Act Like A Squirrel

Squirrels are the commiserate example of preparing for the future. They literally store up food for themselves a little bit at a time in order to have a sufficient stock pile by winter. The Acorns app operates under a similar premise. It makes very small, incremental transfers into what's essentially a brokerage account that's invested in mutual funds for diversity. Now before you shrug it off as something that seems overly complicated, let me assure you that it's actually quite simple.

It only takes a minute to set up an account with Acorns to get started. After you link up a debit or credit card (or more than one if you would like) there is obviously a verification process to make sure you own the associated account. That step is simple though and you have likely been through that drill before in setting up other financial accounts. Once verified, you're done! Now every time that you make a purchase, the Acorns app will round up to the nearest dollar and roll that amount into your new account. The funds that accumulate are then invested into mutual funds automatically. You have several options based on your risk tolerance but they even make that simple. Rather than having to pick and choose the individual mutual funds, using a sliding scale, you select how aggressive you would like the investments to be. That's it! Now you can just sit back and watch the loose change add up over time. Here's a snapshot of a few transactions to give you an idea of how it looks.

How much you can accumulate is of course contingent on your spending. And the growth (or loss) is tied to the market performance of the mutual funds selected. From my experience, I've seen relatively steady growth in my account. But, perhaps the real 'secret sauce' is the pure automation of the savings. By rounding up the odd change on every transaction, it never feels like money that I'm missing. In fact, by dealing with only round numbers it actually makes budgeting a bit easier as well. This is hardly a get rich quick scheme but continues to develop the habit of saving more and more all the time. And, assuming traditional gains over the long term the fifty or so dollars per month that you're squirreling away could be worth more than $75,000 in thirty years. While that's not enough, in and of itself, to retire anyone, it's definitely a nice supplement. Heck, buy yourself a retirement present like a new Corvette if you're into that kind of thing. What if you chalked this account up to just being extra loose change and just used it for charity, gifts, helping people in a tight spot completely anonymously? Think about the difference your left over change could really make.

What are some of the things you would do with an 'extra' $75,000? Realizing the difference that change makes and starting today might be just the thing to put you in a position to answer that question sooner rather than later.

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Jefferson

Navigating the Landscape of Exponential Returns

What if I told you there was a way to get anywhere from 100 - 1000% return on your investment? If that doesn't catch your attention, check your pulse. Well, it turns out that there actually is a way to get this kind of exponential return on one investment: landscaping improvements. Not the glamour shot you were hoping for? Hey, I'll take high returns anywhere I can get them.

The Washington Post published an article about a year ago highlighting the financial gains associated with boosting your curb appeal. And, while there are certainly no guarantees when it comes to investing money into your home, there are some fairly impressive examples out there in the real world. In the last two years we have purchased two new homes for our family. The first we purchased directly from the builder whom had planted just enough pitiful looking bushes in one spot to be able to claim 'custom landscaping' in their marketing propaganda. The other, we bought from a couple who was apparently going through a nasty divorce. And, it seems that one of the areas of contention for them was not which landscape design to go with since there wasn't a single thing in the yard except for grass. Anyway, one of our top priorities after we moved in was to add some landscaping as a way to not only somewhat personalize but ultimately add value as well. Now I have the unique ability to kill even fake plants so this is clearly not my area of expertise. So, we decide to outsource this area of our lives mostly because we actually want the landscaping to look good and live for more than five minutes. Fortunately for us, we have a friend who owns a successful lawn and landscape business in this area. He scheduled a time to come check out the property, met with us about what we were interested in doing, drew up sketches of various options for us, and then met with us again to go over the plan. He even included pictures of each of the plants/trees he was recommending. He and his team are incredibly professional and do a fantastic job so check him out if you want to dial up the value on your own home.

The house that we purchased in 2014 was definitely sufficient for our family but the opportunity on the second one was so good that we jumped. And, selling our house less than two years after we bought it worked out really well as far as the timing was concerned. It's difficult to truly quantify the landscape value alone since we had done several other upgrades to the house in that time as well. But, it was a clear difference maker when we were looking at the comparable listings, especially within our neighborhood. There was another home that had the same obligatory, builder grade three bush, one tree combo just down the street that, last time I looked, was still listed for sale.

As for our current home, we definitely needed to add a little something to the grass and grass only look we had going on. With three young kids we wanted to maintain a significant amount of open space for them to run and play without fear of interruption. But, we wanted the place to actually look lived in too. And, the plan (the better you know me, the more comical this statement becomes) is for us to live here for a looong time. I'm not sure what long really means given the fact that the longest I've ever lived anywhere was five years...and that was from birth to age five. It's still the plan nonetheless. There was a recent sale in our current neighborhood that had some fantastic landscaping which had to give it the edge over a similar home that had none. And, based on the price per square foot it sold for, our home's value now that we have attractive landscaping has jumped big time. Relative to what we paid for our improvements in the yard we could potentially realize roughly 100X the cost. Even at the low end of the current assessments out there, we're looking at a minimum of 10X the return. And, just in case there is any question about it, if I could create a valuation increase between 10-100X the initial investment, I'd sign up today!

'Yeah, but there's no guarantee'...'it's not a 'real' value add unless you sell'...'it costs such-and-such amount up front'...'I'd rather have a rock garden'. Seriously though, you're losing me on the rock garden thing. Other than that, a lot of valid points. And all the same arguments can be made relative to things like the stock market as well. There are so many benefits to doing something now rather than waiting that it's ridiculous. Of course you could wait until right before you sell to update your landscaping. But, who knows what your financial situation will look like at that time. What if you're selling out of necessity rather than opportunity? Think you'll have such-and-such amount then? And why not plant today so that you can enjoy it until that day comes? Realistically, this is the closest you'll get to money growing on trees.

Next time you're out take a look around. Whether you're just walking through your own neighborhood or going for a drive, look at the homes around you and take a moment to realize exactly how much nicer those with attractive landscaping really are. If you notice any discernible difference at all, potentially others would too when looking at your home.

What are some of the common things that you find yourself drawn to when it comes to curb appeal? And what about observations that give you a negative perception of a property?

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Jefferson

The Flat Tire Fund

So there you are, cruising along in your car, minding your own business when...pop-pop...the construction zone you're in leaves you with two flat tires. Or your water heater goes out. Or an unexpected doctor's visit is required. What happens next? 

Now I know many of you reading this are thinking, 'I would buy the tires and move on with my life. What do you mean what happens next?' However, that response isn't necessarily going to be the norm. In fact, in an article published by MSN, roughly 54 percent of people indicated that they would not have the ability to pay for a $400 unexpected expense. So, they end up putting it on a credit card and paying it (and a pile of interest) off over time, borrowing from friends or family, or worse, not take care of the issue at all. 

Ok, we've acknowledged that the lack of savings is a real thing but what can really be done about it? What does it actually take to have that $400 saved? There are lots of ways to break down the math of it but it shakes out to $8/week over the course of a year. Doesn't sound as daunting now, does it? I would easily argue that $400 isn't enough though. Dave Ramsey, one of the most recognized names in the realm of finance and budgeting, recommends an initial emergency fund of $1000 before attacking one's debt. Really I think it comes down to your individual situation as far as defining 'enough' when it comes to an emergency fund. But, no matter what that number is, do what it takes to get there. Maybe it's as easy as taking your lunch to work every day instead of eating out, or skipping the overpriced coffee chain, or paying with cash and tossing the change into a jar on your nightstand. Find a method that works for you and your family and stick to it. That way, when something happens you can be the one to say no big deal, I've got this.

What happens when a financial emergency occurs in your life? How have you prepared for the unexpected expenses that are an inevitable part of our lives? Take a minute to reflect on that but also on how we can position ourselves to be able to help those around us who end up in these situations.

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Jefferson

Boiling Frogs and Planting Trees

There is a theory, which I have not tested out by the way, that says that if you drop a frog into a pot of boiling water, it will immediately jump out. However, if you place that same frog into a pot of water and slowly, incrementally turn up the heat, it will remain in the pot even after the water has begun to boil. And, as an additional disclaimer, no frogs were harmed in the writing of this post. That being said, there are some interesting things we can learn about our own reactions to our surroundings...including when it comes to money.

Lately my wife and I have been talking through various ideas on our quest for financial independence. We've explored everything from rental properties to P2P Lending and lots in between. But, being the highly analytical over thinker that I am, I found that my decision every time was indecision. Huh, let me read that again you say? Nope, read it right the first time. Everyone makes decisions multiple times throughout each and every day. The most under recognized decision is the inability to make one. But, every time that you decide not to think, act, say, etc. it's just that...a decision. Ok, back to the point. My dad has said many, many things over the years that have stuck with me and several of those continue to ring more and more true as I encounter various life situations. One of the things that I remember him saying when I was very young was, 'Make a decision and stick with it...the best thing you can do is make a decision and be right.  The second best thing you can do is make a decision and be wrong.  The absolute worst thing you can do is not make a decision.' The point is, just do something. So, here we are, waffling about what to do when this reminder came back to me. I don't have to have all the answers now. I don't have to find the perfect thing now. But, what I do need to do now is something. Anything really. In our quest for financial independence there is about a 99.9% chance that we will fail by sitting around doing nothing. So, even if what we choose to do is waaay wrong, we're still likely improving our odds of success. And, what if the decisions that we make are actually decent ones? Wouldn't that change our financial fate exponentially? I know, you're waiting for the punchline that's going to be the golden ticket that we'll all invest in and be gajillionaires by this time next week. Well, that ain't going to happen. No golden ticket here. Just a friendly reminder to do something now. There is a Chinese proverb that says, "The best time to plant a tree is twenty years ago. The second best time is now." And Warren Buffett, who knows a little something about financial success, said it differently: "Someone is sitting in the shade today because someone planted a tree a long time ago." With all of these catchy phrases and sayings, who wouldn't be prompted to action? Turns out, most people. In a study published in December 2015 by marketwatch.com, 62% of Americans have less than $1,000 in their savings accounts. And, even more terrifying, 21% don't even have a savings account!

So what are we doing? We decided we would go the route of rental property. So, we jump through all the hoops at the bank...tax returns, W2s, bank statements, kidneys, first born, and a vile of Himalayan tiger blood...and got our approval. Seriously, getting money from a bank is about as invasive as outpatient surgery. But hey, this is the American Dream we're talking about here! Everything is good to go and then the house we were looking at went under contract and sold before we were able to make an offer. So did the next one. We're really feeling lucky now. Nothing left fitting our criteria at the moment so we decide to wait for another opportunity rather than buying something we didn't necessarily want just for the sake of buying something. In the interim I decide to take a harder look at our passive income streams and see what's working and what's not to see if there were opportunities to capitalize on what we were already doing. And our P2P Lending account with Prosper finished 2015 averaging 8.12% for the year...not too shabby in the midst of a relatively volatile market at the moment. So I decided to feed the machine a little more and set up recurring deposits every month in order to automate both our savings rate as well as increase that passive income stream. We decided that the best way for our family to move closer towards financial independence was to dial up the heat in small increments over time. It would sting a bit to dump a significant amount of money into a rental property with a break even point many years down the road. But, making small, incremental investments each month with the opportunity to watch the return every single month is an encouraging way to grow savings and generate income at the same time. Not only is it fun to track (for those of us who like to spend quality time with our spreadsheets at least) but it's motivating and helps us want to save even more since the growth seems almost tangible. 

What about you? What are some of the ways that you've found to boost your own savings and investments? Have you had any experiences, good, bad, or indifferent, with other strategies along the way? Send me a message or comment below to keep the conversation going.

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Jefferson

The B-word

In a land far away, long, long ago the B-word found itself hanging out with the wrong crowd and ended up with a bad rap. It hasn't always been that way, but over the last few years (even decades really) the word Budget has had a negative connotation. The ironic thing is that, if used appropriately, it's very freeing rather than restrictive. Now in the interest of full disclosure, we are not at all where we should be in the budget department. Some people have their income and expenses itemized in such acute categories that they know to adjust everything to account for the additional $0.31 per day that they spend on herbal tea and essential oils during allergy season. As for us, we operate under more of a 'keep it between the lines' budget and even hope for the road to curve in the direction we're headed sometimes. The more disciplined that we are able to become though the easier it seems to get.

One of the ways that we've been able to improve our financial position is by taking a hard look at some areas where we have strengths and weaknesses. If we're able to capitalize on some of our strengths and mitigate some of the effects that our weaknesses have, we can't help but improve. And, while we're not always great and keeping it in between the lines as I mentioned earlier, there are some areas where we're able to make some headway. Those of you who really know me understand that I'm slightly competitive in most aspects of life. In a previous role with my company I had the ability to pull a Stack Ranking report in order to see where everyone within the company in the same job role measured up against each other. Now I'm not that competitive really so I usually only pulled the report every single day and sometimes more than once a day. Every once in a while when I would pull the report it would take me a few seconds to find my name. You see, I would always look at the top spot first and work down from there because I fully expected to be in that top spot every single time. But, on occasion, the name beside the number one wasn't mine...which would absolutely infuriate me. Retrospectively it was actually really good for me to check it as often as I did because it was a huge motivator for me to get back on top. I would break down exactly what I needed to do to end up back in the number one spot and then build in a buffer in case anyone else was gunning for the top as badly as I was.

Enough of me reliving the glory days of smashing everyone else's numbers consistently...though it's fun to think about. All that was to say this, one of my strengths is my competitive nature. Ok, strength identified; now what? Glad you asked. Now we have to figure out a way to monetize it or, at the very least, put it to good use not spending money. And, this is where the competition is helpful because I constantly have the opportunity to stack rank myself against previous versions of myself. For me money in general has almost become a game. If I find myself wanting something badly but having the discipline to pass and move the amount I would have spent into savings or investments it feels awesome. And, the more that we've been able to do that, the easier it becomes to do. Believe me though, my propensity for doing dumb things financially is still remarkably high. But, the small wins are worth celebrating and really go a long way in motivating us to stay on track. So even if our budget isn't locked in so tightly that we'll be independently wealthy any time soon, it's also not just flapping in the breeze either. The point is we're trying to acknowledge ways and areas where we can improve one step at a time.

What's one of your budget secret weapons? Or, what are some of the areas that could use a little elbow grease to tighten up and get you back on track? Either way your feedback might be just what someone else needs to hear to jumpstart their own financial success.

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Jefferson

When Cutting Expenses Costs Too Much

If you could give up $75/month worth of income to eliminate $250/month worth of expenses, would you? At first glance this question makes me want to look around trying to find the candid camera or figure out who's punking me. But, after diving deeper, it's not as clear cut a decision as it seems. So, let's jump on in...

Currently, my wife and I have an outstanding balance on one of our vehicles. I know, the cardinal sin in planning for financial success. The only thing that could possibly be worse is having credit card debt, right? Well, maybe. But then again, maybe not. Anyway, we currently owe $10,300 on a vehicle worth north of $31k. And, for the purposes of this exercise, let's just call it a $10k balance. We have $250 set up on auto pay each month that's chipping away at the principal balance nicely due to the 2% rate. In an attempt to somewhat simplify and, more importantly, reduce expenses I thought perhaps we should just pay off the balance in full which we are fortunate enough to be in a position to do. But, being 'overly analytical to a fault' as a previous employer once told me, I decided to definitively determine if the math made sense. The $10k that we would use to satisfy the loan is currently invested in a P2P Lending account that's earning an average of more than 8% over the last two years. Again, for the ease of simple math, we'll say the return is $75/month despite the fact it's actually higher than that. Thus, the initial question.

Math time....

If we write a $10k check, that stings a bit. Especially when you're not buying something fun. But, if we reallocate the $250/month back into savings our break even point is 40 months ($10,000 / $250). A long time, but not terribly long. Wait, we forgot to account for the lost income of $75/month. We'd be giving up $3k ($75 x 40 months) which pushes the break even point even further out. The reality is that, assuming no gain through compounding interest or reinvestment we really wouldn't be even again until roughly 57 months. That's nearly five years! And, to make the math even more complicated, the vehicle would actually be paid off much sooner than that anyway.

So, after running the actual numbers we have determined that it would cost us more to pay off the loan at this time. This seems to fly in the face of every financial guru's advice in the history of ever. It was an eye-opening exercise though as far as proving the necessity of diving deeper into the nuts and bolts of a financial decision rather than simply subscribing to any one model or blindly following the advice of a particular talking head. I'm sure that we will have many similar exercises in the near future to unearth any potentially detrimental moves we're making in our quest towards financial freedom.

What about you? Have you had a situation that makes no financial sense at first glance yet turned out to be drastically different after running the numbers? Or worse, one that seemed to make perfect sense but ended up taking you in the wrong direction financially? Leave a comment below with your own story or thoughts/feedback on ours.

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Jefferson

Focus Needs Direction

"An arrow can only be shot by pulling it backward. So when life is dragging you back with difficulties, it means that it's going to launch you into something great. So just focus, and keep aiming."  - Author Unknown

Are you on the precipice of greatness? Sometimes it's difficult to realize that you are exactly where you need to be. The idea of 'focus' seems simple enough but, in reality, it can be anything but simple. Some have defined focus as 'the center of interest or activity'. Ok, that seems fair. But, here's where the complexity enters; focus isn't enough. What do you mean? Of course it's enough. During this pivotal time, my wife and I have been discussing some hypotheticals and potential next steps for our family to take. And, what I realized in a conversation this morning was that she and I are both extremely focused on the same thing but that we are essentially standing back-to-back. Or perhaps a better way to say it, we are standing in the exact same spot, yet looking in opposite directions.

Let me explain using the illustration of the arrow in the quote above. Most arrows are made up of three basic parts: the arrowhead, the shaft, and the fletching. The fletching is the part at the back end of the arrow most commonly depicted using feathers. This is the location, figuratively of course, that my wife and I are standing. We are both very aware of where we currently find ourselves and acknowledge that we are where we need to be presently. It could easily and accurately be said that we have focus. And now, why I say focus needs direction. As I stand on the fletching, facing the direction in which the arrow is being pulled there are many things to speculate from this position. I wonder how much further backwards we'll be pulled, which way is this thing even aimed, the bow's string has to be about ready to break. Dr. Norman Vincent Peale is not likely to be too proud or impressed with me at this point, I can assure you. And then there's my wife, Jaci, with a vastly different vantage point of the situation. As she's staring straight down the archer's eye line, things look a bit better. In her mind the contemplations have a much more positive spin. This has to be close to as far backwards as we'll go before being catapulted forward, we are aimed dead at that bulls-eye, the tautness of the string tells me that once we're on our way we are going to get there fast. Little different outlook, huh? So, despite being in the same place there are (at least) two ways to look at one's circumstances. And, sometimes we all need to be reminded of the power of our own perspective. I know I sure did today.

What about you? What types of situations have you found yourself in where, looking back, you could have simply adjusted your perspective in order to improve your circumstances? Or better yet, who's the person you're back-to-back with in instances like that that helps, sometimes literally, turn you around?


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Jefferson