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Author: yfpadmin

Putting Yourself in the Driver’s Seat

Posted on by yfpadmin

 

The past couple days have been a nice, yet unexpected, change of pace for me. Because of a work trip being cancelled, I was able to travel with Jess and the boys to Buffalo for a few days to see my family and work remotely. It is rare that I have the chance to see my family during the workweek, which means I get to observe first hand what my brother and dad do each and every day.

To sum it up, they are rock stars. They hustle every day, are well respected by the community in Buffalo and are doing work that is making a difference.

My dad is the Executive Director of the Center for Entrepreneurial Leadership and Assistant Dean at the University of Buffalo. After leading a successful business of his own, he is using his role at the University of Buffalo to provide hundreds of small business owners with the tools they need to see their dream and vision come true. I am a believer that small business is the lifeblood of our economy and my Dad is making a mega impact for the good in this area.

My brother is the President of Buffalo Manufacturing Works, an unbelievable enterprise for innovation that landed a $45 million grant from the Governor of New York as part of the Buffalo Billion initiative. He is playing an important role in rewriting Buffalo’s story of a beat up City that was in its’ prime back in the early 1900s (with a struggling economy that never recovered from the Great Depression) to today where the city is booming with initiatives to grow the economy and bring business and people back into the City. In Buffalo, everything is moving in the right direction except for my beloved Buffalo Bills.

So, this article is about my brother and his journey to his role as President of Buffalo Manufacturing Works. Yesterday, I got to spend some time working in his office. Seeing him in his own element reminded me of his journey and how it can inspire all of us as we work on writing our own story.

Hang with me; you will see the financial connection soon.

My Brother’s Journey Up the Ladder

My brother, Mike, is 33 years old and graduated from Lehigh University with an engineering degree. He quickly landed a job with JP Morgan Chase in New York City and because he hustles like nobody else and has a crazy amount of talent, he worked up the corporate chain in 10 years; faster than most would in their entire career. Before the age of 30, he was in a Vice President role with JP Morgan that took him from New York City to London where he was responsible for bringing on big time (“ultra-high-net-worth”) Nordic clients. He was killing it.

Sounds pretty posh, right?

Some may have looked at his job from the outside thinking it was a dream. Big title, lots of travel, well respected within the company and well on his way to a crazy successful career.

Re-Defining Success

I remember coming home for Christmas one year and for the first time Mike hinted that he didn’t love his job. The passion wasn’t there. Yes, he was good at it. Yes, he was making good money. Yes, he could continue on this path and retire by the age of 50, if not earlier, if he wanted to.

The hard reality hit him that this wasn’t for him anymore.

It wasn’t fulfilling and he didn’t see himself doing this for the rest of his career.

Later that year, we met for vacation in the Outer Banks and he started talking about the idea of a career change. We stayed up late one night talking about where and what and how. To be honest, it seemed overwhelming to me but I knew if someone was going to make it happen, it was Mike.

Time To Make the Move

Mike, being the person he is, decided a month or so after our trip to the Outer Banks that he was going to tell JP Morgan he was leaving. He did it. I’ll never forget when he told us he made that decision and that he and his family were going to be leaving London to head back home to Buffalo without a plan in place. No job lined up.

He wanted to take the time to reflect on the next step in his career before jumping into something new.

Here he is at the age of 30, married with a baby girl and he is walking away from a career that others would die to have. I respect him for that decision more than he will ever know. That takes guts to recognize and admit to yourself that you aren’t doing the work you dreamed about doing even in the reality where doing nothing is a whole lot easier than doing something. He had the guts to search deep to face that reality.

Being in the Driver’s Seat

So what does this have to do with personal finance? Everything.

See, achieving financial freedom is about freedom, not about being rich. Getting your finances in order puts you in the driver’s seat to make a decision that is best for you and your family rather than letting your financial situation direct what you are doing.

Having your financial house in order put’s you in the driver’s seat.

Because my brother had a solid emergency fund in place, was well on his way to saving for retirement and beat down his student loans, he was in a position to make this decision.

He could afford to resign from JP Morgan and take 6 months off to figure out what he wanted to do next. Taking that time (and having the financial flexibility to do so) allowed him to land the job that he has now. Without that financial plan in place, he would have had two options: (1) stay at JP Morgan and grind it out despite knowing it was time to go, or (2) leave, but rush into a new job because the income was needed.

Are you in the Driver’s Seat?

I know there are some pharmacists reading this that are not thrilled about the work they are doing. Or maybe there is someone reading that wants to stay home to be with a child or take care of a sick parent but can’t do so because of the financial constraints. Or maybe someone else is reading that has a dream about doing something different altogether whether that be a different part of the profession, starting a business, or going back to school.

The reality is that it doesn’t matter why you want to make a change. Rather, what matters is putting yourself in a position to do so in case that day comes.

Here is the gut check: If you have ever started having a conversation with yourself about doing something different for whatever reason but have found yourself squelching that internal desire because of financial worries or constraints, you probably aren’t in the driver’s seat financially. Rather, your financial situation may be controlling you more than you realized.

I’ve talked a lot on this blog about paying off debt, getting an emergency fund in place and saving for retirement. This story of my brother is an example of why it is important to take the steps to ensure you have a solid financial foundation in place.

In my opinion, there are 4 important steps you can take to ensure that you are in the driver’s seat when it comes to your finances.

  1. Get out of debt. The hard reality is that if you are buried in debt, with very little savings and no emergency fund, you are not in the driver’s seat. I get it. Many pharmacists are in that position coming out of graduation. I was. But it doesn’t mean you need to be there long. If you are dragging out student loan payments, it may be time to think about getting rid of those sooner rather than later.
  2. Save up for a rainy day. If you want to have flexibility in making a job move such as Mike did, you may want to save up for a super rainy day (e.g., 6-12 months instead of 3-6 months).
  3. Get serious about saving for retirement. Because so many new pharmacy graduates are swimming in student loan debt, I’m concerned retirement savings are going to be delayed for many pharmacists which means either having to play catch-up or working longer. The earlier you can get out of high-interest debt to save for retirement, the better.
  4. Live off less than you make. This is the key to make the first three items listed above a reality. This is especially important for new graduates to consider before adjusting up the lifestyle (and the expenses that come along with that lifestyle). If you can live off 50-75% of your income, two amazing things will happen. First, you will be able to get out of debt, build an emergency fund and save for retirement at a lot faster rate than if your expenses equaled your income. Second, in the event of a job change, move, period of unemployment, wanting to go part time, or any other situation that requires a big change; your ability to make this change will be a lot better knowing you don’t have to replace your full income.

Your Financial Homework

So, are you in the driver’s seat or at least working on a plan to get yourself in the driver’s seat? What is one thing that you can do this coming month to put you on the path towards getting in the driver’s seat? Maybe it is continuing to build that emergency fund or pay a little extra on that student loan. Get started today!

 

 

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Give Yourself Some Grace

Posted on by yfpadmin

 

“Experience is making mistakes and learning from them.” –Bill Ackman

When it comes to our finances, we can all relate to the temporary bliss when everything is running smoothly and we feel like we have it under control. Unfortunately, ‘control’ of our finances can leave as quickly as it comes and just when we think we have it all figured out, we look up only to realize we are sucking for air, just trying to keep our head above water.

In talking with hundreds of pharmacists about their financial journey over the past year, I have come to realize that many feel as if they are on the brink of losing control. Despite having a single-person income that is more than double the median household income in the US, they are living paycheck to paycheck. I can often hear the angst in their voice and see the concern in their eyes.

How do I know what this sounds and looks like?

Jess and I were in the thick of this after graduating from pharmacy school when we found ourselves with approximately $200,000 in non-mortgage debt shortly after I completed residency training in 2009. Unfortunately, this number of $200,000 probably doesn’t shock many of you reading, as this is the norm for many new pharmacy graduates. When you consider the average student loan debt upon graduation from pharmacy school now exceeds $150,000 and you tack on a car or two, undergrad student loans, and some credit card debt; you can see that it is not too difficult to be at or above $200,000 in non-mortgage debt.

With this type of debt hanging over your head, all of the sudden the dream of enjoying a good income after working so hard to get through pharmacy school is a distant memory. Some choose to embrace this reality and others continue to live on as if this debt didn’t exist. Those that embrace it often make significant sacrifices in the early years after graduating from school and after a few short years of digging deep to live well below their means, they are off to the races with a solid foundation in place to build upon. On the other hand, those that ignore the reality typically have expenses that equal or exceed their income by overbuying on a home, and purchasing cars and other luxuries that leave next to nothing to give, save for a rainy day, build up a nest egg, or just have some breathing room.

The Struggle is Real

It should be no surprise that we all struggle from time to time with getting this right. We are trying to juggle paying off student loans, buying a home, saving for kids college, making sure there is a rainy day fund in place, saving for retirement, and the list goes on and on. With the reality of trying to balance multiple priorities at once, it shouldn’t surprise us that we as a nation (pharmacists included) aren’t doing this very well. In the US, adults carry more than $890 billion in credit card debt and over $1.3 trillion in student loan debt. Furthermore, a third of all households don’t save towards retirement and the majority of Americans don’t have enough savings to cover an unexpected expense of $500-$1,000.

The Mistakes are Inevitable

With so many competing priorities, the bad months from time to time and bad financial decisions are inevitable. I’ve certainly made my share of financial mistakes.

Have you made any mistakes with your finances recently? Are you beating yourself up because you feel like things should be more in order? Or how about losing motivation because the debt load seems so big or saving for retirement seems so far off?

It’s time to give yourself some grace, and keep moving forward.

Here is the reality. Those that will be successful getting out of debt and building wealth are those that can give themselves some grace in the times where their financial plan gets derailed.

Those that win in the long run don’t dwell on the bad. Rather, they learn from the mistakes, identify where things went wrong and make constant adjustments to ensure things are moving in the right direction. Over time, those constant adjustments result in getting closer and closer to achieving financial independence.

Achieving financial independence is a marathon, not a sprint and those that win will have the patience to learn from their mistakes and keep going.

The Easiest Place to Get Off Track: The Budget

If you haven’t already, make sure to read Jess’s article on budgeting. She nailed it. In my opinion, the budget is the key to winning yet the hardest thing to do and the easiest place to get derailed. If you struggle with the purpose of budgeting, I think you will find her insight helpful.

Jess and I have had our fair share of months that don’t go as we had planned with the budget. Some of these are out of our control such as an unexpected car repairs that cause us to dip into the emergency fund and put a pause on working towards other financial goals. Other bumps in the road that we encounter are certainly within our control and are often the result of becoming complacent with the progress are making. Jess and I have found that when it comes to the budget (which has been the single most important factor in our success so far), touching base with each other once a week or every other week to reconcile our expenses and see our progress throughout the month allows us to be successful in staying on track. When we don’t do this, we take a step backwards in our financial plan.

It is important to identify those areas of your financial plan that you know are critical to do but yet are areas that are vulnerable to falling by the wayside.

It doesn’t take much more than a month or two of getting off track with the budget to say ‘forget about it.’ Stay with it. I promise it will be worth it.

I don’t know about you but budgeting to achieving my financial goals reminds me of my commitment to exercise to maintain my financial health. There are good weeks and bad weeks. There are times where I’m hitting all cylinders and then bam! A few missed days and the plan falls apart for a while. Soon enough, I’m back on the track and then back off. But over the long haul, I have a commitment to make my physical health a priority. Your financial health is no different.

Your Financial Homework: Were you on track with your financial plan before but may have recently hit a bump in the road? If so, start small and pick one financial goal you will accomplish by the end of September. This might be setting your financial goals, starting (or re-starting) a budget, saving $100 towards an emergency fund, establishing an automatic withdrawal through your employer-sponsored retirement plan, or setting up a plan to pay off student loans ahead of schedule. The goal is not to solve your financial problems in one month but rather to pick O.

 

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Real Estate: The Investment You Should Not Overlook

Posted on by yfpadmin

 

This article was written by a colleague and former classmate, Ben A. Holter, PharmD, RPh, MBA. Ben is a 2008 graduate of Ohio Northern University and completed his MBA at Ohio University in 2013. He is currently the Pharmacy Manager at Shrivers Pharmacy in Nelsonville, OH and a managing member of Orion Ventures LLC and Cragganmore Investments LLC. These companies are based in Athens, Ohio and focus on the acquisition, development, and leasing/selling of both residential and commercial real estate (www.athensoh.com). If you have any questions about this article, feel free to contact Ben directly at [email protected].

 

Following the sage advice of Your Financial Pharmacist, let’s assume you are on track with your financial plan–paying down or paying off debt, creating and following a budget, investing in your employer’s retirement plan, emergency fund in place…check! Well done, you’ve laid the foundation for a strong financial future. Now it’s time to start thinking about diversifying your investments outside (and inside) of the traditional retirement plan. My preferred way to accomplish this goal is through real estate. Whether you realize it or not, most of us will become real estate investors with the purchase of our first home. That may be enough exposure for some of us based on our goals and comfort level, but I would encourage you to consider other ways to add real estate to your portfolio.

 

“Fixer Upper”, “Tiny House Hunters”, “Flip or Flop”, “Property Brothers”…if you’ve channel surfed through satellite TV in the past decade you’ve likely been inundated by these and many other real estate based reality TV shows. It seems that while you were off racking up student loan debt and limping through organic chemistry, the rest of the world has been getting rich buying and selling real estate. Oh, you haven’t heard? It’s simple! Buy low, renovate, sell high, and get rich…what could go wrong? Hang tight, we’ll get there—but despite the hype, I believe real estate has an important role in helping to diversify your investment portfolio. Although it may not be as exciting, there are many ways to invest that don’t involve “flipping” houses or even direct ownership, yet can still provide great returns while mitigating your overall risk.

 

Before delving into the different ways to invest in real estate, there are a few basic questions you need to ask yourself:

  • Do I want to actively manage a property/properties or be a passive investor?
  • What is my investment strategy? Am I looking to “flip” properties for a short-term profit or make long-term investments?
  • How much time and money do I want to invest and how much risk am I willing to assume?

How you answer these questions will help you decide if real estate investing is right for you and which types of investments suit your lifestyle and fit into your overall plan.

 

Physical Property – Residential

 

Houses, condos, duplexes, multi-family units, and apartments are common examples of residential property. Owning and acquiring residential properties is relatively easy as markets are established and financing to qualified buyers is readily available. While the amount of active management required for owning physical property varies based on the type of property owned, it is rarely passive unless owned with partners who take on the management role. Repairs, maintenance, rent collection, vacancy, property taxes, rental permits, compliance with code, and insurance are only a few of the things you will need to think about as a property owner. That said, residential property is the place to start if you decide empire building is right for you…but don’t forget—when the plumbing backs up, the pipes burst, or the furnace dies, you’re the one who gets the call.

 

It’s also worth noting that flipping residential property tends to be the focus of the aforementioned reality TV craze. Having been personally involved in multiple flips, I promise it is not as easy as portrayed on television and I much prefer long-term rental properties. While flips can be very profitable, they also carry a substantial amount of risk for the inexperienced investor. The takeaway here is to diligently research any potential project and have a structured plan with a substantial margin for error in your cost and sale estimates if you decide to take the leap.

 

Pros:

  • Buy/sell process is relatively simple and straightforward
  • Smaller investment required to get started
  • Demand for rentals is typically high unless in a saturated market
  • May appreciate in value if well maintained and in a stable market
  • Buying undervalued, foreclosure, and/or short-sale properties can offer an outstanding return on investment

 

Cons:

  • Renting or flipping residential properties require active management and is typically NOT a passive investment
  • Flipping properties can carry a great deal of risk
  • Repairs, maintenance, deadbeat tenants
  • Leases tend to be for shorter durations (1 year typically)
  • No cash flow during periods of vacancy
  • Housing bubbles can and do exist…remember 2008?

 

Physical Property – Commercial

 

Office, retail, and industrial buildings are all considered commercial real estate. The complexities and higher cost of owning and leasing commercial real estate likely make this investment choice a difficult one for the novice investor. However, there is a good chance that many of you who have an interest in entrepreneurship may eventually own commercial real estate in the form of an independent pharmacy or other business venture. If this opportunity presents, be sure to work with a real estate agent or attorney who has experience in commercial real estate transactions.

 

Pros:

  • Commercial properties can command premium lease rates
  • While investment is typically larger, so is the return
  • Leases are typically long term (3 years or longer) and place most of the maintenance burden on the tenant

 

Cons:

  • Large initial investment required and financing is more difficult to acquire than residential
  • Leases are complex
  • If building is vacant, may require significant cash flow to cover carrying costs until another tenant can be found

 

Alternative Investments – REITs

 

Real estate investment trusts (REITs) are unique investment vehicles that allow you to invest in various segments of the real estate market without actually owning the physical properties. REITs are traded like stocks or mutual funds and often times are listed as options in employer retirement plans. Essentially, REITs use investor money to purchase/develop real estate and after paying management costs, must legally return at least 90% of the profits to investors in the form of a cash dividend. This allows investors to have exposure to the real estate market without the burden of active management and risk of owning individual properties. I personally own REIT funds in my 401k and would strongly encourage you to consider allotting at least 5% of your portfolio to REITs if your plan offers the option and your financial advisor approves.

 

Pros:

  • Professionally managed to offer investors a passive real estate investment
  • Diversification of investment portfolio
  • Ability to purchase REITs that focus on different projects such as office buildings, apartments, shopping malls, etc.
  • Easy to purchase through a broker, online brokerage such as E-Trade, or often listed as an option in your employer’s retirement plan
  • Easy to liquidate since they are traded on the open market
  • In addition to dividend payouts, the value of the stocks/funds may also appreciate in value

 

Cons:

  • Many of the risks associated with owning real estate still apply (economic downturn, vacancy, etc.)
  • Relying on REIT fund managers to make competent decisions
  • If not held in a retirement account, dividends will be subject to tax (discuss with your accountant)
  • Rising interest rates can decrease profits

 

Alternative Investments – Crowdfunding

 

Crowdfunding is no longer limited to Kickstarter and Go Fund Me. Using a similar model to these sites, investors used crowdfunding real estate platforms such as realtyshares.com to pour nearly $500 million into real estate projects in 2015. While these sites may be the new hype in real estate investing, the model has yet to be fully vetted and my advice is to take a “wait and see” approach.

Pros:

  • Ability to invest small increments of money in hand picked projects
  • Can invest in development projects that are important to you
  • Like REITs, these are passive investments

 

Cons:

  • Currently over 100 different websites for real estate crowdfunding, many will undoubtedly fail
  • Long-term viability is unknown, investment model has only been legal for about 3 years
  • Non-liquid investment that may be difficult to sell quickly

 

Conclusion

 

My hope with this article is to give you a brief overview of potential investment options and perhaps pique your interest into the world of real estate. Owning physical property can be a great wealth-building tool if you’re comfortable with the risks and obligations. If not, REITs are an easy investment vehicle to diversify your portfolio by gaining exposure to the real estate market without getting 3 am calls about faulty plumbing. Ultimately, if you decide to incorporate real estate into your plan there is an option for everyone. Best of luck in your financial adventures and feel free to reach out if I can offer advice or answer your questions!

 

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Don’t Lose Track of that $6 Million

Posted on by yfpadmin

 

This spring, over 14,000 pharmacy students were awarded a Doctor of Pharmacy degree. Those graduates (except for those entering residency training) will be making approximately $120,000 per year depending on where they live and the type of practice they choose. Assuming most of these individuals will work 40 years with an average raise/cost of living adjustments of 3% per year, they will earn approximately $9 million during their career as a pharmacist.

If we assume 30% of that income (after deductions and credits) goes to Uncle Sam for federal income taxes, state income taxes and FICA and another 5% goes into a 401(k) or other employer sponsored retirement plan, approximately $6 million will make its way into the bank accounts of those pharmacists during their career.

Whoa.

That’s worth saying again. Recent pharmacy graduates will have approximately $6 million showing up in their bank accounts when it is all said and done. Remember, this assumes one household income, cost of living adjustments that only match inflation rates, and a career that lasts only 40 years.

What about for you? This total amount could be more or less depending on when you started working, how many years you work before retiring and how your salary changes throughout your career. Regardless of any one of those factors, it will still be a lot of money earned throughout your career.

That, of course, is the good news. Pharmacists have a great income to work with and if managed wisely, it should be way more than enough.

So what’s the bad news?

As we all know, when it comes to our finances, it is easy to go month after month without thinking much about the bigger picture. Over the past year, I’ve talked to way too many pharmacists that describe the feeling of living paycheck to paycheck despite making a six-figure income.

It doesn’t have to be this way. In fact, it shouldn’t be this way.

Why is this the case for so many pharmacists? Often, it is a result of not having a plan in place to direct where that money is going each and every month. How do I know? That is exactly how my Jess and I felt during our journey to pay off $200k in debt. We felt like we were living paycheck to paycheck (money in, money out) and doing that month after month soon become year after year (thankfully only a couple!) before we got serious about directing where our money was going. The reality was that we thought we had it all under control but in fact did not. After all, we didn’t rack up any credit card debt, we bought a reasonable home that was well under what the bank suggested we could afford and lived a pretty modest lifestyle. However, we didn’t have a plan in place that was directing where our money was going and a combination of expenses that weren’t in check quickly sucked up our income.

As we got serious about getting out of debt, we quickly realized that living intentionally with a plan that we were directing rather than doing a ‘good job’ and not overspending our income was two very different things.

It doesn’t matter if you make $50,000, $150,000 or $250,000 per year, without a plan expenses typically creep up and money comes in and out each month without much thought and direction.

What if instead you took a step back and asked yourself these three questions?

  • Do I have a good plan and system in place to wisely manage this $6 million that will be afforded to me throughout my career?
  • Have I set short and long term financial goals?
  • Does my monthly spending reflect my financial goals?

Don’t Let the Big Income Fool You

I’ve made my fair share of financial mistakes and many can be linked back to the complacency that comes along with a good income that can fool you if you aren’t careful. We all have had those months of falling off the wagon and not being intentional about directing where our money is going but we cannot let that be a trend over our careers or $6 million will come in and go out. The result will be working for years without much to show for that hard work.

Remember, this isn’t about being rich and putting together a plan so we can stockpile a bunch of cash. It is about responsibly managing our money so we can balance (1) enjoying what has been given to us, (2) saving for the future and (3) giving to others.

Your Financial Homework:

Do you feel like you are living paycheck to paycheck? If so, are there some areas you can make some easy cuts that will allow you to throw some of your income towards other goals such as retirement savings, giving, or paying more down on debt? For Jess and I (and I’m guessing for many others as well), our car payments were a big barrier to us being able to free up some cash. This might be a good place to start to get some momentum.

Furthermore, do you have a plan in place for managing this $6 million that will show up in your bank account? If not, today is the day to start! If you are looking for a place to get started, here is a basic financial goals worksheet and budget template.

Whether you are just out of pharmacy school with $200,000 in debt or in your mid-career with no debt and a half-million dollars or more saved for retirement, a plan that helps direct your money month to month is essential. John Maxwell is quoted as saying “A budget is telling your money where to go instead of wondering where it went.” Now that is the way to ensure that $6 million doesn’t slip through your hands without purpose.

 

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It’s Not About Getting Rich

Posted on by yfpadmin

 

Over the past six months, I have given a handful of talks to various groups of pharmacists and pharmacy students outlining how we (myself included) can better manage our money. One of my favorite questions to ask the audience is “How confident are you in your ability to become a millionaire by the time you retire?”

The typical response is one of silence.

So I ask for a raise of hands and just about every time a small handful will say they are “very confident” they can save a million dollars or more while the majority say they are not confident at all they can achieve this goal.

It is clear that talking about becoming a millionaire is not a comfortable topic for most.

For some, I get the feeling it is uncomfortable to talk about becoming a millionaire in a culture where we don’t openly talk about money very much. Separate conversation for another day but if we want to help each other and teach our kids how to handle money appropriately and wisely, we need to talk about this more often. For others, I think the mountains of student loan debt make it hard to see into the future of saving a million dollars. And for many, I get the impression that accruing a million dollars seems like a scary number that is out of reach.

In fact, most millionaires inherited their money, correct?

I thought the same until I read The Millionaire Next Door by Tom Stanley where his research shows that the majority (80-85%) of millionaires in America are 1st generation. That means that most millionaires are you and I that diligently plan for the future and save each and every month over a long period of time.

Here is the thing. We have to change the tone of this conversation about becoming a millionaire. It is not a bad thing, it is not greedy and it certainly is not impossible. In fact, I contend that most pharmacists that plan to retire at a reasonable age (say 65-70 years old), that will live into their 80s or 90s and desire to have a lifestyle that resembles their working years (or somewhere close), it is not a question of “Do you think you can save a million dollars?” but rather a fact that “You need to save a million dollars.”

The math doesn’t lie.

Here is an example to highlight this using a Nest Egg Calculator. I would encourage you to run the numbers yourself based on your personal situation. If a pharmacist is 30 years old and has $50,000 saved in retirement, plans to retire at 65, will live to 85, desires to live off of 80% of his/her current income in retirement and is modest in their investment approach, he/she will need to have approximately $5 million saved for retirement.

That makes sense when you think of inflation and the fact that there would be twenty years (after retirement) where savings would need to fund a lifestyle where there is no income. Certainly the variables can change such as working longer, living off a lower percentage of your current income during retirement, or assuming you will have social security benefits available. However, no matter what changes you make (unless you work until you die or close to you die), you ‘need’ to have $1 million dollars.

Therefore, we need to talk about the concept of becoming a millionaire much differently. It’s not about being rich.

So Why Save to Be a Millionaire?

There are five main reasons that motivate Jess and I to stay debt free, develop a plan for how money is spent each month and consistency save for retirement at the expense of spending today.

#1 – To be in a position to give away money in a way we have never been able to do so before. I firmly believe giving should be an important part of every financial plan from the beginning (even during debt repayment) but what I’m talking about here is giving at a much greater level and being in a position to meet the obvious needs we see each and every day.

#2 – Having a secure financial future for our family. As outlined above, saving a million dollars or more will be necessary to take care of our family if we want to retire at a reasonable age (even if we live off of 50% of our current income during retirement). Again, it’s not about being rich.

#3 – To leave an inheritance to our family that will have an impact for generations to come. Compounding growth is an amazing phenomenon…$3 million dollars left to the next generation can easily become $30 million dollars or more for the generation that follows. Lots to be said here about the pros/cons of leaving money to the next generation but for now, let’s leave it at this and assume the next generation will handle that money wisely.

#4 – To teach our boys how to work hard and that if you set a goal and work towards it, you can achieve it.

#5 – Getting to the point of having the flexibility to do what we want, when we want rather than working out of necessity. Don’t take this the wrong way. I love the work that I do. However, I think many (including myself) would prefer to be in a position to choose what work we do when we do it. That may mean doing the same exact thing as I am doing now but the difference is having the independence to make that decision beyond any salary influences.

Your Financial Homework: Do you believe you can become a millionaire? If not, what is holding you back? If you haven’t already, run you own calculations using the Nest Egg Calculator to see if you are on track for saving each month to meet that goal. Remember, saving for retirement is just one part of your financial plan and I would not recommend you focus solely on this goal at the expense of giving, paying down debt or building an emergency fund. There is great value in having a stepwise approach to balancing the competing financial priorities that are thrown at you every day.

 

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For Richer or Poorer: Two Pharmacists’ Journey through the Valley of Debt

Posted on by yfpadmin

 

The following post was written by Kevin and Erin Fuschetto. Erin Fuschetto, PharmD is a 2004 graduate of Ohio Northern University. Erin is a staff pharmacist for Giant Eagle Pharmacy in Salem, OH. Kevin Fuschetto, PharmD, BCACP is a 2007 graduate of Ohio Northern University. Kevin is the Clinical Coordinator for Giant Eagle Pharmacy in the Youngstown, OH region. I was inspired by their story to become debt free and to take control of their finances. I hope you find their story inspirational as well!

Erin: My name is Erin and I am a debt-aholic. This is my first month without debt. My debt problem began when I decided to go to pharmacy school with $0 in college savings. 6 years, 5 credit cards, 2 pharmacy degrees and one wedding later, my husband and I had accepted over $305,000 of debt. I say accepted, because we willingly signed up for this disaster. We were both full-time pharmacists with our “own money” and separate checking accounts. He paid his school loans, car, credit cards and the mortgage and I paid my school loans, car, credit cards and the utilities. We could afford the monthly payments and still enjoy fancy vacations every year. We were living the life!

Kevin: My name is Kevin and I am also a debt-aholic. Looking back at our original list of debt, my initial thoughts are, how did we get to this point? We were both pharmacists! Where was our money going? I honestly could not remember how this happened. I do remember how easy it was to go into debt. A credit card here, a car loan there and don’t forget the extra private “student” loan to pay for the wedding. We knew we couldn’t fix this on our own. We needed a new way to live. We needed help.

Erin: One day my husband came home talking about a radio show he listened to that talked about getting out of debt. He would come in every day with a new pearl of wisdom. He was spouting jargon like “snowball”, “rice and beans”, “live like no one else”. I honestly didn’t think we had a problem, so I didn’t take his words to heart, but he kept talking. He made me listen to the show and finally something clicked. We signed up for Dave Ramsey’s Financial Peace University at a local church. The first lesson for us was to get a joint checking account. I hated this idea. It was one of the toughest parts of our debt pay-off for me. I am a hider. I had cash stashed in coffee mugs, secret savings accounts and a “cushion” of $500 in my checking account, not recorded, just there to feel more secure.

Kevin: My wife and I are perfect compliments for each other. She loved to save and I loved using her “saved” money to pay off debt. She finally agreed to the joint account, but only if we got Muppet checks. Kermit, Miss Piggy and Animal made a lot of payments to our creditors. Not only did this simplify our debt pay off plan, it also seemed like we had more money! No more, I’ll pay this, you pay that, transfer this money here. We were well on our way. We ran our credit reports and closed all of our credit cards (even those we didn’t even remember we had) the first month. Then we cut them up, even my beloved Best Buy MasterCard… no more new DVD Tuesdays for me. Debit card or cash only for this family. Can you believe it? Paper money still pays for things!

Erin: The next few months were a crazy crash course in how to live on a budget and say no to new shoes and eating out. Satellite radio was canceled. Magazine subscriptions gone. Lunches were packed. Coffee was made at home. Every dollar we made had a purpose and a name. We paid off the smallest debts first, then moved onto the cars! I had never owned a car without a payment! The student loans took a long time. We would get excited for our tax return, our yearly bonus or coin wrapping day, because all of that was extra money to help us hit our goal.

Kevin: Initially the budgeting process was not easy, it took many months and meetings to fine tune the budget. We built up a small emergency fund and learned to plan for expenses. When a bill or an unexpected expense occurred, it was a great feeling to know the money was already there. We learned to cash flow everything! We wanted to start a family so we planned, saved, and budgeted our son’s birth. To make extra money, I took a part-time job as a MTM consultant on the weekends and during the baby’s naps. We traded in our now paid-for car and bought a new (used) car. The salesman asked us what kind of payments we were looking for. My wife and I laughed and I said “We are writing you a check for the full amount today!”

Erin: Our last student loan was a whopping $90,000 consolidated loan at 9% interest for 30 years. April 21, 2016, 20 years early, we made the final payment on that loan! We changed our future! Now I get to do what I love most… save, diversify and relax!

Kevin: Now we are free to start the next phase of this journey, no more looking back at the mistakes of the past but forward toward the future. Now we can save for our son’s education so he will not be burdened with student loans. Now we can save for our retirement. Now we can give back to those people and organizations that have helped us. Now we can do whatever we want!

It was a long journey, 56 months long! We wish someone had told us growing up how loans and interest worked. We were raised that if we could afford the monthly payment, that was good enough. Now we know the myths about debt. You don’t have to build your credit. You don’t have to go into debt to succeed. What does a credit score say about you other than how much you love being in debt? You can’t retire on cash back, bonus points or air miles!

Erin: We are debt free and we will never go back! Hasta la vista Visa! See ya later Sallie Mae! Kiss my ACS!

 

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When Budgeting Isn’t Your Thing

Posted on by yfpadmin

 

In celebration of Mother’s Day, my wife, Jessica Ulbrich, was kind enough to share her thoughts about our financial journey. As many of you know, she is mother to our 3 boys (Samuel, Everett and Levi) and I am forever grateful that they get to learn from her each and every day. As you will read, she chose to focus on budgeting and I am glad she did. This is tough area and not fun by any stretch of the imagination. She has great insight to share and I hope you will enjoy this post as much as I did. If you have any questions for her about this article, you can contact her directly at [email protected]

Budgeting.

Ugh.

It might as well have been a four-letter word in our home.

It felt like someone had taken all of the fun out of living – now with each purchase having to be diligently accounted for, it honestly felt like I was trapped and reveled that we couldn’t keep living as blindly as we were living. At one point, we were outspending our monthly income! While we weren’t living extravagantly, we were living irresponsibly and we needed to do something about it.

And that’s where we started talking about budgeting. When Tim and I set out to become debt-free, the budget was the necessary and essential tool toward achieving that goal. I can still remember sitting down with Tim and pulling up our bank account information online, grabbing spiral notebook and pen and starting to outline our monthly expenses for the first time. Only one of us was excited about this new journey…and it wasn’t me.

Tim looked at the budget as freedom. By knowing and accounting for all of our monthly expenses, we could start to live more. I, on the other hand, looked at it as chains, each envelope seemed dismally short-funded and there was not much room for “fun.”

Can you relate? Maybe you’re feeling the same way. Or maybe you have a spouse that doesn’t like sitting down to talk numbers. Certainly a lot of people must feel that same way as only 52% of Americans earn more than they spend.

After following the budget for a couple years and realizing some of our financial goals, here is how I went from hating the budget to fully embracing all the freedom it could truly provide:

#1 – Appealing to my heart.

Tim and I have three boys. Being a mom is such a gift. I love my role and responsibility as mom and Tim knows this very well about me. So, to help bring me on board he tapped into my love for motherhood to help explain why he wanted to be debt-free and how the budget would help us do that.

Here’s how he communicated it to me:

By living on a budget, we could get out debt faster. Getting out of debt would allow not only for more discretionary income that we could use for our boys, but also allow us to set crazy dreams and goals for them.

Before setting the single goal of becoming debt free, we had multiple goals we were pursuing simultaneously, including funding a college account for each boy. When we started honing in on eliminating debt, we temporarily put a hold on contributions to their college accounts to put all extra income toward debt.

Staying singularly focused on getting out of debt so that we could start helping our boys with college again was one way that I was absolutely willing to stay on track until we were debt free. It was also the first time that I saw our budget the way Tim saw it: a tool toward freedom. Our debt chained us down and prevented us from one opportunity we wanted to gift our children with. The budget was the path to cutting the chains and putting our money where we really wished it could go instead.

Maybe for you isn’t not about college accounts, but what is it that your debt is preventing you from doing? You could probably put down a list of things quickly! What do you dream about doing? Do you want to travel more? Do you want to give more? Do you or your spouse to be able to stay at home with your children? Whatever your goal is, write it down and it will help you stay committed to your budget.

#2 – Budget for some fun, too.

I recently had a conversation with an individual who said that she would love to get out of debt, but didn’t want to sacrifice all the things that she enjoyed. I hear you, it’s really hard (see my initial feelings up above!)

Each month, Tim and I had our own personal envelopes that we could use any way we desired. We could use it to buy new clothes or books (we love Amazon!) get a coffee or dinner out with friends, etc. We also created separate envelopes for date nights, family nights and an envelope for clothing/items for our boys.

At first, there wasn’t much put into each envelope, but the fact that we had dollars earmarked for those specific “fun” items was critical. It meant that we could still do some of things we enjoyed, but this time it was all budgeting and accounted for and would not derail our ultimate goal of eliminating debt.

It also meant our communication on spending was streamlined. So, if I wanted to use my envelope money on another pair of shoes or Tim wanted to use his on yet ANOTHER financial book (love you so much, Tim!), those decisions were individual and we trusted the other to use their monthly allowance as they saw appropriate. No more arguing over personal purchases.

#3 – Give yourself grace and revisit your budget often.

It took Tim and I several months before we finally set realistic numbers for our grocery category. At first, it was frustrating to me that we ran in the “red” on that category for so many months. Since we had never tracked our spending in that area before, we arbitrarily set a number. After months of monitoring receipts and spending, we could finally set an accurate number that we can work within every month. But I can say that it was disappointing when it felt like the budget wasn’t “working.”

It’s important to revisit the budget monthly and to talk about it weekly. Sometimes we have more birthdays in a month so the “gift” category gets bumped up. Some months we are hosting more, so we put some extra in the “grocery” category. Doing this allows us to stay on the same page and plan for where our dollars are going. We have also found that meeting weekly to review expenses helps us catch areas where we are overspending and then we can do a mid-month adjustment to make sure we stay on track.

#4 – Get help and encouragement.

I’m grateful that Tim is passionate and gifted in this area for our household. His commitment and expression of this goal was essential to keeping us on track, as I would have derailed our plan many times over by now. There is no way I would have been disciplined enough to continue to work within our budget if I hadn’t had Tim’s leadership.

It is so important to work together with your partner on this goal. And if you’re single working on a budget, find someone that can help you stay committed to your goal and hold you accountable on your journey.

#5 – Love the budget because it isn’t going away.

I wish I could say that now that we are debt-free that we no longer have to work within a budget. But even on the other side of the journey, we still have new goals to work toward and the budget is once again the tool toward achieving them. Even thought I am not passionate about budgeting, I am very passionate about the freedom living within a budget has provided for us and that is why I will stay committed to it.

After we paid our final college loan payment, we did go back and rework our budget to put a little bit more money in some of the “fun” envelopes I mentioned earlier and generally there is a bit more breathing room. But I know even if we had millions of dollars, we would still be committed to the budget and our goals would just be fueled by bigger and greater dreams!

Financial Homework:

So which kind of person are you – someone who loves the numbers or someone who doesn’t?

What if you love working with numbers and creating the budget and your partner doesn’t? What ways can you appeal to their heart? Find ways to make the journey to your goal realistic and still “fun” along the way.

What if you’re the one resisting the budget, but your partner is on board? Take time to express why this is difficult and how your partner can help you stay motivated on your shared journey.

If you’re working on a household as an individual, who can you bring in around you to encourage you and help you stay on track as your reach your goals? Find someone that will help you stay committed to your plan and check in with you regularly.

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4 Ways for Pharmapreneurs to Improve Their Personal Financial Equation

Posted on by yfpadmin

 

By: Blair Green Thielemier, PharmD (Founder of Pharmapreneur Academy)

I want to thank Your Financial Pharmacist for inviting me on the blog to talk about a subject that really excites me. Making money! You see there are two variables to everyone’s personal financial (PF) equation: saving more and earning more. Those are the only two possible options for improving your financial situation; barring some exceedingly good luck regarding lottery tickets or wealthy great-uncles.

Saving more means cutting out extraneous spending, balancing your budget, strategically managing debt payments and prioritizing retirement planning. The downside, however, is that you can realistically only cut back so much. There is a limit on saving. You are limited to saving $6,000 per year in an IRA or $19,500 in a 401(k) for someone under the age of 50. You are limited by the basic cost of living in your area when cutting out extraneous spending (unless you want to audition for one of those “living-off-the-grid” TV shows, then by all means, go ahead!)

Saving is big piece of the equation because, until you can control your spending you will likely fall into the lifestyle inflation trap. My dad told me soon after I graduated pharmacy school, “It seems likes you will be earning a lot of money, but be careful because the more you make, the more you spend.” He was so right; those wise words have kept my family living below our means for the past five years and have helped us avoid financial disaster during a very difficult time. Once you feel comfortable with gaining control of your spending (most likely by using the “B” word), you can focus on the second variable in the personal finance equation: earning.

Why is earning so much more so exciting?

Because there are no limits on earning. Earning more, whether by career advancement, side “gigs”, investment income or entrepreneurship, is the secret multiplier in the personal finance equation. Imagine if you could create something once and sell it over and over again, this is known as passive income. It is why investing works. It is why entrepreneurship works. Without time as a limiting factor, earning potential becomes as vast as the effort you are willing to put into it.

Think of it this way; as an employee you essentially trade your time and skills for a predetermined amount of money. The problem is the limitations on your salary as there are only so many hours each day. As an entrepreneur, you can find ways to leverage your time.

How to Make Money as a Pharmacist

Here are four ways to earn extra money and tip the personal finance equation in your favor by becoming a pharmacist-entrepreneur (Pharmapreneur).

#1 – Offer MTM as an Independent Consultant

You can capitalize on your clinical skills and offer MTM services to independent community pharmacies, physician groups or even to cash-paying patients.

In a short-staffed community pharmacy, for instance, they may be struggling to meet their dispensing numbers. In 2016, Medicare began following CMR completion rates and monitoring performance measures at a time when many community pharmacies are struggling to keep up with the growing MTM queue. They need independent consultants in their local areas to step up and help them meet their performance goals.

In physician groups, pharmacists can provide value through multiple MTM-related services. My favorite example is of the pharmacists at Cleveland Clinic who are improving outcomes for post-transplant patients by counseling them on immunosuppressant therapies. Medicare is reimbursing for their time through utilization of the “incident to” CPT codes 99212-99214.

You could easily model a similar practice model on a smaller scale for physician groups in your area. At Pharmapreneur Academy, I help other pharmacists build pharmacy consulting businesses. Many other pharmapreneurs have taken the course because they are interested in finding new opportunities to use their clinical skills.

However, building a consulting business is not the only way to generate income using your pharmaceutical knowledge and skills. Perhaps if you aced Pharmacokinetics or Drug Induced Diseases then you should look into a new branch of healthcare. DNA testing.

#2 – Become a Pharmacogenomic Testing Representative

Another burgeoning branch in pharmacy clinical services is genetic testing. A genotype test panel gives physicians and pharmacists a better understanding of enzymatic action (the “M” in ADME from Pharmacokinetics) in patients.

Healthcare providers can use genotype test results to improve medication safety and efficacy and decrease “trial and error” prescribing. Pharmacogenomic tests help identify non-responders before it is too late. Because pharmacists are the most trained healthcare providers in pharmacokinetics, it makes sense for us to take advantage of this knowledge.

The biggest barrier to using genotypic tests, according to physicians, is lack of time. Pharmacists can offer to interpret tests, optimize therapy and improve medication side effects for patients in exchange for a fee. In certain states, pharmacists are eligible to receive a commission on pharmacogenomic tests and can offer their services as an independent consultant.

Here is more information about how to begin a PGx service in your community.

#3 – Put Your Writing Skills to Work

If you are interested in sharing your ideas and enjoy putting those thoughts into the written medium, becoming an author could provide you with another income option.

A friend of mine offers paid medical writing positions which are a great option for pharmacists who want to generate a bit of extra cash. She has told me multiple times that because of our medical knowledge and attention to detail, pharmacists make some of the best medical writers on her team. If you are interested, I would be glad to put you in touch with her to learn more.

In addition to medical writing, authoring a Kindle book can earn you passive income for as long as Amazon is selling your book. This absolutely does not have to be pharmacy-related. You can easily write a 10,000 word ebook on any subject of interest and begin selling it on Amazon. I recently released a book on the Amazon platform without spending a ton of money.

Another source of revenue, could be writing for pharmacy publications such as Pharmacy Times. If you enjoy writing you can submit a one-time article or if you decide to regularly submit your work, become a contributing author. Contact Tim or I for a referral if you are interested in publishing in Pharmacy Times.

Writing can be a creative, enjoyable way to create additional income streams that head straight into your piggy bank. Authors with a medical background can be highly sought after and therefore command higher fees so once you get started, there are many options for the pharmapreneur/author.

#4 – Teach Workshops to Pharmacists in Your Area

If you have expertise in a subject other pharmacists would find interesting, you can easily put together and teach your own workshop for CE hours. Recently myself and two colleagues hosted a successful MTM workshop in Little Rock.

A workshop can be a good, replicable income stream for the entrepreneurial pharmacist. Once you develop your slide presentation and a general outline, you can submit your objectives and offer the workshop a few Saturdays each year.

First, I recommend you “test-sell” your workshop on Facebook or through your local APhA chapter to see how many pharmacists in your area would be interested in signing up. Then, if there is enough interest, create the slideshow, apply for CE credit, book the venue and begin pre-registering people.

You can test sell your workshop in a few different ways.

  1. Pre-register people using Paypal invoices
  2. Create a “wait list” to gauge how much interest there is before booking the venue
  3. Use a program like Eventbrite to manage attendance and register attendees

We limited our course to 20 pharmacists and gave 4 CEUs. We had such great feedback that we plan to offer the workshop again soon. The workshop is something that we created once and we can offer to pharmacists again and again as long as there is interest.

The greatest thing about entrepreneurship is there are no limits your creativity and earning potential. You can generate income through your ideas and your own hard work.

Whether it be through consulting, genomic testing, writing or teaching, your knowledge and degree opens so many doors if you are willing to work hard.

Entrepreneurship will change your life!

Financial Homework: Can you take advantage of any of these income opportunities? If so, consider exploring one further and projecting how much revenue you might be able to generate by participating in that activity. Take this one step further and determine how this additional revenue could help you achieve one of your short-term financial goals.

Looking for More Ways to Make Money as a Pharmacist?

Check out 19 Practical Ways to Make Extra Money as a Pharmacist!

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ABOUT THE AUTHOR:

Blair Green Thielemier, PharmD is an independent consultant pharmacist living in Arkansas with her husband and daughter. She is the founder of Pharmapreneur Academy, an online teaching platform where she guides pharmacist-entrepreneurs through the process and barriers of building a pharmacy consulting business. She is the author of How to Build a Pharmacy Consulting Business, a contributing author for Pharmacy Times and guest host on the Pharmacy Podcast. More information about Dr. Thielemier can be found on her website http://BTPharmacyConsulting.com

 

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My Top 10 Financial Mistakes

Posted on by yfpadmin

 

While Jess and I made some great decisions along our journey to pay off $200K in debt, there are some that I certainly wish we could have back. I recognize there is nothing we can change about these decisions now. My hope is this list will prevent at least one person from making one or more of the same mistakes that I did. It took me a while to hit send on this one since some of these are pretty embarrassing. Nonetheless, here they are…my top 10 financial mistakes.

#1 – Buying a house without 20% down

Jess and I moved to Munroe Falls, OH in the summer of 2009 when I started at Northeast Ohio Medical University. Not knowing the area, we rented for a year and then decided to buy a house in 2010. We got the itch to buy a home and the offering of the first-time homebuyer tax credit exacerbated that itch. As a result, we only put 3% down to get into our house. While the monthly payment for our mortgage was well within our means, we could have waited one more year and banked enough money to put at least 20% down.

I see three main reasons why it is good to put 20% down on a home, even with historically low interest rates. First, with 20% down, you will not find yourself in a situation where you have to pay private mortgage insurance. Second, you are more likely to buy within your means, especially if you desire to get into a home sooner rather than later. Think about it. If you hold yourself true to waiting until you have 20% down but at the same time are eager to get into a home, you will likely lower the price range of homes you are looking at so you can make that happen faster. Third, when you put a chunk down such as 20%, you instantly have some equity in your home so if the market goes down and/or you find yourself in a situation where you have to move sooner than you anticipated, you will be in a better position. Remember, mortgages are structured so the interest is frontloaded so it takes time to build up equity in the home by paying down the principal.

#2 – Delaying the purchase of life insurance

Delaying the purchase of term life insurance when you have a family that depends on your income is outright stupid. Go ahead; call me stupid, I deserve it. I’m not sure what I was thinking. Yes, I had some life insurance coverage through work (1x my annual salary) but nowhere near enough for what you would want to have in place (e.g., 8-12x your annual salary).

I currently have a 20-year term policy just shy of $1 million dollars in coverage that costs only $38 per month. Over 20 years, my payout in premiums will be just over $9,000. That is a pretty good investment for $1,000,000 of protection if my family were to need it in the event of my death within the next 20 years.

#3 – Trying to balance too many financial priorities at once

Jess and I were trying to balance a bunch of financial priorities at once. The problem is that we weren’t doing any of them very well. We were trying to pay extra on the house, save for retirement, start saving for kids college, build up an emergency fund and pay off student loans…all at the same time. While we were doing all of them OK, we weren’t doing any of them particularly well. There is something to be said about focusing on one thing and for us that one thing should have been getting out of our student loan debt as fast as possible so we could start focusing on the other priorities.

I’ve talked to too many new pharmacy graduates with loans that have interest rates above 6% and while trying to pay off those loans, they are also trying to balance buying a home, purchasing new cars, saving for retirement, and so on. Here is the thing. If you have high-interest rate debt (e.g., 6-8% student loans or credit card debt at an even much higher of an interest rate) there is little to debate. Pay it off as fast as you can. This should be your top priority unless you are banking on something like loan forgiveness. Where it gets sticky is when you have low-interest debt (e.g., car loan at 0.9%). Many will advise that it is not wise to pay off low-interest-rate debt at the expense of saving that money. That is an OK decision as long as you are actually saving that money which is often not the case. Why am I a fan of paying off debt no matter what the interest rate? By focusing on maximizing your debt payment within your monthly budget, you naturally limit your other expenses.

#4 – Waiting 7 years to create a ‘legacy folder’ including the will

For whatever reason, the idea of putting together a will seemed intimidating and time-consuming. While it wasn’t as critical when it was just Jess and me, it should have been much more critical when we had the boys. Amongst other things, the will covers what we would like to happen with our kids upon our death. We have all heard nightmare stories of custody issues that happen as a result of someone not having a will in place. As with many things we tend to drag our feet on doing, it wasn’t that bad after all. We used an online will-making site and had it done in under a couple of hours.

As Jess and I were going through Financial Peace University at our church, one of the lessons brought up the idea of creating a ‘legacy folder.’ Essentially, this is one place where you store all of your financial documents and important information so that in the event something happens to you; someone else can quickly get access to what they need to. If you are in a relationship where one person does most of the financial-related tasks in your household, this is even that much more important!

Putting together the ‘legacy folder’ took several hours but it was well worth it. In one place, we now have all of our financial documents. That is a great feeling.

#5 – Taking out student loans without knowing what was involved

I think most of us are guilty of this one. Taking out debt without knowing what we are getting into. For me, it was not understanding what my student loans were all about. I was 18 years old starting pharmacy school and the last thing I cared about was what a subsidized versus unsubsidized loan was or how the interest rate could compound over time at such a nauseating pace. Furthermore, I had little understanding of the repayment options and the advantages or disadvantages to refinancing and consolidating.

#6 – Cashing out retirement funds

I told you some of these were embarrassing and this one might top that list. After Jess decided to leave work to stay home with our boys, she had a couple of retirement accounts floating around from two different employers. For one employer, they kept changing accounts and I would constantly get letters mentioning the account was transitioning to a new plan sponsor. I was having a hard time getting access to these accounts so the money was sitting in a money market fund (this could be a whole separate point in this top 10 list). I got frustrated and since we were trying to pay off debt, we ended up cashing these out. Granted, it did go towards our debt that had interest accruing so that was a plus. However, we ended up paying income tax on the distribution as well as a 10% penalty for early withdrawal. As Dave Ramsey says, that is “stupid tax.”

#7 – Buying a car I had no business buying

In December 2014 as Jess and I were nearing the end of paying off our student loans, I bought a used Lincoln MKX. It was nice. Really nice. Leather heated seats, a moon roof, and an awesome sound system. Here is the problem. I had no business buying this car since I had a perfectly functioning Nissan Sentra with less than 50,000 miles on it. While the Lincoln was used and we paid cash for it, it still cost us $12,000 after we turned in the Sentra. That could have been $12,000 to get out of debt earlier or $12,000 to build up an emergency fund or $12,000 to save for retirement or $12,000 to save towards the kids’ college fund or $12,000 to go on vacation for a few years…you get the point.

According to Edmunds.com, the average monthly payment on a new vehicle in the US is $479. Ouch. If someone is struggling with debt and/or getting control of their monthly expenses, this is often the first area I recommend taking a look to cut back. You won’t miss your car as much as you think you will. I ended up selling the Lincoln MKX 6 months after I bought it (more ‘stupid tax’ to pay). In turn, I purchased a used Nissan Altima with 87,000 miles from my mother and father-in-law. After selling the Lincoln MKX and purchasing the Altima, the difference became our last student loan payment!

#8 – Opening a Lowe’s credit card

As with many store credit cards, we got sucked in by the 5% savings. The problem was that by having that card, we eventually decided to do a kitchen remodel that we probably would have waited on if we didn’t have the card. We could have saved up to pay for it in cash within 4-5 months but we got the itch. We ended up paying it off within a few months of the remodel being finished but still had to pay some interest we wouldn’t have had to otherwise pay.

#9 – Waiting to have a budget

This one is pretty simple yet we, like many others, didn’t have a budget in place for some time to plan and track our income and expenses each month. We were not outspending our income (which was good) but quickly realized it is a WHOLE new world to prioritize and strategize where our income should be going each month rather than reacting to where it went. What was the result for us when we decided to get serious about a monthly budget? Freeing up approximately $2,000 per month that was able to pay off our debts and then fund an emergency fund.

#10 – Misunderstanding about the priority of giving

While Jess and I were constantly giving throughout our journey to pay off $200K in debt, the giving was an afterthought. After all, we had other ‘priorities’ to take care of. In hindsight, this is laughable considering we created those ‘priorities.’ When we started making this a priority by giving the first % of our income, something magical happened. Our hearts changed towards doing this. We were humbled with what we had been given to us rather than trying to chase more. If giving is important to you, make it the first thing you do and budget off of the rest. For example, if you want to give away 10% of your income, set your budget off of 90% of your pay. Regardless of your religious beliefs, giving before spending really puts things into perspective.

Your Financial Homework is to take action on at least one thing based on this list. Whether it is making sure you have adequate term life insurance in place, putting together a will, or putting the pen to paper to create a monthly budget, we all have room to improve upon something. Take that one step today and share your progress.

 

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4 Easy Ways to Cut Monthly Expenses

Posted on by yfpadmin

 

Finding ways to cut monthly expenses is never a fun discussion. With that being said, cutting here and there certainly adds up.

When Jess and I were zeroed in on getting out of debt, we were looking for all kinds of areas where we could cut our expenses. Besides the obvious (and very important) step of setting a budget to control your day-to-day purchases, here are 5 easy ways to cut your monthly expenses. I recognize these aren’t for everyone. These are what worked for us. Please comment at the end to share some others that have worked for you.

Cutting the cord

Not a fun one to embrace but certainly something that can make a noticeable difference. This is easier than ever with high definition antennas, streaming services such as Netflix and Hulu, and now even live TV options that are independent of the cable and dish companies.

Prior to making the cut, our cable, Internet and Netflix bills added up to approximately $148/month. When we cut the cable, we decided to add a high definition antenna (one time purchase of $30 from Amazon) and Sling TV (monthly fee of $20). The high definition antenna gives us access to the major networks (e.g., NBC, CBS, etc.) and several PBS stations. Using the following  link, you can check the reception you are likely to get with a HD antenna before you make the purchase. The Sling TV provides access to many popular TV channels (e.g., ESPN, HGTV, Food Network, CNN, etc.) via an Internet connection.

With the cuts, our current monthly expenses are approximately $75 for a savings of $73/month. Does the high definition antenna and Sling TV serve as a perfect replacement to cable? No, but it is certainly adequate. There are times when the signal will go in and out depending on the placement of the antenna or the weather outside. With the Sling TV, just like you may have streaming issues from time to time with services such as Netflix, the same applies here.

Auto insurance re-quote

Ok, full transparency here. I felt dumb on this one. A few years back I called our auto insurance broker and asked for an updated quote since I felt like our auto insurance was higher than it should be. We still had two cars and nothing changed except we were a few years older. That updated quote led to a new policy with the same coverage.

In 2009, we were paying $146/month. We are now paying $85/month. A savings of $61/month.

While I haven’t explored this yet with our auto insurance broker, I have heard others mention that paying a lump sum once or twice a year rather than monthly payments is a way to save some additional dollars on car insurance.

Refinancing the home loan

When we bought our house in 2009 at a 5% interest rate, we were told how good rates were at the time. As rates continued to dip for the next few years down to 3.75% (and even lower of 15-year fixed mortgages), we asked our bank about refinancing. So how do you know if refinancing is worth it? Let’s look at an example assuming you bought a house in 2010 for $200,000 at a 30-year fixed mortgage at 5%.

Today, you could finance a 30-year fixed mortgage near 3.7%. Not too bad. Seems like a pretty simple decision but two major factors to consider are (1) how much are the closing fees to refinance and (2) how long do you project to be in that home. If you can answer those two questions with confidence, you can figure out whether or not it is worth your time and savings. For our example, let’s assume you still owe $190,000 on the principal since a mortgage is front loaded with interest.

If we run this scenario through using a refinance calculator assuming closing fees of $6,000, this refinance would result in a payment that is $199 less per month. Since the closing fees were $6,000, if we save $199/month it will take 31 months until the amount we saved from lower monthly payments equals the amount we paid in refinance fees (aka breakeven). After 31 months, you would then be saving $199/month.

That is where the “how long do you project to be in that home” question comes into play. If you may be moving in a short period of time (or that is unknown) it may not be the best decision. The smaller the difference in the interest rate and/or the higher the closing fees, the longer it will take you to breakeven. For Jess and I, we were able to cut down our monthly payment by approximately $150/month through refinancing.

Budgeting gifts for family and friends

Whether it is for birthdays or holidays, this was one area we felt like we didn’t have a good handle on and was fluctuating significantly. Not too long ago, Jess and I wrote out every gift we could think of for the year, set a budget for each gift and then divided that number by 12. That became the amount we saved each month and when the gift expense came up, we were ready. Tip: If you celebrate Christmas and if that is typically a big expense for you, start this sometime in the early New Year so you can have the majority of the year for that to build up. It goes without saying that planning for these expenses (after all, they shouldn’t be a surprise!) will minimize stress and keep the spending within control. I estimate this has saved us a few hundred dollars a year or $25/month.

So there it is, an estimated savings of approximately $309 / month by making a change here and there. That adds up over the course of a year. More importantly, if you are trying to pay off debt, this has a significant psychological momentum that can expedite your ability to get out of debt or achieve whatever financial goal you are trying to achieve. You make a cut here or there and it is a small win that gives you some serious momentum towards achieving that goal. You will find yourself looking for more cuts.

Remember, this ~$300/month doesn’t include the savings that occurred from budgeting the discretionary expenses that happen every day (e.g., going out to eat, clothing, coffee, etc.) Those are the ones that add up the fastest.

Financial Homework: Are any of the above areas you might be able to take advantage of? If so, take a first step in exploring one and make it a reality by the end of this month. Share your progress by leaving a comment at the end of this post or by sending us an e-mail me at [email protected]

 

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