Debt Shaming Is Not the Way

Debt Shaming Is Not the Way

This is the world we live in. Hot takes, shaming, and absolute statements drive eyeballs and boost engagement. It’s just the reality of the time we live in.

Personal finance gurus like Dave make a living off of hyperbole and sensationalism. I understand it and I actually respect the brand people like him and Suze Orman have built.

HOWEVER, I had to call out this tweet, as it was particularly lacking nuance:

Dave is a big advocate for prioritizing paying off debt and ultimately living a debt-free life.  Which, I would agree is a worthwhile goal.

BUT, just like anything in life, debt is a tool that, if used responsibly, can be beneficial.

If I have a mortgage, should I not step inside a restaurant until I’ve paid it off? I think it’s fair to give Dave the benefit of the doubt and say he’s referring to high-interest rate debt (like credit cards).

What if I graduated with student loan debt? Am I not allowed to ever go out to dinner and enjoy myself?

What if I work hard, live below my means, and are making progress towards my financial goals? Should I still not be allowed to treat myself to an occasional night out because I have student loan debt?

This is one of the differences between being a “personal finance guru” and being a financial planning professional that provides one on one advice. Personal finance is PERSONAL. Rarely are there situations where there isn’t nuance or it doesn’t “depend”.

Unfortunately, “it depends” doesn’t drive engagement like, “If you’re working on paying off debt, the only time you should see the inside of a restaurant is if you’re working there”.

If you want to live an all-or-nothing lifestyle, I respect it. I just don’t think it’s sustainable for the vast majority of us. I’d rather focus on creating a plan, and recognizing that you’re going to make “mistakes” (enjoy) yourself along the way.

The most important thing is that you are continuously making progress towards your goals even if you treat yourself to the occasional night out.

If you can’t enjoy the journey, what’s the point?

To learn more about our financial planning and investing philosophy, be sure to check out the DO MORE WITH YOUR MONEY podcast, available on Apple PodcastsSpotify, and YouTube.

Lastly, don’t forget to connect with me on twitter:

5 Steps To Prepare for Financial Success

5 Steps To Prepare for Financial Success

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”
― Abraham Lincoln

If you’re looking to set yourself up for long term financial success, you must take the time to put systems in place to quickly grow your net worth. Preparation is essential so that you can take advantage of your hard-earned money! To make the process easier, here are 5 steps to prepare for financial success:


1: Automate Your Financial Life


Take the time to establish a high yield savings account separate from your everyday checking. Look into establishing retirement accounts such as Roth, Traditional, and SEP( if self-employed) IRAs, even if you’re not quite ready to start utilizing them. Keep in mind you can still utilize IRAs in addition to your employer-sponsored retirement plan.

Long term you should strive to take advantage of all tax-deferred accounts (individual goals permitting) before moving on to taxable investing. By having the appropriate accounts in place (with bank links etc.) you can make it easy on yourself to make investment contributions in an efficient and timely manner. You can also work on simultaneously building up your cash reserve (anywhere from 3-12 months living expenses depending on the individual) so that you can invest with confidence later. Logistics is half the battle with taking action, so make it easy on yourself!


2: Pay Down Debt Strategically


In line with automating your financial life, take the time to review your debt (such as student loans). As a crucial no brainer, make sure you are allocating your debt repayment to the highest interest debt first. There are different ways to approach paying down debt, such as the debt snowball repayment method. While the specific strategy can vary depending on the individual, the most important thing is you have SOME kind of a plan and are making a conscious effort. The worst thing you can do is avoid looking at it because of the temporary stress involved.


3: Use a Credit Card Like you Would a Debit Card and Build Credit


Credit cards are useful as an intermediary between you and the vendor, especially in cases of fraudulent activity. It’s easier to correct fraudulent charges with a credit card versus a debit card (since it’s technically not your money), which is why you should not use your debit card for daily purchases. You can also earn rewards for purchases you would otherwise make anyways, so it makes sense to take advantage of credit cards! Credit cards are also a secondary cash reserve (hopefully to your actual cash reserve) which can be used for TRUE EMERGENCIES.

Paying off your credit cards on time along with having larger lines of credit (and not utilizing greater than 30% of them) will help build your credit score (fairly quickly too). Having a good credit score is especially useful when you are looking to qualify for a mortgage. With all of this being said, you should treat your credit card like your debit card. This means not spending more money than you’ve budgeted (or have in the bank, circumstance permitting). If you’re paying off your credit card monthly (which you should to avoid the outrageous interest rates), then it’s essentially a debit card with added benefits.


4: Budgeting: Start With Your Necessary Fixed Expenses and Figure out how Much you Have Left


It’s crucial that you at least KNOW what you’re spending. Consider using an online aggregation tool to track your total outflow. You cannot modify your budget if you don’t know what you’re spending. When building out your budget, start by looking at unavoidable fixed expenses you have to pay. From there you can determine what your variable discretionary expenses are. When you have a realistic analysis with yourself of what you are taking home for income (on an after-tax basis) less your outflow, you can figure out what your wiggle room looks like. If this is an area you struggle with, consider working with a financial coach such as Savings Academy.


5: Always Take Advantage of Free Money Even if you Have Limited Cash Flow


Does your employer offer a match on your 401(k) if you contribute a certain percentage of your salary? If so, you should contribute enough to at least receive the full match (even if your cash flow is tight). Free money is the best money. An employer match is essentially a 100% risk-free return (dependent on the match amount). That is hard to find!

Additional free money can come in the form of stock purchase plans where your company allows you to buy its stock at a substantial discount (and then immediately sell at the end of the purchasing period). Taking advantage of a stock purchase plan is not as straight forward as a 401(k) match, but cash flow permitting it can be a great source of “free money”.


As always, to learn more about our financial planning and investing philosophy, be sure to check out the DO MORE WITH YOUR MONEY podcast, available on Apple PodcastsSpotify, and SoundCloud.


Lastly, be sure to connect with me on Twitter:

Why I Respect BUT Dislike the Latte Factor

Why I Respect BUT Dislike the Latte Factor

Earlier this year CNBC published an article titled, Suze Orman: If you waste money on coffee, it’s like ‘peeing $1 million down the drain’

Here is a quick excerpt from the article:

“Let’s say you spend around $100 on coffee each month. If you were to put that $100 into a Roth IRA instead, after 40 years the money would have grown to around $1 million with a 12 percent rate of return. Even with a seven percent rate of return, you’d still have around $250,000.”

“You need to think about it as: You are peeing $1 million down the drain as you are drinking that coffee,” Orman says. “Do you really want to do that? No.”

What Suze Orman is referencing here is known as the ‘Latte Factor’ made famous by New York Times bestselling author David Bach.

Being cognizant of the small purchases in life and how they can lead to wasting substantial sums of money is IMPORTANT. Especially for someone just starting their personal finance journey and looking to build a solid foundation. However, to achieve meaningful wealth I don’t believe the “latte factor” is ultimately going to move the needle (unfortunately).

The major purchases in life such as a car, home, and education have opportunity costs that are worth a lifetime of latte purchases. So while I respect the principles of the latte factor, I don’t like the hyperbolic examples used by personal finance ‘gurus’ to draw attention to unrealistic examples.

More specifically, I REALLY don’t like the example used by Suze Orman in this article. A 12% annualized return is well above the long term average for US stocks and would be extremely unlikely to be achieved even by professional money managers. As you can see, the rate of return (over a 40 year time period) has a MASSIVE impact on the ending dollar amount.

The ending dollar value also doesn’t account for inflation! When you use realistic numbers that account for REAL returns after inflation, this example quickly loses its ‘clickbait’ appeal.

If foregoing coffee purchases aren’t going to move the needle, what will? 

Again, assuming you are aware of and respect the latte factor, here are some things that have an opportunity cost that surpasses a LIFETIME worth of latte purchases:

  • Failing to plan for tax efficiency within your income and investments
  • Not maximizing lucrative employer stock compensation (such as options and purchase plans)
  • Failing to take advantage of 401(k) matches
  • For business owners – failing to reduce taxable income via retirement plans and available deductions
  • Overextending yourself on a home (residence) and/or viewing it primarily as an investment
  • Taking out student loans for education without a reasonable return on investment
  • Not discussing finances with your partner, which can ultimately lead to divorce

To really benefit from compounding interest with REALISTIC rates of return it requires a high savings rate. The ‘easiest way’ to achieve a high savings rate is by increasing your income. Foregoing the $5 latte will give you a great foundation, but will not ultimately move the needle (like increasing income will).

Don’t ever sell yourself short! Your earning potential is usually much higher than you think. Be cognizant of the small purchases but focus on getting the big-ticket decisions right.

Tune in to the DO MORE WITH YOUR MONEY podcast below to get my complete thoughts!

Available on Spotify, Apple Podcasts, Sticher and SoundCloud

AND make sure to connect with me on Instagram, Twitter, and LinkedIn

“Young, Successful…and Drowning in Debt”

“Young, Successful…and Drowning in Debt”

“On the surface, plenty of Boston millennials are earning, spending, and having a blast. But beneath the veneer of $17 margaritas and shopping trips around the Seaport, many are living with debt – and lots of it. Is buying the good life on loan the new normal? Or is it plunging a generation into an early midlife crisis?”

A friend recently sent me over this clip from Boston Magazine, which obviously resonated with me!

Here are my takeaways:

There’s no question many young professionals are living beyond their means. To act like this is something new, however, would be extremely hypocritical since most of our older generations are ALSO woefully unprepared for financial independence (retirement). Young people living for today and not worrying about the future (shocker).

There’s also no question that Instagram culture is influencing our ‘keeping up with the Joneses mentality’. It’s HARD to forgo indulging when you are constantly bombarded with pictures and videos of your peers ‘having the time of their lives’. But, like most things in life and personal finance – there is a balance!

Should a young person not be allowed to go out to dinner with friends because they have student loans? Should every last dollar of disposable income be put towards debt repayment or growing your net worth? If you have that level of discipline and want to sacrifice to get ahead, I applaud you. I’m more in the camp of living for today while still planning for tomorrow. As long as you have an adequate savings rate (which includes debt repayment) and are not leaving free money on the table via lucrative employer benefits (such as equity compensation, employer matches, etc.), I see nothing wrong with ALSO enjoying yourself in the present.

One thing I will suggest and strongly advocate for is making tradeoffs when it comes to location and where you live. You don’t have to live in the Seaport to experience the Seaport. What’s the point of living in the Seaport to pay $2,500 for a studio apartment when that leaves you no disposable income for the experiences you REALLY enjoy ( going out to dinner with friends, etc.).

I always advocate friends, family, clients, etc. to think hard where their money is used to derive happiness. I’ve found for most, it’s the ability to have the flexibility to share experiences with others. Think about what tradeoffs you can make to give yourself that flexibility.

Lastly, let’s all agree to not let flexing on the gram influence OUR spending decisions. Personal finance decisions are PERSONAL, we don’t know someone else’s balance sheet and cash flow, so it’s best to focus on our own.

Options for High Earners after Maxing Retirement Accounts

Options for High Earners after Maxing Retirement Accounts

You’re doing everything right — living below your means, have a sufficient cash reserve, and are taking advantage of your tax-deferred retirement accounts to the full extent. So what’s next when you still have discretionary cash flow left over?

First of all, this is a good problem to have and you should congratulate yourself for not falling victim to lifestyle creep!

When deciding on how to allocate additional cash flow towards a worthwhile goal, consider the following:

  1. Is there a shorter-term goal you have outside of investing for financial freedom (retirement)?
  2. Do you have a business idea you’d like to pursue? Investing in yourself is often the best return on investment.
  3. Real Estate – consider adding a rental property to your portfolio for income generation.
  4. Taxable Investing – keep it simple by continuing to build up your investment portfolio with tax-efficient investing.
  5. Enjoy life in the present more — travel more, go out to dinner more and invest in experiences!

From an investment standpoint, continuing to do more of the same is often a great option! Sometimes, as our net worth and incomes rise, we believe adding complexity to our investments is a natural form of progression.

This is not the case!

If you’re looking to use your money to enjoy life more in the present, consider what your money dials are.

Think about the things in your life that you can outsource, because you:

  1. Don’t enjoy doing them.
  2. Want to free up your time for things you do enjoy.
  3. Want increased convenience.

Time is our most valuable commodity, freeing it up is a form of wealth on its own!

5 Questions To Ask Your Financial Advisor

5 Questions To Ask Your Financial Advisor

1. How is the advisor compensated?

Arguably the most important question you can ask your advisor. Incentives are a powerful motivator, and even the best advisor can be compromised when given incentives that do not align with the client’s best interest. A quick way, (although not foolproof) is to ask if your advisor is considered a “fiduciary”. Being a fiduciary means the person is legally required to do what’s in the best interest of the client. If the advisor is considered a fiduciary and does not do what’s in the best interest of the client (i.e. selling a product solely for the benefit of the advisor), then they’re leaving themselves open for lawsuits. Consider working with a fee-only advisor since their business model by default dictates they act as a fiduciary. If the advisor works based on commission, be very skeptical, since products can offer a wide variety of commissions to the advisor. The advisor may be incentivized to sell higher commission products that are deemed “suitable” for the client, but not necessarily what’s in the client’s best interest.

2. What is the advisor’s investment philosophy?

Does the advisor have a passive or active approach to investing, or maybe a combination of both? How does the advisor determine an appropriate asset allocation for a client? What factors warrant changes to client’s investments; for example, changes to a client’s circumstance versus changes in market environments. There is no perfect answer, as a wide variety of investment philosophies can drive long term success. However, you should look for an advisor who has a disciplined process, and one that can be reasonably/easily explained in plain English. Some of the best investment strategies can be very simple, but require behavioral coaching to make sure the client sticks to the chosen strategy. Don’t be sold on complicated investment strategies that you can’t understand; the finance industry has developed jargon over the years to keep consumers from asking important questions.

3. How does the advisor select investments and products; are there any proprietary products?

This goes along with question 1 and how an advisor is compensated. Again, if an advisor works for an overarching corporation, that does not necessarily mean they’re bad, however, they often have incentives from the corporation which may or may not align with the client’s best interest. The corporations are concerned with driving profits and appeasing shareholders, which can sometimes trickle down to the clients being taken advantage of. An example of this abuse can come from proprietary products. Many large broker-dealers and investment firms own mutual fund subsidiaries, whose funds their advisors can recommend to clients. Advisors may be incentivized to use a particular fund family because they are owned by the overarching corporation, regardless of the fund is the best one for the client. Proprietary products are not necessarily the number one thing to be wary of, it’s just better to have an advisor who you know has no incentive to recommend one investment over another.

4. What value does the advisor provide beyond investment returns?

With fee margin compression and investment automation, investment returns should not be the sole value provided by your financial advisor. Does your advisor provide advice on other financial aspects of your life? For example, budgeting and cash flow, protection planning, education planning, estate planning, and tax planning. You should look for an advisor who provides holistic advice, meaning they’re looking at how each aspect of your financial life is connected. The investment returns are only a piece of the pie.

5. What are the advisor’s expectations of you?

What does the advisor expect from your relationship? How often are you expected to meet and review your financial situation? Ask the advisor what their ideal client relationship looks like so that you can both properly set expectations. Setting expectations for both the client and advisor is crucial in creating a successful partnership. Discussing finances can be emotional, therefore it’s important to work with someone who you can trust and be open with.