Teachers Stacking 10's

Author: The Professor

  • Debt is a four letter word!

    Debt is a four letter word!

    The T.A. and I were talking the other day about the fact that we have talked a lot about what to do once you have money, but many people live paycheck to paycheck. It’s time we talk about the biggest problem facing Americans today…. Debt….

    One of the first posts that I read when I started down this path was the classic Mr. Money Mustache post on debt being an emergency. I highly suggest reading that post as Mr. Money has a way with words that I still am learning. He is the man!

    When it comes to debt, Americans are in love! According to a 2018 study by Nerdwallet, the average American household has $6,829 of revolving balances each month. Add in your monthly mortgage/rent, car payment, student loan payment, etc… It’s no wonder that your average American looks at you like you have a third arm when you ask them how much they are saving each month for retirement.

    If debt is so bad, then why do so many people put themselves in this situation? Most people don’t venture out to bury themselves with debt. It’s more like a death through a thousand paper cuts type of situation. They get that first job and see how much money they are going to be making. They decide to purchase a house to start their family. So starts their life of mortgage payments. They realize they need a new/newer vehicle because they “deserve” it. So they take out a vehicle loan with a monthly payment they can afford. They pick up a few things to go into their house to make it look nicer. They go out to eat a few times a month. All of these small charges go on their credit card because they will have enough money at the end of the month when they get paid. Uh oh, the water heater goes out. $1,200. Damn house. They pay that bill because they have to have hot water, but that means they don’t have enough to pay that $500 credit card bill. It’s ok they think because the minimum payment is only $25. They make that minimum payment and carry over that $475 plus another $15 for a total of $490. Here’s where it all starts to go wrong. They don’t change their habits. They rack up another $500 in credit card charges the next month and now have a $990 bill staring them down. Get the picture?!?

    So how do we handle this debt problem? Well, if you’re like most Americans, you ignore it and try not to think about it. You DEFINITELY don’t talk about it. The typical American sticks their head in the sand and hopes the debt will go away. THAT WON’T WORK! So what do they do? They run out and get a consolidation loan or even a home equity loan and pay all them cards off! Problem solved! Wrong. Wrong.

    Because here’s what happens. All of their debt is gone, but their habits don’t change. They continue to put those little charges on their credit cards and now, not only do they have that new loan payment, but their credit card debt starts to climb again. It’s an all-too common theme in America. People NOT taking responsibility.

    So professor, what’s the answer then? How do I fix this situation? 

    First, you must face up to your debt and NOT ignore it! Immediately stop spending money on those credit cards. Put every penny you can spare into paying them off. You can start on the card with the smallest balance or the highest interest rate. Hard-core budgeters will tell you it has to be the highest interest rate card, but you need to do whatever works for you! It won’t be easy. It will probably suck, but YOU put yourself into this situation and only YOU can get yourself out.

    The key is that you MUST take action.

    KEEP STACKIN!

  • What is a Dividend?

    What is a Dividend?

    Investing can be complicated. Through this website, the T.A. and I have tried to simplify it into terms that the average teacher can understand. The focus of this post will be on dividends.

    So far, we have talked about saving your money and investing it into primarily index funds to make things as simple as possible. Now that you are starting to get a better understanding of what stocks and index funds can do, I want to explain the importance of dividends in your portfolio.

    In it’s simplest terms, a dividend is in the interest that a company pays you for you “borrowing” them your money. By purchasing a company’s stock, you are “loaning” them your money. They use that money to improve their business and grow profits. If you have purchased stock in a good company, they will have a profit each quarter, and they may pay their stockholders a percentage of those profits. A key point is that NOT ALL COMPANIES pay dividends. This does NOT mean those are bad companies. Maybe it’s a company that is still growing and is investing their profits into growing and are not yet ready to pay out dividends. The stock price is climbing because their company is growing and your money is still growing. Index funds, ETFs, and mutual funds may also pay dividends out to their shareholders.

    Dividends can be paid at different times during the year. Some companies will distribute a yearly dividend at the end of their fiscal year. Others will distribute them semi-annually, quarterly, or even monthly. There really is no set rule as to when companies will distribute them. Some companies will even announce a “special” dividend if they have an extra profitable fiscal quarter or year.

    Dividends are measured in their annual yield. This yield is figured by dividing the total yearly dividend paid by their stock divided by the stock’s price. Let’s take a common ETF that we have discussed in previous posts, Vanguard Total Stock Market Index Fund (VTI).

    VTI’s share price as of this post is $155.83. The dividend paid over the last 12 months is $2.74. If you divide $2.74 by $155.83, you get 0.176. Multiply by 100 and you get 1.76%. So currently, VTI has a yield of 1.76%. It’s really not that difficult to calculate.

    So the quick decision people make is, oh, just find the stocks with the best yield and buy all of them! Not so fast… You need to make sure that the dividend for that stock is sustainable. Maybe their share price has plummeted due to a poor quarterly report. Their yield will jump, but they may have to cut their dividend because they didn’t make enough money to pay the previous dividend amount. It is important to keep an eye on a company’s earnings per share (EPS) each quarter. If a company only profited $1.32/share for the previous year, paying $1.40/share dividend isn’t going to be sustainable.

    So how can we use dividends to grow our wealth?

    A popular way of dividend investing is to invest in strong companies that have a history of raising their dividends over time. This is a great way of increasing your yield. It is commonly referred to as Dividend Growth Investing or DGI. Let’s take a look at an example of how your yield can grow over time.

    You decide to buy Company A. They are a solid energy company that has continually raised their dividends over the last 10 years. You decide to purchase 100 shares at $100/share. At the time of your purchase, the company had a yield of 1.5%, so for your $10,000 investment, you were paid $150/year in dividends.

    Fast forward 10 years. You’ve held those 100 shares in Company A over the last 10 years. Each year, you have received your dividend. Also, the stock price has steadily climbed and is now $140/share. During this time, the dividend continued to increase each year as well. Now they have an annual yield of 1.75%, so based off of that $140 share price, the yearly dividend in now $2.45/share. So if we look at your original purchase of $100/share, your yield on cost (YOC) is now 2.45%! This is how dividend growth works. It’s not unheard of for people that have held their stocks for 20-30 years to be receiving 10% yields or more on that money they originally invested.

    The negative of dividends is that if they are in your taxable accounts, you will have to pay taxes on them depending on your tax bracket. If you have held the stock for under a year, any dividends you receive will be “unqualified” and you will have to treat them like income and pay taxes on them according to your tax rate. If you have held them for longer than a year, they are considered “qualified” dividends and are subject to a different tax rate that will depend on your income level.

    This is why many people hold their dividend stocks in their tax-sheltered accounts like your 403b, IRA, or Roth.

    While index funds are still our #1 recommendation for investing dividends can be a great way to provide yourself passive income and add some diversity to your account.Your money making money for you, and that will help you to…..

    KEEP STACKIN!

  • Travel Rewards! Case Study; Chase Sapphire Preferred

    Travel Rewards! Case Study; Chase Sapphire Preferred

    There’s no place like home…. Or is there.

    Some people love to travel the world and see different things. I am not one of those people. I am very much a homebody, but as I get older, I am realizing how much I hate the cold winter weather and want to head somewhere warm. This year I decided that my wife and I are going on a vacation. After looking at our budget, I realized that we would have to blow it up to make a nice vacation work. I knew I would have to find a way to pay for it that was “unconventional”. Hello, travel rewards credit cards!

    If you’ve been reading this blog, you remember my post on the cash-back Discover It card. After that successful venture, I started doing more research into using credit cards for the travel rewards. I ended up choosing the Chase Sapphire Preferred card for it’s excellent bonus. After spending $4,000 in the first 4 months, I would be eligible to receive 60,000 bonus points. This was easy enough as I had been paying our monthly bills on the Discover It card for the previous year. I just changed those payments over to the Chase Sapphire Preferred card. We easily met that minimum spend in the first 3 months, and BOOM, 60,000 bonus points were added to our account. At that point, I started paying our monthly payments on our Chase Freedom Unlimited card because we earn 1.5 pts for every dollar we spend. Then I transfer those points to my Chase Sapphire Preferred card because those points are worth 1.25 cents/point when redeemed for travel through the Chase portal! Double-hacking!!

    An added bonus was you can get 15,000 point for every friend you refer that qualifies for a card. So being the great friend that I am, I referred the T.A. Once he qualified, another 15,000 points were added to my card. I’m such a nice guy!

    So after paying our monthly bills over the last 8 months on the Chase cards, we ended up with over 94,000 points! 

    Monthly spending points – 19,512

    Referral – 15,000

    Bonus Points – 60,000

    Total points – 94,512

    After accumulating these points, we decided that we wanted to go to Cabo. We are lucky in the fact that my parents have a timeshare, and we were able to get a FREE 6 night stay at a resort there through my parents’ point portal. I looked into flights and was able to get round-trip flights to Cabo for 91,163 points! FREE FLIGHT!

    The Professor taking it all in.

    Granted, the die-hard travel hackers out there could have done this more efficiently and for better “value”, but for my first time, I’m pretty happy with the results! Another example of making the credit card companies work for you! And hey if you decide you’d like to try the Chase Sapphire Preferred card. Here’s a referral link that you can use.

    KEEP STACKIN!

  • How to Analyze and Buy Stocks, ETFs, and Mutual Funds

    How to Analyze and Buy Stocks, ETFs, and Mutual Funds

    So you followed my advice and opened a Roth IRA at Vanguard. You invested some money into it and think you are done. WRONG! This is a common mistake that I’ve seen many teachers make. They invest money into their retirement accounts, do nothing, and expect it to grow. It might grow, but it’s not going to grow by much when it’s only invested in a simple money market account, which is what happens to your money when you don’t designate it into purchasing a specific stock or fund. In this post, we are going to show you how to analyze the important information from an equity quote.

    Let’s start out with a simple stock. We will look at a popular stock from a strong company, Apple (AAPL). Apple has been a strong company for over a decade with their strong sales in technology.

    Detailed quote information

    Open 196.31
    High 198.07
    Low 194.04
    Prev close 193.34
    52 Wk high 233.47
    52 Wk low 142.00
    Average volume 24.62 M
    Bid (Size) 196.80 (2,000)
    Ask (Size) 197.00 (2,100)
    Outstanding shares 4.60 B
    Market cap 873.74 B
    EPS 11.78
    P/E ratio 16.41
    Div yield 1.59

    So, we see Apple’s current quote above. Let’s look at each line.

    OPEN – This is the price that the stock started the day at.

    HIGH – This is the highest price of the stock on the day.

    LOW – This is the lowest price of the stock on the day.

    PREV CLOSE – This is where the stock closed on the previous day.

    52 WEEK HIGH – The highest price of the stock in the last year.

    52 WEEK LOW – The lowest price of the stock in the last year.

    AVERAGE VOLUME – This is how many of the stocks are bought and sold in a given day.

    BID (SIZE) – This is the price that someone is willing to pay for the stock and how many shares they want to buy.

    ASK (SIZE) – This is the price that someone is willing to sell the stock at and how many shares are available.

    OUTSTANDING SHARES – This is how many shares are available in the company.

    MARKET CAP – This is how much the company is worth based on the number of shares outstanding and the price per share.

    EPS (Earnings per share) – This is how much money the company makes for each outstanding share. This number can be negative as well. Some companies, especially new, rapidly growing companies, invest their money back into the company and show no profit.

    P/E Ratio (Price to Earnings Ratio) – This is the price per share divided by the earnings per share. The higher this number is, the more investors believe that the company will grow. It could also mean that the stock is overpriced.

    Dividend Yield – This is the percent that you will earn from each share. So from Apple, you would earn 1.59% on your money each year. This dividend is paid out from the company from its profits. Sometimes a company will increase their dividend, but other times, they may decrease it. Some companies pay out no dividend at all. They choose to reinvest their profits to grow their company. Amazon is a company like this.

    Next, let’s look at a “fund”, which is a collection of stocks. 

    Last price as of 08/06/2019

    $147.03

    $1.89 1.30%

    52-week high
    07/26/2019

    $154.37

    52-week low
    12/24/2018

    $119.54

    		 $34.83 29.14%

    (52-week difference)

    NAV
    as of 08/05/2019

    $145.08

    -$4.45 -2.98%

    30 day SEC yield
    as of 07/31/2019

     

    1.83% B

    Open

    $146.19

    Previous close

    $145.14

    Day range

    $145.21 – $147.08

    Bid

    $146.34

    Ask

    $147.03

    You can see that most of the information for a fund is the same. Why would someone buy a collection of stocks? Instead of taking a gamble on one company, you are betting on all of those companies doing well. If you invest in a single company, that company could go broke, and you could lose all of your money. Now, odds are that a company like Apple will definitely not be going broke, but some people like to spread their risk. “Funds” can come as a mutual fund or an ETF (exchange traded fund). These funds are very similar except that an ETF usually only requires that you buy one share at a time, and a mutual fund requires a minimum dollar investment.

    There is another big different between them. When you purchase a stock, you will have to pay a commission to buy that stock. Usually it’s a flat fee no matter how many shares you purchase at a time. When you purchase a fund, for example VTI from Vanguard, VTI is a Vanguard fund, so you will pay no fees!

    How does Vanguard make their money? They have something called an expense ratio. The expense ratio is one of the most important things to look at when deciding on which fund to buy. The lower the expense ratio, the more money you keep instead of paying to the brokerage. Do NOT buy into the idea that a “managed” fund is any better than an index.

    The expense ratio for VTI is 0.03%. This is very good. Now VTI is an ETF. This means you must purchase full shares. The “con” of this is that you may have money sitting in a money market while you wait for enough to purchase a full share. VTSAX is the “big brother” of VTI. It holds the same stocks, but with VTSAX, you can buy partial shares which means every one of your dollars is invested and at work!

    Last thing. Pay attention to those fees. They can sneak up on you. The reason I like Vanguard so much is the fees stay low on their funds. It’s also where you need to be careful about what a financial adviser might try to sell you for funds. Some of them can have up to 1% fees. That’s 30x the amount you’d pay for index funds you can manage yourself. 

    Hopefully this post shed some light on how to analyze a stock or fund and eliminates some of the confusion as to what all those symbols mean.

    Keep Stackin!

  • Using Magic and Math to Grow Your Money!

    Using Magic and Math to Grow Your Money!

    So how can someone who is an average wage earner grow their money like a rich person? The answer lies in… math!

    We’ve all heard stories about how some little, old lady with no family and worked as a librarian all her life passes away and leaves behind a $2,000,000 estate! People far and wide wonder how could this woman who earned at most $35k in a year could accumulate that much money! The reason is the power of compound interest!

    Compounding Interest

    Interest is the money you earn from financial institutions for allowing them to use your money to loan out to their clients. Banks can pay you this interest because they charge higher interest rates to their clients. So what is “compounding interest”? Compounding interest is how your money grows each year. Look at the following example.

    Let’s say you deposit $10,000 into a savings account that will pay you 2% interest each year. This is a very realistic rate that you would earn from a savings account from an online banking institution. What’s not realistic is we are not going to be adding anymore deposits to this account during the year. At the end of the first year, the bank adds your 2% in interest to your account. Again, they will usually do this monthly or quarterly, but we are going to keep it simply with yearly interest. So they add $200 to your account. Now you have $10,200 in your account. At the end of the second year, they add another 2% in interest, not just on the $10,000, but on the $10,200 that you now have. So at the end of the 2nd year, they add $204 to your account. Now you have $10,404 in your account. End of the 3rd year, they add another $208.08 giving you $10,612.08. That is compounding interest. This might not seem like great growth, but that’s the process. The better return you can get from your money, the faster it will grow.

    The Rule of 72

    We’ve looked at compounding interest. There is a simple way of calculating what your money will do over time. You look at your rate of return and see how many times it will go into 72. The total will be how many years it will take you to double your money. So in our previous example of 2% interest, we would double our money every 26 years. Not a great rate of return. Let’s say we take that same $10,000 and invest in the stock market that will return on average 7%. We should double our money in 10 years. Everything rounded to the nearest whole dollar.

    Starting money – $10,000

    Rate of Return 7%

    Year 1 – $10,700

    Year 2 – $11,449

    Year 3 – $12,250

    Year 4 – $13,108

    Year 5 – $14,026

    Year 6 – $15,007

    Year 7 – $16,058

    Year 8 – $17,182

    Year 9 – $18,385

    Year 10 – $19,671

    So you can see that after 10 years, even with you doing absolutely NOTHING, you have doubled your money! This is without you adding ANY more money into your account! This is the power of compounding interest! 

    Now let’s look at an that same scenario except that we will continue to add $100/month to that account since we should constantly keep saving.

    Starting Money – $10,000 adding $100/month

    Rate of Return 7%

    Year 1 – $11,900

    Year 2 -$13,933

    Year 3 – $16,108

    Year 4 – $18,436

    Year 5 – $20,926

    Year 6 – $23,591

    Year 7 – $26,443

    Year 8 – $29,494

    Year 9 – $32,758

    Year 10 – $36,251

    So just by adding another $100/month into our account, we have increased our total savings by another $16,500. This is something that you can achieve! Now let’s imagine you have followed the T.A.’s advice and have become a super saver $500/month. What would those numbers look like?

    Starting Money – $10,000 adding $500/month

    Rate of Return 7%

    Year 1 – $16,700

    Year 2 – $23,869

    Year 3 – $31,540

    Year 4 – $39,748

    Year 5 – $48,530

    Year 6 – $57,927

    Year 7 – $67,982

    Year 8 – $78,741

    Year 9 – $90,253

    Year 10 – $102,570

    This is where you can really start to see why we need to work on that savings rate and how we can start to build true wealth. So as you continue to build your portfolio, you can start to project the money you will have as you go through the years.

    Keep stackin!

  • How to Set Up Your Roth IRA at Vanguard in 20 minutes or less!

    How to Set Up Your Roth IRA at Vanguard in 20 minutes or less!

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    YES! You have finally decided to open up your own Roth IRA account. This is a big step to your securing your financial future. I know that it might seem daunting at first, but it’s really not that difficult to do. This guide will walk you through setting up your Roth IRA at Vanguard. I know. I know.. Vanguard again.. The T.A. and I both recommend them as a solid company, but it’s not the only option out there. There are other reputable investing companies, but the T.A. and I both highly recommend Vanguard for their low-cost options.

    Setting up your Roth at Vanguard will take you only about 20 minutes. Before you begin, make sure to have your bank routing and account number ready. It will make the process go much more smoothly.

    Step 1: Open a web browser and go to https://investor.vanguard.com/home/. You can do this on a mobile device, but it will be easier on a computer. This is their landing page for personal investors. Looking in the upper-right-hand corner, you will see a link that says open an account. I have circled those words in red on the diagram on the right.

    Step 2: After clicking on open an account. Vanguard will ask you what you would like to do. Are you setting up a new account, or are you moving money from a different account into Vanguard. For this example, You will be setting up a new account since you are just getting into this investing business!

    Step 3: So now you have to decide how to fund your account. There are three different methods you can use.

    1. Electronic Fund Transfer or move from another Vanguard account.
    2. Rollover from your employer plan.
    3. Transfer investments from another financial firm.

    You will be doing an electronic fund transfer since it’s our first account you are opening.

    Step 4: Now Vanguard wants to know if you are a registered on Vanguard. Obviously if you are following this guide, you are not registered, so click no. You will get to register as you go through this application. Now comes the good stuff.

    Step 5: This isn’t really a step, but this screen will show you what you will be deciding on the next few pages. Obviously you are opening a Roth IRA. You will need your bank routing number and account number to complete the application. This is how Vanguard will transfer money in to your account. Don’t worry. It’s perfectly safe!

    Step 6: This is the part where Vanguard starts to ask more specific questions about exactly what you are trying to create. Don’t worry. These answers may change later as you get more experienced as an investor. This is a guide. This first page asks if you are setting up an account for retirement, general savings, or education. In this case, you are looking for retirement, so select retirement and wait a few seconds. Another choice will pop up. It now asks if you want a Roth IRA or a Traditional IRA. You want to select Roth IRA and click continue.

    Step 7: This step is one that confuses some people. Vanguard asks you what your objectives as an investor are. You will have to select a primary and secondary objective. The choices are capital preservation(NO!), income (OK), growth (YES!), speculation (MAYBE). You can really choose whatever you want here, but I am going to select growth as my primary objective and speculation as my secondary. You could go with income as your secondary as well. Remember, this is not a “final answer”. The other part of this page is that you have to choose the source of funds for this account. There are many options, but most likely, you will choose salary/social security benefits.

    Step 8: This step starts the personal questions that Vanguard needs to ask. You will fill in your personal information. Yes, you do need to include your social security number since retirement accounts are considered part of the “tax code”. Don’t worry, as a Roth IRA, you won’t owe any taxes and your social security number is safe. Just keep pushing forward!

    Step 9: You will need money to fund this account. This step sets up where those funds will come from. The easiest way is to have the money electronically transferred from another account. You will need the routing number and account number from your bank. Once this is established, you will be able to transfer money in on a regular basis, or whenever you have some extra money lying around!

    They will also ask you what you want to do with the dividends from your investments. The best idea is to have the dividends reinvested. This will allow your money to keep working for you with no effort on your part.

    Step 10: Now you get to review your information to be sure that it is accurate. You will then electronically sign that you are agreeing to open this account. We are getting close!

    Step 11: Finally you will sign up for web access. This is an important step because you will need to use that access to purchase the funds that will be in this account.

    Step 12: Now you will need to wait for confirmation e-mails that your account is created. Vanguard will also make a couple of small deposits into your bank account. Once they do, you will need to log in to enter those amounts to verify your account information. Now you can transfer in whatever money you want! (Up to $6k/year)

    Step 13: You are NOT done yet. You now have money invested into your Roth IRA. If you do nothing from this point on, that money that you put into the account will be swept info a money market fund that will bring in about 2% in interest. Not bad, but you need to invest that money into something so that it grows even more. 

    If you are a more visual learner, this Youtube video will also walk you through creating a Roth IRA at Vanguard.

    https://www.youtube.com/watch?v=WXpBkW6luUs

    In our next post, we will show you how to purchase funds inside this new account.

    Keep stackin!

  • Top 5 Areas to Cut Your Expenses

    Top 5 Areas to Cut Your Expenses

    We’ve spent a lot of time talking about investing, but you might be saying, “Professor, I’m living paycheck to paycheck. How do I find any money to invest?” This is a great point. I was in the same position 2 years ago. I lived the paycheck to paycheck lifestyle. I didn’t think it was too bad, but I knew there had to be a better way.

    I did some research into how to increase your free income. Most of the sites I found made it seem to easy! You just walk into your boss’s office and ask for a $25,000 pay increase. I actually found that advice. Well, it was a little more technical than that. You proved your value to the company, found a competitor that paid more, and then discussed the increase with your boss. Imagine doing that as a teacher. You find another district that pays $5,000 more per year than your current district. You walk in to your superintendent’s office and say, “I have accomplished great scores on our yearly assessments, and I know that I can make $5,000 more per year at district X. I’d like you to match that pay or I will leave.” Undoubtedly, your superintendent will thank you for your service and wish you luck at your new job. As a teacher, we don’t have some of the luxuries that the private sector does when it comes to salary negotiation. Of course in other posts, we have also pointed out some of the advantages we have over the private sector.

    So we could look for ways to increase our income outside of teaching through the use of side hustles or summer jobs, but in this post, we are going to look at the other side of the equation. So what areas can we cut our costs?

    1. Housing – When we look at where we can cut costs, we want to start with the biggest areas first because they will have the biggest impact. Housing is most people’s biggest expense each month. It can also be difficult to change due to family situations. If you are able, you could look into smaller houses or apartments to lower your rent or mortgage. You could also look into renting out a room on your property if you are comfortable with that. This would be a great option for a younger teacher that could rent to another teacher in their district. We were not able to change our housing expense at all. With a wife and two teenage girls, we were definitely not comfortable renting out a room in our house. The TA, on the other hand, was able to rent out a room to one of his friends. This is a great financial move for him!
    2. Cable/Internet – This is another area that can be a huge expense each month. Before our cost cutting moves, we were paying $150/month to Dish Network for our cable alone. I looked at our list of channels and cut our bill down to $100/month! I then called last month to say that I felt we were still paying a little too much and they lowered our bill down to $70/month for being a loyal customer. This is something that everyone can do. EVERYTHING is negotiable! Companies spent incredible amounts of money to attract new customers. They claim that those “specials” are only for new customers, but if you call, and calmly discuss the fact that you have been a loyal customer for many years, they will pass you along the chain until you reach the customer retention department. They are the ones that have the power to authorize these “special” rates. Ramit Sethi in his book, I Will Teach You to be Rich, has scripts that he uses to help you negotiate lower rates on everything from cable to car insurance. Very useful tools! I know, I know… There are many different options for TV online, such as Netflix, Hulu, etc. We haven’t quite gotten to that point yet. If you live in a large city, you also have a variety of options for your internet service and speed. Living in rural Minnesota, we are stuck with our current ISP. If you have the options, this can be an area to cut a good amount of money.
    3. Groceries/Food/Dining Out – This area can vary drastically from person to person. If you are young and single like the T.A., your grocery bill is probably fairly low, but your dining out bill might be sky high (damn parmesan-garlic wings)! My grocery bill dwarfs his each month, and with two teenage girls, my dining out bill probably isn’t far off of his. Really, the only way to cut this area is to track your spending each month. A tool like YNAB (You Need A Budget) is a great tool to use to track these expenses. A quick way of saving money in this area is to eat at home more often. This can be a very easy change, but many times, change can be difficult. Even with a laser focus, we have had a difficult time trying to cut our costs in this area. It is SOOO convenient to stop at a fast food place or a restaurant instead of eating at home. You actually have to stop, think, and plan your spending!
    4. Cell Phone – This is a huge area of expense for a lot of people. In our family of four, our plan with Verizon was a whopping $250/month. This is a huge kick in the ass for your budget. I looked into it a little bit and noticed we were paying insurance on our phones that were already paid off! I went online to our account and removed that insurance and immediately knocked $25/month off of our bill. Super easy! I have also looked into doing Verizon pre-paid as I’ve heard that it is sometimes up to 50% off your bill. I haven’t been able to take that step. There are also other plans out there likeStraight Talk, Republic Wireless, Google FI, among others. I will not speak directly to these yet since I have not had any experience with them. Once our kids are off our plan, I will definitely look into these other options to cut costs even more!
    5. Insurance – Insurance, or “in case shit happens”, is really a necessary evil. Think about all of the different kinds of insurance that we have. Health, life, auto, home, dental, umbrella, that’s quite a list! Now, not everyone has to carry all that insurance. We won’t cover which of these insurances you should or shouldn’t carry, but we do want to look at how you can cut costs. The first step is to look at how much coverage you have. You could save money by raising your deductible on your health or auto insurance. This will save you some money, but the bigger savings will come from shopping around. The longer you stay with the same insurer, the more they will automatically raise your rates. I learned this firsthand last year when I shopped around for new auto insurance. I had been with the same national agency for my entire driving life (almost 30 years). I knew my agent very well and could talk with him whenever I needed. I sat down with him to see if I could lower my costs. He punched some numbers, but there wasn’t much he could do. The computer just kept spitting back the same premiums. I visited with a couple other insurance agents, and I was shocked at the difference. See the numbers below to how much we saved.

    Category

    Company A

    Company B

    Difference

    Monthly Premium

    $178

    $85

    $93

    Deductible

    $500

    $500

    0

    Coverage Amounts

    $100k/300k

    $250k/$500k

    DOUBLE!

    I couldn’t believe it. I cut my monthly cost in half AND doubled the amount of coverage I had. I wish I had shopped around for insurance years ago. Think of how many hundreds, if not thousands, of dollars I had lost over the years. It was incredible! Definitely shop around for your insurance. Now, things like healthcare might be tied to your employer, so you might not have the option of shopping around with different carriers, but if you can, DO IT!

    There ya go. Five HUGE areas that you can cut a great deal of expenses to allow yourself more money to put to work for you! Don’t tell yourself that it can’t be done! Get out there and try. I didn’t think it was possible either, but it is. You just have to make the effort! Now get to work and…

    Keep Stackin!

  • Top 10 Investing Myths to Avoid

    Top 10 Investing Myths to Avoid

    Today we are going to look at some of the myths of investing. These are secrets that will allow you to create your own wealth and retire with a great nest egg!

    Myth 1: Investing is difficult.

    That’s what the financial services industry wants you to believe! They make their money off of your hard-earned income because investing is “way too complicated for you, the common fool.” If people realized how simple investing can be, the financial services industry would take a huge hit. It benefits them GREATLY to convince you of this!

    Myth 2: You need a financial advisor.

    Yes, according to government regulations on 403b accounts, you must use a financial service and their local advisor. But by following our recommendations, you will be the one calling the shots and telling your advisor where your money will be invested. Think about it…. Who has more at stake with your hard-earned money? I guarantee that answer is YOU! Beware! Your financial advisor will use scare tactics to make you believe that you need his advice. Erroneous! You put together a solid retirement package that fits your goals. 

    When I took control of my financial future 18 months ago, my financial advisor tried to convince me that I was in the correct investments. When I looked at what he had invested my money, I found that I was losing 1.65%/year of my money to fees!! Those are ridiculous rates! My advisor tried to say that the funds were great because they had earned 16.5% the previous year. But I knew that the market had returned 17%! The fund hadn’t even matched what the market returned, AND I had lost 1.65% of that amount to fees! My advisor is a nice guy, but I am in charge of my financial future, not him!

    Myth 3: Investing is gambling.

    I will start by saying that investing does involve risk. Your account value may go down sometimes. That’s what the market does. It goes up and it goes down, but look at the all-time trajectory of the stock market below. It ALWAYS goes up! That’s why the stock market is a long game. It’s not like gambling where you are trying to get rich quick.

    Myth 4: You must use your 403(b).

    Your 403(b) can be a great tool for you to grow your wealth and build a strong retirement, BUT you don’t have to use it. That being said, you MUST contribute up to your school’s match. That’s a 100% return on your investment, but after that, you need to analyze your financial situation and plan to make sure that you are investing in the proper accounts. Remember, you can’t access the funds in your 403(b) before age 59.5 without a 10% early withdrawal penalty. Always check to see if your district offers a 457 plan. If so, they have significant advantages over the 403(b) plan.

    Myth 5: You have to research stocks to invest.

    Teaching 6th grade and coaching football takes up a LOT of time. I don’t have time to research individual companies and find which ones are solid investment choices. I’m guessing you don’t either! That’s just fine. There are ways of investing that don’t require you to buy stocks in individual companies. There is this great investment vehicle called an “index fund”. It’s like buying a little bit of every single company in that fund. You spread out your risk over many companies. We will talk in detail about index funds in a future post.

    Myth 6: Putting money into savings is investing.

    Saving money is ALWAYS a good thing, but it is not the same as investing money. Even though putting money into savings is very safe, you are actually losing because the current savings rates of just over 2% do not even keep up with inflation. You HAVE to put your money to work for you in the market. Think about it, you work hard for your money. Isn’t it time to get your money working for you???

    Myth 7: You have to be an active investor to make money.

    People believe that you must constantly buy and sell stocks to make money. That’s true, for your financial advisor or brokerage. Every time you make a trade, you are paying them a fee. You are also creating capital gains that you have to pay taxes on. Setting and forgetting your investments will make you much richer than constantly monitoring and changing your investments. This passive investing is the way to a rich life!

    Myth 8: You can time the market.

    The market goes up. The market goes down. And nobody knows exactly when these swings will happen. Some financial advisors will beat the market average one year and come up well short the next. The most famous person that has been able to consistently beat the market is Warren Buffet, and he has access to information and buying ability that the average investor doesn’t have. Even he says that the best thing the average investor can do is passively invest in low-fee index funds to grow their wealth.

    Myth 9: Investing is only for “rich” people.

    This myth is kind of a self-fulfilling one. Most people who aren’t considered “rich” have parents who weren’t “rich” themselves, so the concept of investing money was never talked about as they were growing up. They may have learned about the importance of savings, but they don’t realize that saving money actually is losing money. Even the top savings accounts only pay just above 2%, so you aren’t even matching inflation at that rate. Invest that money into low cost index funds and watch your money grow over time!

    Myth 10: Stocks are a get rich quick scheme.

    We’ve all heard stories of people that bought a company like Amazon at $2/share, and now are multi-millionaires. There are actually many more stories of people that gambled on those kinds of stocks and lost their entire investment. The stock market is a long game. You stay patient and “play” it for 15 to 20 to 40 years, and you will make money! If you find yourself chasing those get rich quick stock tips that you will find all over the internet, press pause and remember that these people make their money by getting suckers to pay for their “hot tip”! Don’t be one of those suckers!  

    Keep stackin!

  • Credit Cards – The Good, The Bad, and The Ugly

    Credit Cards – The Good, The Bad, and The Ugly

    Credit cards… For some people, they are a symbol of debt, despair, and frustration. For others, they are a symbol of income, joy, and motivation. How could a small piece of plastic stir such different emotions in people. For this answer, we need to analyze how people deploy these cards in their lives.

    The Good

    Let’s start with those people that use credit cards to the benefit of the holder. In recent years, credit cards have worked hard to recruit new card owners by offering some great sign-up bonuses. These various bonuses include; cash-back and match rewards, travel miles, and card points that may be redeemed for gift cards or other redemption portals. Some of these bonuses are one-time hits for meeting certain spending requirements. For example, I just recently met my spending requirement on my Chase Sapphire Preferred card. The spending requirement was $4,000 in the first 3 months of card ownership. By meeting this requirement, I was awarded 60,000 bonus points. (I will do an in-depth case study on this card in a future post.) Others are continuous bonuses that are earned each time you spend money on the cards. My case study on the Discover It card was an example of a cash-back card. These people are go-getters that think about what they want and find a way to make it work for them. Credit cards are a means to an end for them. The most important thing about these people is that they pay their statement balance in full each month. They do NOT pay interest to the credit card companies. That would defeat the purpose of getting those bonuses because the company might pay you a 2% cash-back match for your spending, but they will charge you in excess of 25% interest if you carry that balance forward!

    I am one of these people, but I wasn’t always….

    The Bad

    The next group of people are those that use cards to pay bills, expenses, and other items both necessary and unnecessary. These people do not plan their spending on their cards. They lose out on getting great bonuses. These aren’t bad people. In fact, I used to be one of them, and I’m not half-bad (at least according to my wife). They just need a little guidance and direction. One important thing that this group needs to improve upon is creating and sticking to a budget, as you can see here. This step in the process can be a very difficult one because people at this stage have probably never used a budget before. They have just spent money as they needed it. This is the point where you become proactive instead of reactive with your money. These people end up paying that 25% interest on their cards because they can’t quite afford to pay the full statement balance. They “justify” carrying that balance because the interest might only be $25/month. This is the “monthly payment” mindset that I will touch on more later in this post.

    The Ugly

    This final group of people are ones that take spending on their credit cards to the extreme. Not only do they pay their bills on their cards, but they also put unneeded expenditures on them. The biggest problem is that this group has one or more maxed out credit cards with not enough cash to pay them off in the next month, or in some cases, in the next few years! They end up paying hundreds, or even THOUSANDS of dollars every year in interest! They are GIVING money to these credit card companies. Credit cards for this group cause fear and anxiety. You can’t talk with these people about credit cards and responsible spending because they become angry and defensive. I’ve tried to have small conversations with some of my closest friends about this, but I’ve learned that it’s not a topic that people are comfortable talking about. I’ve gotten to the point that I don’t even talk about our financial situation with others unless they ask, and even then I just say that we don’t have any credit card debt and if they ask, explain how we were able to accomplish this.

    I feel bad for many of the people in this group, and I don’t want to come across as callous, but honestly, it’s usually their own fault. I realize that there are things like medical emergencies that can destroy and families’ financial future, but those are the exceptions and not the norm.

    So how did we go from the ugly to the bad to the good???

    The Process

    The first step for us was to actually realize what we were doing was stopping us from doing the things we dreamed about doing and our retirement goals. I studied our monthly spending and realized that we were losing over $250/month to credit card interest!!! We were so stupid, but the thing is.. we could afford our monthly payments. We weren’t adding anymore to our debt, but we just weren’t really digging our way out. This is true of most Americans. We have been trained to think monthly payments are required. MONTHLY PAYMENTS are bullshit! If you want to gain financial security, you MUST eliminate the term monthly payment from your vocabulary! The only monthly debt payment you should be making is your mortgage.

    Once we admitted our problem, we developed a debt payment plan. We chose a debt snowball strategy. This is where you list all of your debts on a piece of paper in order from smallest to largest. We then proceeded to pay the minimum payments to all debts except for the smallest one. We put as much as we could until it was paid off. We then took that “extra” money and added it to our next smallest debt. We did this for 3 years until we had paid off all $18,000 in credit card debt we had. Now, people will tell you that you should pay off the highest interest debt first. This is really the most efficient way of paying your debt, but my wife and I needed the emotional “win” to keep us motivated in paying our debts. If we would have started with our $9,000 credit card, it would have taken us over 20 months to pay it off. This would have been a long time to wait for a “win”. We may have lost our motivation and slipped back into paying the monthly minimum. We’ve all seen those minimum payment graphs on our credit card statements, so I won’t bore you with that, but you MUST find a way to pay more than the minimum each month on at least one card. 

    At the end of those 3 years, we had reached the top of the mountain, or so we thought. We had eliminated all of our credit card debt. We had moved from the ugly to the bad. How did we move into the good? I had read various websites like Mr. Money Mustache, and realized I wanted those credit cards, who we had paid so much in interest to, to actually pay us! I chose to start with the Discover It card. I was approved for the card and began paying all of our monthly bills on it. Each month, we paid off the card in full. The KEY is that you MUST pay your statement balance in full each month. If you cannot have the discipline to do this, DO NOT attempt to use this strategy. You’ll end up paying more in interest than you will receive in benefits. 

    Finally, we had turned the tables on those damn credit card companies. For 25 years, all the way back to that Citibank card that I signed up for on Spring Break back in 1993 (but I got a sweet T-shirt!), I had been paying interest. Now the credit card companies pay us. And you can make your credit cards work for you too! Take that ugly situation, analyze what you can do to fix it, and turn it into a win for you. It may take some time and discipline, but you can do it!

    Keep Stackin!

  • Credit Card Case Study – Discover It

    Credit card hacking made easy!

    So there is a little secret… Credit cards can actually be great! This goes against what we have talked about in regards to using credit. This is an advanced technique that should only be used when you have no other credit card debt AND you will be paying off your card in full each month.

    Once my wife and I were able to pay off all of our credit card debt, I thought I would give this credit card hacking a shot. I had done some research and thought I would try a cash back card first. The first card that I decided to try was the Discover It card. The card will match 1% of everything you spend on it. It also has quarterly categories that will match 5% of your spending.. Sometimes the categories are great. One of the quarters was 5% on grocery stores. The catch is that you have to make sure that the store is listed as a grocery store or supermarket in the “Credit System”. For example, if you shop at Wal-Mart or a Super Target, they are not listed as grocery stores, so you won’t get the 5% match there even if you are buying groceries. I did my grocery shopping at Hy-Vee for that quarter to get the match. Some quarters I didn’t use the 5% at all. This quarter is gas stations, Uber and Lyft. I don’t use those categories, so I don’t get the benefit.

    Now for the BIG benefit. After one calendar year, they will match 100% of the cash back that you earn! Finally! Earning some money back from those companies that I’ve paid so much interest too over the years.

    Let’s take a look at our numbers below.

    Money Spent on the Card – $33,683.98

    Cash Back Earned $437.59

    Cash Back Matched$437.59

    Total Cash Back $875.18

    Cash Back Percentage 2.6%

    That’s not a bad return on money that I would be spending anyways. We used the card to pay anything that would allow us to use a card. Electric, phone, grocery, insurance, etc.. One of the big things that you need to be careful of is to not increase your spending just to get more cash back. There is no amount that is “required” to earn cash back, so only purchase items that you would get anyways.

    I would say that this card was a resounding success for us! I will be getting that $875.18 check from Discover in a couple of weeks and will be salting it away in my Vanguard Investment account. Now I will keep this card, but I will only use it for the 5% categories. I will be using my next card in my case study, the Chase Sapphire Preferred. This is a travel card!

    Keep Stackin!