spend $2,000 in the first 90 days.
Although Navy Federal Credit Union has cards that can help you build credit or earn cash back, you can find better deals through online banks and local lenders. Most come with high interest rates and no zero-interest introductory period.
Personal Loans
If you’re looking for a loan for home improvements or debt consolidation, this is where Navy Federal shines. The credit union offers competitive rates on personal loans with flexible terms. Personal expense loans start as low as 7.49% APR for a 36-month term.
Once you have some money in your savings account or CD, you’ll have a source of funding. You can borrow against the money and repay the funds with rates as low as your savings rate plus 2.00%.
Bank Experience
Navy Federal is a full service credit union with all the amenities. But it’s best for those searching for active duty checking. Branches and ATMs tend to be located near bases. Still, mobile banking and free access to a nationwide network of ATMs make it easy for armed forces veterans and their families to find in-person customer service when they need it.
Navy federal credit union’s website and mobile app offer a full suite of online banking options. You can transfer money, deposit checks, manage your credit and debit cards, and set up alerts to monitor account activity.
The mobile app is available for iOS, Android, and Amazon devices. You’ll also have access to Apple Pay and Google Pay using your Navy Federal Credit Union checking account on those supported devices. These are the same options you’ll have with other lenders, but they’re convenient if you like Navy Federal’s other options.
Fees and Penalties
One of the best reasons to go with a credit union is the lack of fees. For the most part, Navy Federal has fee-free services, but you will pay a monthly fee if you choose Flagship checking and can’t keep a $1,500 balance.
Navy Federal Credit Union does charge fees if your account goes into the negative. You can avoid the $29 insufficient funds fee by investing in overdraft protection, but Navy Federal charges a fee for moving the money. Some other lenders don’t charge for that.
Annual Percentage Yield on Accounts
Although Navy Federal has plenty of benefits, their interest rates on their high-yield savings accounts, CDs, and even checking accounts are lower than competitors. The money market savings account currently only pays up to 2.25% APY, and that’s with a $1 million balance.
Service members and veterans should shop around to make sure you’re getting the best rates. You might even keep your checking and basic savings with Navy Federal, then have a money market savings account or CD with one of the many online banks paying competitive rates.
Minimum Balance Requirement
With any Navy Federal Credit Union review, checking balances are worth a mention. For the most part, you won’t have a minimum balance or a minimum deposit requirement with any of Navy Federal’s accounts. There is one exception, though. If you choose the Flagship Checking Account, you’ll need to deposit at least $1,500 and maintain that balance over the life of your account. Otherwise, you’ll pay a $10 monthly service fee.
There is a minimum deposit requirement with Navy Federal’s savings account options, though. To earn dividends, you’ll need to deposit at least $5 and maintain that. To maintain a money market savings account with Navy Federal, you’ll need a balance of at least $2,500 to earn dividends.
If you qualify for a Navy federal credit union account, it’s well worth a look. But pay close attention to the offerings and compare them to other financial institutions to make sure you’re getting the best solution for your needs.
Over a year ago, I bought my first home. And while I’d been warned about the extra expenses that come with homeownership, there were still some surprises.
I don’t mean the “unexpected” costs of property taxes and repairs — expenses that are often covered in articles about new homeownership. “Surprise! There’s no landlord to come fix your garbage disposal.” Is that really a surprise to anyone, though?
No, what I’m talking about are the less obvious expenses — the ones that new homeowners probably aren’t thinking about when they sign the closing documents and get the keys to their new home. Here are some of those less obvious expenses that took me by surprise in the last year.
1. Changing the locks. When I first moved in, my dad “reminded” me to call a locksmith and have the locks changed. Only, silly me, I had no idea that I should do that. Dad pointed out that my house had had several owners and was even a rental at one point. That means that any number of people could possibly have a key to my house.
Okay, so that’s three locks that needed to be changed. No big deal. Only the three estimates that I got came in at around $200 — much higher than I was expecting. Finally I found a special for $79 and got the locks rekeyed.
2. Lawn maintenance. One of the big selling points for our house was the half-acre yard. It feels like a bit of country in the city.
Well, the week we moved in, a neighbor asked us, “Do you guys have a riding lawnmower? ‘Cause you’re gonna need one!” The truth is that we hadn’t really thought about lawn care yet. We’d just bought the house, and we were 100 percent focused on some repairs and getting moved in. But our neighbor had a point — we’d either need a riding mower or a lawn service. And being the DIY-type, we wanted the mower.
Eventually the growing grass forced us to take the plunge.
3. Multiple appliance repairs and replacement. Okay, we knew we’d be responsible for our own appliances. But what I didn’t count on was so many of these repairs and replacements in the first year!
We had to replace a garage door opener, an AC motor (and it was an expensive one), and a water heater. Thankfully, our real estate agent negotiated a one-year home warranty, paid for by the seller. So these costs, which would have been well over $1,000, ended up costing only $180.
Each time I had to use the warranty, I emailed my agent to thank her for her foresight.
4. Cosmetic upgrades. I thought that cosmetic upgrades, like painting the bedrooms, would be quick and cheap. Well, they were neither quick nor cheap!
Just one bucket of paint ran $32, and with four rooms, I needed a lot of buckets of paint. Plus, there are all of the little things you don’t always think about — rollers, trays, gloves, paintbrushes, drop cloths, and rolls upon rolls of painter tape. Cosmetic upgrades turned out to be a lot more expensive than I originally thought.
5. Furnishing the house. Obviously, you don’t have to go crazy furnishing every inch of your house. And we haven’t. We’re going slowly.
But sometimes, things come up. For instance, when my in-laws were planning to visit, we decided to buy a daybed for the guest bedroom. We also needed guest towels for the bath. And a bath mat. If we hadn’t had guests, we might have held off on those expenses. But part of the reason we bought the house was to entertain family and friends more often (and more comfortably).
6. Window treatments and replacements. Not long after moving in, I realized just how old our windows are. As in, I’m pretty sure they’re original to our 1971 house. Plus, a couple of sets of blinds had shredded strings and didn’t work properly.
As I discovered in the window treatment section of Lowe’s, blinds are expensive! So we just replaced the two sets that weren’t working. As for replacing every window in the house, it’s something we’re starting to look into now.
7. Rising property taxes. Property taxes aren’t a surprise, but the fact that the county increased my taxes by 31 percent from one year to the next was a huge shock!
I’m currently protesting my taxes, and there are a couple of reasons why that assessment shouldn’t stick. For one, I paid less than the assessed value for the home just over a year ago. And two, my homestead paperwork is currently being processed and, according to their site, taxes shouldn’t increase on a homestead by more than 10 percent in a given year, plus the value of any improvements.
So, fingers crossed…
8. Tree trimming. This is the next to-do item on my list. Another thing about that great yard that we loved is that it came with a bunch of gorgeous, established oak trees.
Only it’s time we had those trees trimmed. There are some branches that need to go, and the trees are entirely too tall for us to do the work ourselves. Plus, we’re not arborists, and we’d like our trees to stay healthy and beautiful. After all, they’re part of the reason we fell in love with this property in the first place.
Covering Those Unexpected Expenses
Luckily, my husband and I had the extra money in the bank to cover these expenses, but I can see how people can get into serious trouble if they aren’t prepared for some of them.
And while I wish I had a magic formula to share with you, it’s impossible for me to tell you how much to shore up your emergency fund. It just depends on too many factors, like the size of your house, the size of your lawn, how much work you can do yourself, and even just plain luck (or lack of it).
So if you’re contemplating purchasing your first home, just be aware of these hidden costs. Save more than you think you need to, and don’t buy as much house as you can. We bought a fairly small house and, while I love the house and love working on it, I’m glad we didn’t get anything bigger!
Readers, if you own a home, what other hidden costs surprised you?
Purchasing mortgage points from your lender can lower your interest rate and make your monthly mortgage payments more affordable. If you’re considering a home purchase or refinance, mortgage points could save you tens of thousands of dollars over the life of the loan.
In this article, we’ll explain what mortgage points are and present the pros and cons of buying mortgage points
What Does Buying Points Mean in a Mortgage?
Mortgage points, also called discount points, are an upfront fee that a borrower pays their mortgage lender to cut down the interest rate on their loan.
Borrowers can lock in a lower interest rate on a purchase or refinance loan and pay less on their mortgage over time. This may make more sense for borrowers who plan to stay in their homes for a long time.
How Much Is One Point on a Mortgage?
One point typically costs 1% of your loan amount and lowers your mortgage interest rate by about 0.25%. For example, on a $100,000 loan, one point would cost $1,000. Mortgage points also don’t have to be round numbers — they can also be fractions of a point.
How much each point lowers your mortgage interest rate varies by lender. It also depends on the type of loan product as well as the current interest rate environment. This is why it pays to shop around with a few lenders and compare quotes.
You can also purchase discount points for an adjustable-rate mortgage (ARM) loan, which works the same as it would for a fixed-rate mortgage. However, most ARMs adjust after five or seven years.
Mortgage points are paid at closing and according to Consumer Finance, they are listed on your Loan Estimate and your Closing Disclosure on page 2, Section A. By law, the points listed on these documents must be connected to a discounted interest rate.
Pros and Cons of Buying Points on a Mortgage
Pros of Buying Mortgage Points
The biggest benefit of buying mortgage points is lowering the interest rate on your loan, no matter your credit score. This saves you money not only on your monthly mortgage payments but also on total interest payments.
Buying down your rate also reduces the total cost of the home. Paying an extra $3,000 upfront could save you thousands more over the life of the mortgage loan.
Mortgage points are also tax-deductible. The IRS considers mortgage points to be prepaid interest, which may be deductible as home mortgage interest if you itemize deductions. If you deduct all interest on your mortgage, you may be able to deduct all of the points.
Calculate how much you can save on your mortgage payments with Total Mortgage.
Cons of Buying Mortgage Points
Buying mortgage points isn’t recommended for everyone. If you don’t have the extra cash reserves, paying for mortgage points on top of your closing costs and down payment could drain your savings.
If you’re purchasing a house and putting less than 20% down on a conventional loan, the added expense of private mortgage insurance (PMI) may not make much financial sense. It may be better to put those funds towards your down payment.
It could also take a while to break even, which is the time it takes for the monthly savings to pay for the points.
For instance, let’s say you purchased 3 mortgage points for $9,000 on a $300,000 home loan financed over 30 years. This lowered your interest rate from 3.5% to 2.75% and saves you $122 per month. However, your break-even point is a little over six years and if you move or refinance before then, you may not recoup that upfront cost.
Also, interest rates fluctuate. If rates go down after purchasing mortgage points, then the value of the points would essentially be worthless.
Mortgage Points vs. Lender Credits
You may also come across lender credits, which are similar to mortgage credits but in reverse. Your lender may offer a higher interest rate in exchange for extra funds to offset your closing costs. Lender credits mean you pay less upfront but you pay more over time in interest.
Lender credits are also calculated the same way as mortgage points, but they may appear as negative points on the Lender Credits line item on page 2, Section J of your Loan Estimate or Closing Disclosure.
Should You Buy Mortgage Points?
Although mortgage points can potentially save you money over the long run, they aren’t for everyone and it could take between five and 10 years to recoup the cost of the points.
Here are some instances where buying mortgage points may be worth your while:
You have the extra money to put down without draining your savings
You plan to live in your home for a long time
Your credit score doesn’t qualify you for the lowest possible rate
You need to lower your interest rate to make your monthly mortgage payments more affordable
Here are some reasons why you shouldn’t buy mortgage points:
You’re planning on selling your property in a few years
You’re going to pay extra on your mortgage payments
You don’t have the money to buy mortgage points
It would reduce your down payment amount
If you’re deciding whether to direct extra funds toward your down payment or buy mortgage points, a larger down payment usually has more benefits compared to mortgage points.
A bigger down payment can get you a better interest rate, cheaper PMI (or none), or lower mortgage payments.
Build Your Perfect Mortgage With Total Mortgage
Mortgage points can potentially save you money on your mortgage loan, but the monthly savings will depend on the interest rate, the amount you borrow, and the term of the loan. However, mortgage points may not be the best financial move for your situation.
The right mortgage can save you thousands. Get a free rate quote from Total Mortgage for a home purchase, refinance, or home equity loan.
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
Featured image credit: Howard Nourmand courtesy of Nourmand & Associates
A home is a symbol of status.
That sentence rings true whether you live in New York or Beijing, Vancouver or Madrid, Prague or Mumbai. But nowhere is the competition to stand out quite as fierce as Los Angeles, where million-dollar homes go to extreme lengths to appeal to potential buyers.
In what seems like an endless parade of upscale amenities, sprawling floorplans, and lavish interiors, the luxury segment of L.A.’s already competitive real estate market is constantly adapting to the changing needs (and growing expectations) of buyers in this price range.
But in a city that’s rife with new builds, there’s an undisputed appeal for homes with a bit of history — and a design that’s guaranteed to withstand the passage of time.
Paul Williams homes are hot commodities in L.A.
Out of the many architects that left their mark on the City of Angels, one name stands out: that of Paul Revere Williams, one of the most prolific and accomplished architects in recent history.
With his wide range of architectural styles — from traditional colonials to casual ranch-style to midcentury modern marvels — Williams left his mark on the city’s most glamorous and exclusive enclaves, including Beverly Hills, Brentwood, Bel Air and the Hollywood Hills.
He designed or revamped close to 3,000 buildings starting in the 1920s all the way through the 1970s, and rose to fame as the go-to architect of California celebs and business magnates alike.
Paul Williams counted Frank Sinatra, Lucille Ball and Desi Arnaz, William “Bojangles” Robinson and other entertainers among his high-powered clientele.
But beyond his flashy role as ‘The Architect of Hollywood”, Paul Williams built countless homes whose owners have not been immortalized on The Hollywood Walk of Fame. And these homes, with their timeless design and quality of build, continue to attract buyers in droves.
“Paul Williams’ homes are hot commodities in LA. His classic style and long-standing career designing for LA’s most storied legends make him one of city’s most celebrated architects. Owning a Williams home is owning a one-of-a-kind, classic home that has stood the test of time.”
Michael Nourmand – President, Nourmand & Associates
SEE ALSO: The Chemosphere House and 6 other striking John Lautner-designed homes
And he should know. Michael’s company, Nourmand & Associates, a leading real estate brokerage in the Los Angeles area, sold three Paul Williams-designed homes in 2021 alone — one more charming than the other.
“It’s an honor for myself and Nourmand agents to have represented both buyer and seller in the most recent Paul Williams listings.”
Most recently, Nourmand & Associates closed on the $11.5 million sale of Villa Andalusia (pictured above), a 1931-built Italianate Pallazo that’s touted as one of the finest properties in Los Feliz. Konstantine Valissarakos represented the buyer in the transaction.
The sale followed two other noteworthy transactions closed by Michael Nourmand himself; the first, a picture-perfect family home that traded for $8.75 million, and the other an exceptionally well-crafted Beverly Hills home that commanded a $5.198 million sale price. For the latter, Michael Nourmand held the listing alongside Adam Sires, with another Nourmand & Associates agent, Jill Epstein, representing the buyer.
And these million-dollar sales are by no means outliers.
In early 2021, a Brentwood manor Paul Williams built back in the 1930s for opera singer-actress Grace Moore and her husband, Spanish actor Valentín Parera (later occupied by legendary actor Tyrone Power) sold for $10.1 million to veteran CAA agent Josh Lieberman.
Prolific celebrity house flippers Ellen DeGeneres and Portia de Rossi have also just closed on a Paul Williams-designed home in Beverly Hills Post Office. According to the Los Angeles Times, the couple paid $8.5 million for the pristine mid-century home that’s tucked in the gated enclave of Hidden Valley Estates.
But beyond the visual and structural appeal of the homes the lauded architect left behind, there’s a much more complex legacy.
The legacy of Paul R. Williams
While he’s widely remembered as “the architect of Hollywood” and a top choice among the stars of his time, Williams’ repertoire is vast in both style and quantity, creating some 3,000 buildings before his death in 1980.
A 2012 NPR profile chronicling his work crowned him as “the trailblazing architect that helped shape L.A.” Beyond the residential projects he worked on, Williams didn’t shy away from tackling ambitious public and commercial buildings.
He helped design iconic structures like the Los Angeles County Courthouse, the historic Spanish-colonial style YMCA building in downtown LA, and even parts of Los Angeles International Airport.
He was part of the LAX planning and design team, working on some of the most well-known commercial and municipal projects, including the Golden State Mutual Life Insurance Building, Hillside Memorial Park, Westwood Medical Center, and the First AME Church.
Because of his varied portfolio, you might even recognize his handwriting: it’s prominently plastered on the façade of the Beverly Hills Hotel (which he didn’t build, but expanded and renovated throughout the years).
But Paul Williams’ legacy extends beyond the structures he helped build.
He was the first African American architect to become a member of the American Institute of Architects in 1923, and later, in 1957, he was inducted as the AIA’s first black fellow.
Despite the deep prejudice and racism he faced, Williams masterfully navigated the business and social circles of the day.
The LA Conservancy reports that he even learned to draw upside down in order to sketch for clients from across the table — for the benefit of any white clients who might have been uneasy sitting next to an African American.
Williams famously remarked upon the bitter irony of the fact that most of the homes he designed, and whose construction he oversaw, were on parcels whose deeds included segregation covenants barring Black people from purchasing them.
Later in his career, Williams chose to devote more of his time to projects aimed at providing affordable housing; he co-designed the first federally funded public housing projects of the post-war period (Langston Terrace in Washington, D.C.) and later the Pueblo del Rio project in southeast Los Angeles.
It wasn’t until 2017, 37 years after his death, that the American Institute of Architects awarded him his gold medal for the outstanding contributions he made in the world of architecture.
“Our profession desperately needs more architects like Paul Williams. His pioneering career has encouraged others to cross a chasm of historic biases. I can’t think of another architect whose work embodies the spirit of the Gold Medal better. His recognition demonstrates a significant shift in the equity for the profession and the institute.”
William J. Bates, FAIA, in his support of William’s nomination for the AIA Gold Medal, Architectural Digest via Wikipedia
More stories you might like
Paying Tribute to MLK’s Legendary Role in the Fight for Housing Equality The House that Zaha Hadid Built: The Story of the Only Residence Ever Designed by “The Queen of the Curve” The Three (Tragic) Lives of Frank Lloyd Wright’s Taliesin House Ernest Hemingway’s Iconic House in Key West Stands Tall and Mighty After 170 Hurricane Seasons
Transiting the Panama Canal from the Caribbean to the Pacific Ocean is a once-in-a-lifetime trip for many travelers, especially for history and engineering buffs. If you’re considering this bucket-list sailing, you’ll want to find the best time to cruise the Panama Canal, whether that be to find better weather, lower pricing or fewer crowds.
The Panama Canal cruise season peaks between October and April, outside of the rainy season that can start as early as mid-March and extend into the fall. With a tropical climate, this region is home to rainforests, incredible biodiversity, lush landscapes, abundant wildlife and beautiful beaches, but the weather can be wet at certain times of the year.
Panama Canal itineraries come in several flavors. One-way cruises sail between Florida and California, Washington or Canada; these complete a full transit of the canal. Partial-transit itineraries sail round-trip from Florida ports and only go through the locks on the Caribbean side. Some ships depart from or end in Panama or Costa Rica and feature itineraries that focus on the Pacific Coast of Central America or the Caribbean.
In addition to visiting Panama, many itineraries include ports of call in Costa Rica, Guatemala, Nicaragua, Colombia or Mexico, which can be the highlight of the trip, especially for outdoor enthusiasts.
For cruise news, reviews and tips, sign up for TPG’s cruise newsletter.
It used to be that only smaller Panamax ships could squeeze through the locks of the Panama Canal. However, with the opening of a new set of locks in 2016, larger New-Panamax-sized ships can transit, as well. That means you take a Panama Canal cruise on a small-masted Windstar ship or luxury Silversea cruise or can sail on a megaship as large as the 1,094-foot-long and 136-foot-wide Norwegian Bliss.
Here, we look at Panama’s peak cruise season month by month, so you can consider the weather, pricing and crowds to determine the best time to cruise through the Panama Canal.
October
Pros: October is one of the best months for cooler temperatures, lower fares and fewer crowds.
Cons: October is still the rainy season, and it’s humid. It’s also hurricane season in the Caribbean.
Sign up for our daily newsletter
Ships: Princess, Holland America, Norwegian, Royal Caribbean, Disney Cruise Line, Oceania, Hurtigruten Expeditions, Lindblad and luxury lines Scenic and Silversea offer sailings during the month.
October is a rainy month, but it’s also one of the coolest months of the year, with high temperatures in the low to mid-80s. The average year-round temperature in Panama is about 86 degrees, so it doesn’t vary much during the year, but it’s more humid in October with the wet weather. It’s also possible to have hurricanes this time of year if you’re cruising in the Caribbean.
For outdoor adventure seekers, it’s too wet for hiking in the rainforests, but other activities benefit from the rainy season, including whitewater rafting. In Quepos, Costa Rica, Windstar Cruises offers rafting trips to the town of Santo Domingo, where you can take a float trip on the Savegre River. Experienced surfers can also check out the big swells on both coasts of the country.
If you have an extended stay in Panama City, consider a trip to the Archipelago de las Perlas (Pearl Islands) in southeastern Panama to view the humpback whales. It’s a short flight to the islands, or you can travel by ferry to see the whales that are still in the waters around the archipelago after coming to breed in August and September. If traveling earlier in the month, you may also see nesting loggerheads and green turtles southeast of Panama City in Isla Canas (Cane Island) or Bocas del Toro.
Related: Best Panama Canal cruises for a bucket-list trip
November
Pros: November is one of the best months for lower cruise fares.
Cons: November is still the rainy season and the end of hurricane season. You can also expect some crowds in port with the national holidays.
Ships: Windstar, Star Clippers and Seabourn will also have vessels transiting the Panama Canal in November.
November can be rainy — and even the rainiest month of the wet season — with temperatures starting to warm closer to December. The month brings a mix of low-priced early-season fares but also several public holidays that bring crowds of both tourists and residents to attractions in places like Panama City and Boquete.
For a rainy-day excursion, ride the Panama Canal Railway, one of the world’s great train rides. If you’re in Panama City, plan an indoor excursion with a visit to the world’s first museum dedicated to biodiversity, the Frank Gehry-designed Biomuseo.
You can celebrate Panama’s Separation Day on Nov. 3 or Flag Day on Nov. 4. These holidays, along with a few others in November, feature parades, parties and other displays of national pride, so you can expect it to be busy in towns across the country.
Related: The best time to go on a cruise
December
Pros: December is the beginning of the dry season, so the weather will be drier and less humid.
Cons: The month is one of the busiest times for tourism, so you can expect to pay higher fares and have more crowds in port.
Ships: A few additional cruise lines offer Panama Canal crossings during December, including Celebrity, Carnival, Crystal and Regent Seven Seas Cruises.
With drier weather and high temperatures hovering around 88 degrees, it’s less humid in the region in December. However, it’s the holiday season, so cruise fares and other costs, like hotels for pre- and post-cruise stays, will be more expensive if you travel this month. December is one of the peak tourism months in Panama, with Panamanians traveling for the holidays and visitors from North America and Europe escaping the cold weather at home.
December is the best month to plan excursions to places like Panama’s rainforest and Chagres National Park to meet the indigenous Embrera people. You can also take an eco-cruise on Gatun Lake, which concludes with a visit to the Agua Clara Locks Visitor Center, where you’ll learn about this engineering feat that connects two oceans. If you’re comfortable exploring on your own, rent a car or hire a local guide to visit places like Soberania National Park.
Related: Tips for booking the best cruise shore excursion for your money
January
Pros: January is regarded as one of the best months to visit Panama with the drier weather and high temperatures around the mid-80s. It’s also less bustling with tourists than it is in December.
Cons: It’s peak season on land and at sea, so hotel and cruise prices are high. Panama City will also be busy with the jazz festival mid-month.
Ships: Cunard, Azamara, Emerald Cruises and Tauck Tours (with a chartered Ponant yacht) enter the market in January.
January’s dry weather makes the month the perfect time to explore Central America’s national parks, jungles and tropical rainforests, including Costa Rica’s Manuel Antonio National Park and Curú Wildlife Refuge and Panama’s Darien National Park. During your visit, be sure to look for monkeys, sloths, iguanas, blue-footed boobies, capybaras, crocodiles and even manatees on a jungle boat tour along the canal and into Gatun Lake.
If you’re a jazz buff, the Panama Jazz Festival is held in Panama City in mid-January, January 16-21. The six-day event features hundreds of renowned jazz musicians from around the world with live performances, a gala evening and concerts. If you’re embarking in Colon, Panama, you can fly into Panama City a few days early for the festivities. The distance between the two cities is less than 50 miles. Alternatively, linger in Panama after your cruise to attend the festival, or look for sailings with full-day stops in Panama City during the jazz festival.
Related: When is the best time to book a cruise?
February
Pros: February is the second-best month to cruise the Panama Canal, with optimal weather during the dry season.
Cons: It’s still peak season with higher cruise fares and prices ashore — but there are fewer cruise lines in the region. Snowbirds are still avoiding the cold weather and snowstorms at home, so you can expect many tourists, especially in Panama City. Carnival typically occurs across the country in February, depending on when Easter falls that year, bringing crowds.
Ships: Ponant is the only new addition in the region, offering one sailing early in the month. The other cruise lines sailing the Panama Canal in February are Holland America, Oceania, Norwegian, Royal Caribbean, Princess, Carnival, Lindblad, Tauck, Emerald and Windstar.
Take advantage of the final weeks of the dry season to book active outdoor adventure excursions like hiking, kayaking and zip lining. Another option is the Rainforest and Aerial Tram tour to the Gamboa Rainforest Resort in the 55,000-acre Soberania National Park. The tram climbs 280 feet through the dense jungle vegetation to reach the tree canopy above. During the ride to the top, keep an eye out for local wildlife, including white-faced capuchin and howler monkeys, sloths, butterflies, iguanas, toucans and frogs.
Carnival is a festival in mid-January in Panama City and other towns around the country. It’s one of the biggest celebrations in Central America — even bigger than the Christmas holidays for most families, so you can expect crowds during that time.
March
Pros: March is the last month of the dry season, although the rains can start by midmonth during some years. You can expect pleasant weather, although it’s quite warm, with temperatures reaching as high as the low 90s. You can also find late-season low fares on some of the larger ships.
Cons: It’s still one of the busiest months for travel with the moderate weather.
Ships: New luxury line Explora Journeys joins the vessels in the region in March with an extended sailing that includes transiting the Panama Canal.
With the warmer temperatures, March is an ideal month to head to the beaches on one of the San Blas Islands, an archipelago of about 365 islands and cays off the Caribbean coast of Eastern Panama. Some cruise lines that visit the archipelago are Windstar, Star Clippers, Hapag-Lloyd and Ponant.
You can also look for excursions through the cruise line — or make independent arrangements — to go on an adventurous hike under the canopy of the rainforest, take a boat tour to explore the diverse flora and fauna along the canal or go windsurfing or sailboarding on Costa Rica’s Lake Arenal with the Arenal Volcano as the backdrop. March is also the last month for surfing enthusiasts to hit the big waves on the Caribbean and Pacific coasts.
Should Semana Santa (Holy Week, from Palm Sunday through Holy Saturday) fall in March, there will be more crowds nationwide in Panama with religious processions and reenactments, parades and other special events. Many venues and attractions may be closed on some days during the festivities.
April
Pros: April is one of the best months to look for lower late-season fares on the larger ships.
Cons: The weather may not be ideal. The high temperatures in Panama hit just below 90 degrees on most days of the month. Mid-April is also when the wet season typically begins, so you can expect high humidity and rain. It’s also still a busy time with tourists, so the prices are high ashore. If Easter falls in April, you may have to contend with the crowds celebrating Holy Week during the festivities.
Ships: If you’re interested in a sailing on a luxury cruise ship, Silversea is the only luxury line still in the region in April. For a cruise on a large ship, choose among itineraries on Norwegian, Holland America, Celebrity, Royal Caribbean, Carnival and Princess.
With the high temperatures and humidity — and the threat of rain — you might want to take tours where you can easily escape from the heat and the showers. If you’re in Panama City, visit the vibrant neighborhood of Casco Antiguo in the city’s historic district.
Dating back to 1673, the UNESCO World Heritage Site features landmarks like the Panama National Theater and the Cathedral Basilica of St. Mary. You’ll also find some of the city’s best restaurants, beautiful squares and plazas and top-rated museums. If you’ve booked a pre- or post-cruise hotel in town, be sure to catch a sunset from one of the city’s many rooftop bars.
Bottom line: The best time to cruise the Panama Canal
When to cruise the Panama Canal will depend on what’s most important to you.
If having the best weather is your top priority, January, February and early March offer the best weather during the dry season with low humidity — but it’s also the most expensive time to travel to the region. You can expect crowds, especially with the festivals during that time.
If you want the best pricing and fewer crowds, October and November are the rainy season, so the pricing will be lower — and you’ll avoid the holiday crowds and high fares in December.
Late March and April also offer lower fares as it’s the beginning of the rainy season, but you can expect crowds during the Holy Week festivities in the country.
Northwestern Mutual, Special Spaces Recognize 10-Year Anniversary of Company’s Childhood Cancer Program with 10 Dream Bedroom Makeovers HGTV star Mina Starsiak Hawk collaborates on latest bedroom reveal for a child in her hometown MILWAUKEE, Nov. 17, 2022 /PRNewswire/ — In recognition of its Childhood Cancer Program’s 10-year anniversary, Northwestern Mutual, through its Foundation, collaborated with Special … [Read more…]
Tap on the profile icon to edit your financial details.
Just because you retire doesn’t mean you have to stop working. And when work is an option rather than a requirement, it’s possible to select a low-stress job that multiplies fulfillment without adding anxiety — but still provides a bit of much-appreciated income. There are, in fact, a variety of such low-stress, high-reward jobs well-suited to the needs of retirees.
A financial advisor can help you devise a plan that will give you the flexibility to make choices in retirement.
Working in Retirement
People may continue working after retirement for a variety of reasons, including the benefits of generating additional income, the satisfaction of making a contribution and the stimulation of staying engaged. If nothing else, work can get them out of the house and fill the hours formerly devoted to their careers.
Many jobs are, however, likely to be more trouble than they are worth to a typical retiree. If what you are after is fulfillment without stress, it doesn’t make much sense to apply for a position as, say, a law enforcement officer working undercover for a drug-smuggling ring. Fortunately, there are many jobs that offer lots of benefits without lots of stress.
Low-Stress Jobs for Retirees
The work you do in retirement can be an extension of your former career or head off in a diametrically opposed direction. Either way, here are 12 possibilities:
Tutoring
Decades of life experience can admirably equip retirees to work as part-time tutors to students at various levels of education. English as a Second Language, for example, is a subject area many retirees can assist students with, while maintaining flexible hours and keeping supervision and red tape to a minimum.
Pet Care
For people who like getting outside and spending time with animals, walking dogs is a way to get paid for enjoying themselves. Sitting, grooming and transporting dogs as well as cats and other pets can offer similar appeal.
Massage Therapist
Many massage therapists see clients at their own homes or in annexes on the property, meaning there’s no commute and little hassle or overhead. If you enjoy helping others through the healing properties of touch, this could be a retirement gig for you.
Personal Trainer
A dedicated runner, swimmer, biker or gym rat, can get paid for sharing their knowledge and passion for fitness with others who are chasing their own fitness goals. Tasks include selecting exercises, structuring workouts and developing training plans.
Consultant
If you had a lengthy career in nearly any knowledge-based field, you may be able to monetize that experience in retirement while also being able pick and choose your clients, working flexible hours and even earning a handsome income, all as a self-employed consultant to businesses.
Life Coach
If helping individuals as opposed to businesses is more your style, you can set yourself up as a life coach helping people reach fulfillment by attaining goals in their professional and personal lives.
Travel Agent
Many who love to travel find earning fees and commissions as travel agents to be a good job in retirement. The work involves recommending destinations, organizing itineraries and booking tickets for transportation, lodging, meals and events.
Library Worker
Bibliophiles can surround themselves with books and get paid for the privilege by working at the library. Many positions are part-time and tend, almost by definition, to be low in noise, hustle and bustle.
Tour Guide
Museums, historical sites, nature centers, monuments and other attractions commonly employ guides to provide visitors with information and assistance as they tour the facility. The positions are well-suited to retirees who want to make some extra money and interact with a variety of people in a relaxed environment.
Personal Shopper
Retirees can shop until they drop without having to spend a dime of their own money – and even earn a few bucks – by working as personal shoppers. This job involves serving people who need help choosing clothing and accessories that fit their personal styles.
Landscape Artist
Cultivating b eautiful landscapes is a passion for many retirees. A peaceful day tilling the soil can also be a source of income with a job as a gardener or landscaper.
Event Coordinator
If you possess robust organization skills and are detail-oriented, there is always a demand for people who can plan and coordinate weddings, parties, conferences and other events.
Bottom Line
Although there probably are as many reasons for continuing to work after retiring as there are working retirees, it’s a safe bet that few if any are showing up for work in search of added stress. Fortunately, there are plenty of jobs open to retirees that pair high levels of fulfillment with low levels of stress.
Retirement Planning Tips
Generating sufficient income in retirement can be a challenge without the help of an experienced and qualified financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Whether you are retired and working mostly for non-financial means or still in the workforce and focused on earning income, SmartAsset’s paycheck calculator will tell you how much your employer will withhold from your check for federal, state and local taxes.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
Debt is a financial obligation that can weigh down your personal
balance sheet. It can also be expensive if you carry a balance and have to pay
interest. If you find yourself carrying too much debt, Leung recommends that
you set up a repayment plan. This can help you get your finances back into
positive territory as soon as possible.
Spend meaningfully
“This movement is not about cutting your own hair and
clipping coupons,” Leung says. Instead, he says that people pursuing FIRE
should spend their money on what they truly value without guilt. They should
divert money away from things that don’t matter to them.
Allen agrees with this principle of the FIRE retirement plan. For example, she says that if you value treating yourself to dinner at nice restaurants, then you can avoid spending money on fast food. Instead, you can prepare inexpensive meals at home during the week. You can then use your extra cash to enjoy a special meal out over the weekend. (There are even ways you can save money eating out at your favorite restaurants.)
Leung and Shen decided that the thousands of dollars they
spent each year on travel was worth it to them. However, having a nice car in a
city like Toronto that has excellent public transit was not.
Learn how to invest in the stock market
Investing wisely is critical for anyone on a FIRE retirement plan, Shen says. “If you learn to invest and build
a portfolio instead of putting everything into a house, for example, then that
portfolio will spin off passive income—not just in capital gains, but in the
form of dividends and interest,” she says.
That recurring dividend income from a substantial investment portfolio must
eventually be large enough to support your living expenses, Leung adds.
To reach that goal of sustained, passive investment income, Allen
recommends “investing early and often. And as much as you can, for as long as you
can.” That’s because the earlier you invest, the sooner you can benefit from
the power of compounding.
Of course, you should always consider your unique financial situation
and goals before making an investment decision.
Get a side hustle
In the FIRE community, retiring early doesn’t necessarily mean that you
aren’t making some extra cash to support your lifestyle. In fact, building a
side hustle is often encouraged as part of a FIRE retirement plan.
“For us, it’s writing,” Leung says. “We run a blog, and we also wrote a
bestselling book.”
There are many reasons you need a side hustle. Leung notes that after “retiring,” a side hustle—even one that generates $5,000 to $10,000 a year—can dramatically enhance your financial position. The extra cash flow can help you limit the amount you need to withdraw from your investments, allowing your nest egg to continue to compound over the years.
If writing isn’t your thing, there are plenty of opportunities to earn
extra money in today’s economy, Allen says. Selling arts and crafts on an
online marketplace or driving for a ride-share company are great ways to boost
the longevity of your financial independence.
Reduce your cost of living
One of the most
effective ways to expedite your FIRE
retirement plan is to keep your living costs down, Shen and Leung say.
That way, you’re able to funnel even more savings into the market, where your
nest egg can grow.
If you’re interested in the retire early movement, you’ll be interested in these two ways to manage your living costs:
Travel can actually keep a lid on costs
Shen and Leung have
always had the travel bug, and they’ve found that traveling has actually helped
them reduce their living expenses in early retirement.
Shen notes that
when they were living in Toronto, they were spending between $40,000 and
$50,000 a year on living expenses.
“But when we
started traveling the world,” Shen says, “we spent $40,000 a year and it hasn’t
gone above that amount for the past five years.”
Leung says that they
no longer pay rent like they did when they were saving for early retirement.
Instead, they typically live out of their backpacks and pay for low-cost
accommodations as they travel the world.
“We’ve found that
not only is travel worth it, it’s actually helped us mitigate our risks in our
portfolio because we were able to control our costs,” Shen says.
Geoarbitrage can improve the gap between income and expenses
Shen admits that globe-trotting isn’t for everyone. For people who
would rather stay in one place as they pursue FIRE, she recommends geographic
arbitrage. It’s also known as “geoarbitrage” for short in the FIRE community.
It’s a simple idea: Live and work in a city with a competitive job
market and command a high salary. Then move to a lower-cost city or
neighborhood while continuing to make the same salary.
You might be able to score a new gig in a lower-cost location without facing
a salary adjustment, or you could commute from a lower-cost area if you’re not
able to change your headquarters. Remote work might also be a possibility.
“One outcome of the pandemic was that more and more people were able to
work from home,” Shen says, which opened up the possibility of remote work and
geoarbitrage to even more people pursuing the retire early movement.
Can a recession alter someone’s FIRE savings plan?
Saving, investing and traveling your way to
financial independence sounds nice in theory. However, a recession can throw a
wrench into your FIRE savings plan.
“If you retire into a down market, you can deplete your portfolio very quickly,” Shen says. Keeping costs down can help, but there are other strategies that can help protect you from a market downturn.
Allen thinks the best approach is to have a healthy store of cash saved up in case a recession hits while in early retirement. She is still working toward her goal of saving $50,000 in an emergency savings account—in addition to her investments—before she’ll feel ready to quit her day job.
Allen notes that many
people in the FIRE community don’t like to hold a lot of cash. This is because
it could be growing faster if it were invested in the stock market.
“I’m a little bit
different on that,” she says. “You never know when the market is going to crash,
so you want to have that financial buffer to be sure that you’re safe.”
Is FIRE right for you?
Achieving financial independence early in life
clearly has its benefits. You no longer have to work a job if you don’t enjoy
it, and you can spend more time doing what you’re passionate about. For Shen and
Leung, that’s traveling, and for Allen, it’s writing. For you, it could be
anything.
But FIRE can have its drawbacks, and sometimes
the benefits of the retire early movement can be achieved in other ways.
The FIRE retirement plan can give you major FOMO
Kali Roberge, now creative director at Beyond Your Hammock, a financial planning firm, found the retire early movement in her early 20s as she struggled to find a promising career path. Roberge graduated into the Great Recession and—like many recent grads at that time—was frustrated by the lack of prospects.
She found FIRE to be a way to sidestep the
traditional rat race. “I felt like if I couldn’t figure out how to make it in
the corporate world with a high-earning job, I needed to make just enough to
get out completely.”
Roberge believes
that achieving financial independence is a worthwhile goal. However, she found
that her intense focus on the
early retirement portion of FIRE resulted in missed experiences and
opportunities. She’d regularly skip movies and other events with friends
to save for the goal of retiring
in her early 30s.
“I really missed a
lot of time that I could have been spending with other people because I
was literally sitting at home to avoid spending money,” she says.
Roberge feels that her commitment to FIRE blinded her to paths that would have enriched her life. “I eventually realized that I could have more freedom and power by exploring ways to earn more rather than just scrimping as much as possible,” she says.
While Roberge realized
that retiring in her 30s wasn’t for her, she now has her sights set on retiring
at the age of 45.
You can be financially independent without retiring early
Shen and Leung have been able to use the FIRE
retirement plan to quit their jobs and follow their passions. But they
emphasize that the “FI” part of FIRE (financial independence) can serve anyone
who wants to take more control over their life.
“You don’t actually have to do the retire
early part,” Leung says. “If you love your job, you can stay there. But
financial independence is all about getting more power back for yourself. Not
being beholden to your boss, not being beholden to debt, not being beholden to
your mortgage.”
Allen echoes this sentiment. “I feel like FIRE should be for everyone,” she says. She also notes that even if you love your job now, that might not always be the case. She believes learning budgeting basics, how to budget your money and investing best practices can help anyone get their financial life in order, while the ethos of following your passions instead of doing what’s expected of you is important for living a fulfilled life.
Whatever you decide, do it with intention,
Roberge recommends. “Make sure you’re committing to this because it’s the right
move for you and your life,” she says. “Money is a valuable resource, but so is
time. We need to make sure we’re leveraging both wisely.”
If retiring early is your goal, consider the money moves you need to make to get there, starting with why you need to make a retirement budget before you actually retire.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.