Self Building Archives - The Broke Professional

Want to Get Ahead? Be More Machine and Less Human

Git’r done

The Industrial Revolution was great.  It allowed increased productivity which made company executives very happy, but it made certain workers obsolete.  The ongoing digital revolution is awesome too.  We hardly ever have to pay bills by snail mail, write letters by hand, or even drive anywhere to get food.  We can do it all online or on our phones.  But this makes mailmen and women a little mad.

And now you have companies like Google and IBM trying to get into the artificial intelligence game with their fancy driverless cars and computers that can think on their own.  Who knows how many jobs that will destroy?  As time goes on, humans are being replaced by machines more and more.  But instead of getting mad and trying to stop this type of technology, we should follow the old adage: If you can’t beat ’em, join ’em!

Predictability

Ask any manager what the most frustrating part of their job is, and the answer is usually dealing with staff.  That’s because people aren’t consistent and some people are complete wild cards.  They get sick, they don’t show up for work, they have babies and things like that.  Obviously we can’t stop those things all the time, but that’s the reason companies like machines.  You just turn them on and you know what you’re going to get.

We should strive to be like this in every facet of life.  And being predictable doesn’t mean being boring.  It means following a schedule and sticking to it.  The greatest athletes the world has ever seen, such as Bruce Lee, Muhammad Ali and Michael Jordan, all had their days planned out meticulously.  They were very predictable and machine like in their approach to practice and work.  They didn’t care if they were getting tired or didn’t feel like completing the task.  It just had to get done.

If you’re an employee, this means showing up to work on time and ready to perform.  You want to be irreplaceable and show your bosses that when something is asked of you, it’s going to get done.

Laser-like Focus

When you turn on your microwave, you expect something edible to be produced.  When you start your car, you expect the engine to turn on so you can get where you need to be.  I don’t think we’d be too happy if our dishwasher starting checking its Facebook feed in the middle of its job, which is being a washer of dishes.

Research has shown that multi-tasking doesn’t work, and from my years of being a student and now a professional, I firmly believe that as well.  Focusing on one thing will allow you to do it very well, while doing more things just drops your productivity like crazy.  But it has become even tougher in this day of constant notifications and updates.  I hate acronyms very much, but FOMO (fear of missing out) is a very real one nowadays.

We don’t dare miss the latest Facebook update (notice how Facebook is a common destroyer of productivity), CNN urgent news update or email blasts.  But the fact is, in most industries, checking email/Facebook/Twitter just once or twice a day is more than sufficient.  Focusing on the task at hand and putting all of your energy into it will usually produce great results.  So put the phone away for a bit, turn the background TV off and get your task done like a boss.  Or like a machine.

Consistently Update

I might be reaching a bit with this one, but hear me out.  Technology is constantly changing.  Phones, appliances and TV’s of today do not look or work anything like they did 20 years ago.  And the same will be true 20 years from now.  Machines are constantly becoming more sleek and efficient over time, and we must too.

This means setting up regular intervals of self improvement.  I’m a firm believer in the Miracle Morning, in which you wake up early and do things for yourself before you do them for anyone else.  Hal Elrod, the creator of the program, specifically lists six tasks to complete in the morning:  Silence, Affirmations, Visualization, Exercise, Reading and Scribing.  This is the specific program he created, but the point of it all is to focus on making yourself a better person every single day.  Even if you can add one self improvement task to your daily routine, it will pay off tremendously.

Many people say they’ve been meaning to read all the books they bought, but just don’t have the time.  Simply make more time or eliminate something that’s not important and just do it.  Even if it’s just 10 minutes a day, it can make a difference if done consistently.  Same goes for exercise.  Many people want to do it, but say they don’t have enough time.  Find the time, and make is a consistent part of your regimen.

Before you know it, these habits will be second nature….like a machine!

 

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Can You Make the Sacrifice?

Sorry.  Can't give up too much of this.

Sorry. Can’t give up too much of this.

One of my favorite documentaries is Pumping Iron, which follows the Mr. Universe and Mr. Olympia bodybuilding competitions during the 1970’s.  It famously features a young and hugely muscled Arnold Schwarznegger, who before becoming an action movie star and Governor of California (I still don’t get how this happened) was the face of bodybuilding back in the day.  Now, Ahh-nold is a very polarizing figure and he has done some really morally questionable things throughout his life, but no one can doubt his work ethic and success.  If he was eligible, I wouldn’t doubt that he would be able to become President of the United States one day.

One scene from the documentary in particular speaks to his work ethic.  In the scene, he talks about getting a phone call from his mother informing him that his father passed away.  He was away from home because he was participating in a competition, so his mother assumed that he would skip it and come home to attend his father’s funeral.  This is a pretty rational move and I’m pretty sure most of us would try to make arrangements to make it to our dad’s funeral if we were away.  But this is Arnold we’re talking about.

He told his mom he was not coming home for the funeral and that he was going to finish the competition.  He also said that since dad is already dead, there is nothing more to gain from being at the funeral so go ahead without him.  While this sounds like an incredibly insensitive thing to say, Arnold explains why he made that decision.  He wanted to be the best.  Nothing more than that.  To be the best, he reasoned, required sacrifice that others were not willing to make.  If he left the competition to attend his dad’s funeral, someone else would have won it and he would have been an afterthought.  He wanted to be the best in the bodybuilding world, and was ready to risk the relationship with his family to achieve that.  Because of this level of sacrifice, he was able to achieve all that he did, but gave up some other things in the process.

What would you give up?

I don’t think many people would do what Arnold did there, but then again not many people will be as successful as Arnold.  It all depends on what we are willing to give up, and this really made me think.  The other day I had a conversation with a co-worker that reminded me of this exact situation.  She wanted to go back to school but didn’t want to leave her child in daycare because she wanted to be present for those early years.  I essentially told her that it’s all about what you’re willing to give up.  If you want to go to school and achieve your dream, than you will have to be absent from your son’s life for a little bit.  But if you want to be there for your son all the time, then you’re going to have to forget about school.  It’s as simple as that.

We try to have it all, but we are inevitably going to have to sacrifice something at some point.  And we would do well to recognize this.  Many people get paralyzed from committing to anything because of this.  And I speak to myself first, but sometimes is no right or wrong answer.  It takes courage to give up something we enjoy or cherish on order to achieve something else.  It really comes down to priorities, and putting what is most important to you at the top of the list.  Making money and becoming successful is important, but to what end?

I don’t fault Arnold for his decision because it really is based on sound reasoning.  He wanted to become the best in what he did, no matter what the cost.  It’s that level of extreme sacrifice that separates the superstars from everybody else.  Michael Jordan is the best basketball player of all time (Please, there is no debate here) not necessarily because of his talent alone, but because of his sacrifice and work ethic.  He pissed off a lot of people on his way to the top and alienated some of his family and friends, but he will go down in history as the greatest basketball player this world has ever seen.

Test it Out

This made me think a lot about what I would give up.  If I worked 7 days a week as an optometrist and sacrificed most of my sleep to work on blogging and freelancing at home, I imagine I would be doing very well financially.  But I would be giving up time with my family, the comfort of sleep and spending time with friends once in a while, things that are all important to me.

While it seems tough to find out how much you would sacrifice, I’m finding that it isn’t that difficult.  Just test it out.  If you want to give up some sleep to work on a project, just do it for a few days and see how you feel.  If it feels good, then you can continue to give up a little bit of sleep to achieve your goals.  But if it’s causing you undue stress and you start resenting your work, then maybe you shouldn’t give up so much sleep.  Just do some trial and error and see where it takes you.

Would you give up relationships to achieve your dream?  What would you never sacrifice?

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Why The US Government Should Read Personal Finance Blogs

We like blaming the government for a lot of things that go wrong in our life.  From Obamacare to yearly tax law changes, many people start thinking that the government is out to get us.  All they want is our hard earned money and those greedy bureaucrats will do anything to get it.  While I do agree that greed is the name of the game in politics, I don’t think that every law the government makes is a cohesive concentrated effort to steal money from its citizens.  That’s because the US government really has no idea what it’s doing.

After perusing any reliable financial books and/or blogs, you will come across certain themes.  Spend less than you earn, cut your expenses and save for a rainy day.  I really think the members of the Federal government need to start taking a look at the many great financial blogs out there because they are breaking every rule in the book.  According to a recent report by the Congressional Budget Office (go ahead and read the whole thing here if you have a free 5 hours), it is almost inevitable that the US is heading towards a fiscal crisis.  While the country’s deficit has gotten a little smaller since the recession in 2009, the report states that there is NO scenario that the debt will decrease in the next decade.  That sounds pretty grim.

The Big 3 Expenses

What really shocked me was reading about how the expenses of the US government are divided.  Every individual, family, company and government has expenses.  There is no way around them.  We just need to minimize them as much as we can.  But according to the report, 85 percent of the governments expenses come from only three things:  health care, Social Security and interest payments on loans.  That means only 15% of the country’s money goes to little details like keeping roads maintained and national defense.  This is mind boggling but it does remind me of a predicament that a lot of people find themselves in personally.  There are a few expenses that can really dominate, and the big ones that come to mind are mortgages, transportation (car loans, gas and maintenance) and debt.  If you’re not careful, these expenses can really bust your budget and affect how much money you really bring in.

The way to tackle this is to take a long and hard look at your biggest money suckers and find ways to decrease them.  Bought a shiny new gas guzzler that’s taking a toll on your monthly budget?  Sell it and get a more fuel efficient used model.  Bought too much house and living in a high cost of living area?  Try to downsize while moving to a lower cost of living area if possible.  Can’t get a handle on your credit card debt?  List all of your debts in order and attack the one with the highest interest rate.  There are simple fixes to all of these personal finance issues that the members of Congress would do well to apply to our government’s expense problems.  But there is a problem.

It will never work.

And that’s because the members of Congress would like to remain members of Congress.  When you and I cut an expense that’s siphoning money from our accounts, there may be a little resistance just because old habits are hard to break but we know that it will be for the good of our financial future.  It might even be unpopular with our spouse or children but we know it’s for the good of the long term financial health of the family.  Congress doesn’t think like that because they are only making decisions based on the next election cycle.  They want their constituents to vote them in office again, so proposing to make any major changes to any type of government program will result in a backlash, most likely losing them their seat in the next election.  This can be seen with the passage of the Affordable Care Act as many people are calling for the President to be impeached!

The bottom line is, the only way to make your financial situation better is to make more and spend less.  If Congress tries to make more (raise taxes) or spend less (cut Social Security), they will make millions of people angry.  Instead, they enact short term fixes year after year and “kick the can” down the road.  Unless a group of lawmakers buckle down and make the hard choices when it comes to the budget, the US is in for a tough few decades ahead.  I will forward my blog to Congress and see if that can get things going.

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Roth IRA: A Love Story

This is a story of love found, lost and found once again.  The characters are The Broke Professional (yours truly), and the most seductive of retirement saving vehicles, the Roth IRA.  It’s a story full of sleepless nights, laughter, heartbreak and utter contentment, and not necessarily in that order.  Allow me to take you on a journey that will hopefully end in a joyous and carefree retirement.

There are a number of different types of retirement savings vehicles.  While retirement seems a long way away for many people, and may never come for others, what makes these accounts so attractive is the tax savings that they can bring, specifically not taxing the growth of your accounts right away.  No other accounts do this (besides the amazing HSA).    There are essentially three points at which your contributions can be taxed:  first is when you put your money in, second is when your money grows within the account and third is when you pull money out of the account.  Let’s take the bastion of employer retirement accounts, the 401k.  Contributions to a 401k are made with pretax dollars and growth in the account isn’t taxed either.  You’re taxed when you pull money out of the account later in life.  While being taxed is a bummer, at least with this account your contributions and growth are not taxed.

A Traditional IRA works in essentially the same way as a 401k when it comes to taxes.  You are taxed on withdrawal of funds but not on contributions (given you meet the income requirements) or growth of your investments.  Traditional IRA’s allow more freedom in choosing investments, however, as 401k’s usually have funds that have been preselected by your employer.  I personally contribute regularly to my 401k (my employer offers free money) and don’t contribute to a traditional IRA because I exceed the income limits to take a tax deduction (guess that’s a good and bad thing depending on how you look at it).

This leaves us with the true object of my affection, the Roth IRA.  Just like everyone wants to know the key data before you make a decision on a potential life partner, let me quickly go through the relevant nitty gritty of the Roth IRA account:

Vital information

-The Roth IRA was established by the Tax Payer Relief Act of 1997 and is named after its main legislative sponsor, Senator William Roth from Delaware (God bless him).

-As stated before, contributions to a Roth IRA are not tax deductible

-Growth in the account and withdrawals are not taxed if you meet eligibility requirements, mainly having the account for at least 5 years AND being 59.5 years old.

Direct contributions (not earnings) can be withdrawn anytime without penalty.  This a one of the main features that helped me fall back in love with the Roth.

-For a couple who is married and files a joint tax return, they are eligible to contribute the full maximum amount of $5,500 (for 2014) if they make less than $181,000.  This makes the Roth highly accessible to middle/upper middle class families.

-There is also a higher “catch up” contribution limit of $6,500 for those 50 and older (man I can’t wait to turn 50).

Without further ado, here is a dramatic re-telling of my journey back into the arms of the Roth IRA.

The Story

For whatever reason, the Roth IRA seems to bring out a lot of emotion in the world of personal finance.  Most finance writers agree that 401k’s which provide a match to your contributions and have decent investment options are a good thing.  No one will really argue against Flexible Spending Accounts and HSA’s for healthcare.  The Roth IRA, however, is truly a love it or hate it affair.  Sam at Financial Samurai has a number of posts stating his reasons against the Roth IRA.  They are all very convincing, especially this one (It currently has 363 comments!).  Jeff Rose, another prominent personal finance blogger as well as a Certified Financial Planner, is on the other side of the spectrum.  He absolutely LOVES the Roth IRA, and even started a Roth IRA Movement to get the word around to everybody that would listen.  So right there you have two respected writers who have made a career out of finance and have such differing views on the Roth IRA.  

So now comes my story.  I opened my first Roth IRA in July 2010.  It was a year after I graduated optometry school so I figured I should do something with all that cash sitting in my checking account.  I was contributing to my 401k to get the employer match and I exceeded the income requirements to get a tax deduction with a Traditional IRA, so I decided to do some research on what else I could do with my money.  A number of sites I visited recommended The Bogleheads’ Guide to Investing as an essential read for investing newbies.  I picked it up and couldn’t put it down.  It really resonated with me.  That book provided me with the foundation for my investment knowledge, and I still refer to it from time to time.  John Bogle is the founder of Vanguard, so I naturally decided to open up my first Roth IRA with them. 

They truly do have the lowest fees and expense ratios out there, which doesn’t make a HUGE difference in your investment results early on but can really diminish your returns when you have a sizable amount of money in your portfolio.  Vanguard also makes investing pretty easy and transparent, which is important to newbie investors.  I already had a full time job, so I didn’t want to have to spend too much of my free time worrying about investments.  Since I knew this was money I wasn’t going to need for a very long time, I decided to fully invest in Vanguard’s Total Stock Market Fund (which I’m still with by the way) to get the most growth potential with very very low fees.  I dumped what extra money I had into my shiny new Roth IRA and set up regular monthly contributions.

This initial fling went on for about 2 years, which is when I realized I really really hate student loans.  I was faithfully paying the minimum on all my loans but it seemed like the balances weren’t moving.  Some of them were actually going higher!  I appreciate my education and everything, but I don’t like the idea of a big bank siphoning a chunk of my income month after month.  I did some reading on debt repayment strategies and found that the Avalanche method was the best way to get rid of student loans.  I started working a few extra days a month, stopped my Roth IRA contributions and put whatever extra I could towards my highest rate student loan.  I got rid of the first one in a few months and started attacking the second one.  It was great seeing those balances actually start going south for a change.

While I was attacking student loans with all of my might, my Roth IRA was gathering dust.  I even withdrew some of my contributions to pay off a student loan that was almost finished and was bothering me.  I abandoned her.  For two whole years.  I did check in on the account from time to time (which was actually growing well since the stock market was going wild), but never really thought to start contributing again.  But then I realized I was making a mistake.  It wasn’t because the stock market was going up.  I know enough not to focus on a few years of growth for money that I will not need for a few decades.  I forgot how awesome compound interest was.  By reinvesting dividends and letting the account grow tax free for decades, I realized I could probably do a lot better than the interest rate I was getting by paying off my student loans early.  I also get a tax deduction every year on interest paid on my student loans, so I can still take advantage of that while it’s still around.

Another realization I came too was that in my fervor to pay off student loans early, I saw that I did not have a whole lot of liquid cash available.  I’m still contributing regularly to my 401k so I had a decent amount in there, but I can’t touch that until I’m 60.  Most of my free cash was going to pay off student loans, which is great but I’m not going to see that increased cash flow for a few years down the road.  While it is not advisable to touch the money in a Roth IRA, the fact that you can withdraw contributions penalty free at any time provides a lot of piece in mind.  I do have a regular emergency fund in an online savings account, but in case I may need some more for whatever reason, it’s nice to know the Roth is there.

So as of a few months ago, I decided to start contributing to my Roth IRA again, and it feels great.  The good part is that I can still attack my student loans because I decided to trim some expenses and use those savings to contribute to the Roth.  I’m not contributing up to the max yet, but my goal is to be able to contribute enough in 2015 (and beyond) to be able to max out my Roth IRA.  This combination of increasing my investment contributions, attacking my higher interest student loan debts and trimming my expenses will be the best actions I can take to speed up my journey to financial independence.  Any extra money I will see in the form of bonuses, credit card rewards etc will go straight to eliminating student loans or increasing investment.

So there you have it.  The tale of my relationship with the Roth IRA is now out in the open for everyone to gawk at.  It felt good to get that off my chest as it gives me motivation to keep my financial situation on the right path and hopefully provide some guidance to anyone who will listen.

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How much do you REALLY make?

Pay To

The ability to manage and master your finances is simply based on two factors: what you bring in and what goes out.  Income versus expenses.  Earning versus spending.  Though this may seem like an oversimplification, this is essentially what personal finance boils down to.  If you spend more than you earn, this puts you in debt and leads to a precarious financial situation.  This is the unfortunate truth for many in America today, as the allure of easy credit and excessive consumption keeps many in debt.  On the other hand, earning more than you spend puts you in a position to save and invest, and saving enough will help you weather almost any financial storm or life changing event that comes your way.

Getting that first job after college and seeing all those numbers that represent your yearly salary can be exciting at first.  It’s usually more money than you have ever seen before, so it can be an exhilarating time.  But appearances can be deceiving.  Though that nice big round number may look nice, it’s not all going to hit your checking account.  If you’re not careful, you might not even get half of it.  To make things simple for the purpose of this post, we will not be considering the effect that taxes have on your take home income.  For the purpose of your life, you should not do that.

There are many associated, and often times hidden, costs for any job.  They will of course vary depending on the person’s situation, but some associated costs jump right out at us.  Knowing what these costs are will help you determine your real hourly wage, that is, what you make per hour after all of the associated work expenses.  The fact is, if you were not working at that particular job, you would not have to spend money on all of the associated expenses.  The biggest factor people usually associate with jobs is the commute.  Whether it is driving or taking public transportation, there is going to be some cost of commuting to your job, unless you work from home of course.  Most of us would just calculate how much we spend for gas and be done with it.  But there are other hidden costs to commuting such as wear and tear on the car which can lead to increased trips to the shop, money spent on tolls, and increased frequency of oil changes due to driving every day.

Another big factor is money spent on food.  This is not just money spent on lunches, which can be pretty high in some cases, but also includes the daily coffee we get from the shop on the way to work, “rewarding” ourselves with a treat after a stressful day, and money spent on take out when we do not have time or are too tired to prepare dinner at home.  All of these are associated costs relating to food.  There are many other costs which would take up too much space here such as the need to take vacations from a stressful job, hiring outside help such as yard workers, maids, and tutors, money spent on entertainment to unwind from the stresses at work and the list can go on.  Let us go through a simplified example to see how much having a certain job can actually cost you.

Let us say you have a friend who makes 20 dollars per hour.  They tell you they seem to be struggling to make ends meet but they are not sure why.  You ask him how much he makes per week.  He simply multiplies 20 dollars an hour by 40 hours per week to get 800 dollars per week.  But knowing what we know about job associated costs, we go deeper and find out what he is actually making.  We calculate that with money paid for gas, tolls, and wear and tear on his car, he is spending an average of 100 dollars per week on commuting related expenses.  We then move to food and find out that with his daily latte, occasional lunches and eating out with co-workers, he is spending an average of 50 dollars a week on food directly related to his job.  We also find out that he has a habit of seeing a movie with a co-worker after a long day of work and rents movies weekly to decompress after work.  This comes out to 30 dollars per week.

His job also has a dress code, and sometimes he has to wear a suit to meetings.  He is normally a T-shirt and jeans kind of guy so he is spending an average of 20 dollars per week on work related clothes.  He also takes a yearly vacation just to get away from it all which averages out to 40 dollars a week over the year.  Last but not least, he also hires a cleaning service because he has no time to thoroughly clean his apartment.  This comes to about 25 dollars a week.  There are other associated costs but these are the ones that stick out so let us work with these.  Our friend said that he makes 800 dollars per week.  After applying just these associated costs we went over, we find out that he is actually making $535 per week after work related expenses.   This means after associated costs, he is actually making a little over $13 an hour instead of $20!

Though this example had simplified numbers and categories, it shows that job related expenses can really take a bite out of your bottom line.  Now most importantly, what can we do with this information?  Right off the bat it is easy to see how we can use this when comparing multiple job offers or contemplating getting a new job.  If we see our real hourly wage, we can more easily find which job will be best for us.  We can also use this information to examine our destructive money habits and try our best to change them.  In our example, if our friend just made coffee at home and stopped going to the theaters to watch movies after work, that could easily save 30 dollars or so a week.  Making little positive changes here and there can really add up and help to improve our situation.  Visually seeing what steps we can take to improve our financial situation is very empowering, and this exercise can provide that.

Finally, this exercise can show us how important it is to spend our money on the things that matter most.  If we know that our real hourly wage is 12 dollars an hour instead of 20, maybe we will think twice before we drop down 20 bucks for a movie ticket and popcorn for 2 hours of fun or 40 bucks for a video game we will only play once in a while.  Instead of spending our money on frivolous things, maybe we can save it and spend some time exercising, learning a new skill or just spending time with our family.

Successfully graduating with a bachelor’s or any advanced degree takes a lot of work.  It is vital to find the job that suits  you rather than going for the first big salary you see and later realizing you’re not making as much as you thought.

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Navigating Life After Graduation

Times they definitely are a changing.  And it couldn’t be more true for those that are graduating with a professional degree.  Be it a new graduate in medicine, law, engineering, dentistry or optometry (my profession of choice), there is a whole different world to face after the years of living in the university bubble.  And it can sometimes be a new and cruel world.  Now I’m not trying to garner sympathy for these new graduates.  After all they usually end up in pretty high paying jobs with plenty of room for advancement.  But there is also a unique set of challenges that face newly minted professionals that they should be aware of.

Lifestyle inflation.  This is arguably the BIGGEST reason for new professional graduates getting into financial trouble.  To become an optometrist, for example, you have to complete your prerequisite classes in college and get a Bachelor’s degree along the way.  This usually takes about 4 years.  After the grueling process of applying to schools and flying out for interviews, when you finally get into optometry school, 4 years of even more intense studying and clinical work await you.  After completing these 4 years (and passing the nerve wracking board exams), you are finally free to find a job or open a practice and finally start making some money.

After years of schooling and (hopefully) living like a poor student, it’s only natural for one to get in the I “deserve” this mindset right out of school.  As in, I “deserve” a new BMW because of all the work I put in (along with the $700 monthly lease payment).  And I “deserve” a sweet new fancy townhouse since I’ve been living like a pauper the past few years (and the $2500 monthly payment plus maintenance that goes along with it).  The examples are endless.  With inflation eroding buying power over the years and incomes not rising in the same manner, a dollar doesn’t buy you as much now as it did 10 years ago.  This is an essential point to realize, as simply having a certain title doesn’t enable you to get the goods right out of the gate.

Student loan debt.  The issue of the high cost of tuition and subsequent massive amounts of student loan debt is a hotly debated one.  And for good reason.  Tuition is increasingly rapidly year after year, widely outpacing inflation.  College was once thought to be an essential stepping stone for success.  Sky high tuition prices are making many re-think that.  While student loan debt is a big problem for all students, it is an especially big one for professional school graduates.  For the graduating class of 2012, the average student loan debt was $29,400.  This is not an amount to sneeze at, but I probably incurred that much debt sitting through my first 5 classes in optometry school.

While my final student loan debt (undergrad and optometry school) was around $140K, many of my colleagues were well into $200K.  So my student loan debt was almost 5 times the national average.  That’s a huge discrepancy and a problem that needs to be tackled hard.  Many students, myself included, underestimate the effect of student loan debt while in school.  And who can blame them?  With tests every week and sweat inducing clinical practicals to prepare for, who has the time to prepare for life after graduation?

Student loan payments will make up a substantial chunk of a new grad’s monthly payments.  In a lot of cases it can be the largest payment one has to make per month.  And if the banks have their way, this will continue for decades.  That can end up being tens of thousands of dollars in interest payments.  That’s money that you earn but you will never be able to use because it is lining the coffers of the country’s biggest banks.  As if their coffers need lining.  Students and new grads should be prepared for the hit that student loan debt brings and get ready to hit right back.  This means cutting back on your consumption and throwing whatever extra money you can towards your highest interest loan and then moving to the next one (also called the Avalanche Method).  If you can be diligent in this process, you can reduce the time you pay student loans by years and save thousands and thousands of dollars in interest payments.

Building a good credit score.  Unfortunately, the importance of a good credit score is lost on many.  Most people don’t know the difference between a credit score and a credit report, and why they should even bother checking them.  I’ve noticed that this is especially widespread among new grads, as they’re focusing on finding their place in the world and spending their new found money.  Eventually, most people end up applying for a mortgage or a car loan.  Even if it’s not in the near future, it will most likely happen.  This is the best time to improve your credit score, as it can potentially save you tens of thousands of dollars over your lifetime.

Applying for a mortgage or credit card will initiate a credit inquiry by the lender.  They want to look at your past history to make sure you’ll pay them back.  Instead of hiring a private investigator, your credit score gives them this info in a nutshell.  A low score means you’re not a good borrower.  You get the highest interest rate possible on your loan.  A high score means you are a pretty dependable borrower, so you get the lowest interest rate offered.  On a big purchase like a house, the difference between a low interest rate and a high interest rate can cost you potentially hundreds of thousands of dollars.  That’s a lot of cheddar.  Giving your credit score some attention even for just a few years will get it right where it needs to be.

A professional degree isn’t a ticket to a lifetime of riches like it used to be.  Many new grads are falling into financial trouble by not paying attention to these three big issues.  If you can weather the student loan debt storm and resist lifestyle inflation early on in your career, you will be setting yourself up for a lifetime of success.

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Student Loan Repayment is a Marathon

I’ll be running (and hopefully finishing) my first half marathon in a couple of months.  Having played sports like basketball for most of my life, I’m no stranger to tough workouts and feeling physically exhausted.  Marathon training is a little different in that it is not collapse to the floor physically draining, but it is LONG and TEDIOUS.  The workouts themselves aren’t tough individually, but the challenge lies in staying focused throughout the workouts and being able to do them consistently day after day.  This reminded me of the effort it takes to pay off my student loans as well.

Besides the fact they both can make you want to puke, there are more similarities between student loan repayment and marathon training:

Both require a plan.  Training for a half marathon can’t be done haphazardly for most mere mortals.  It helps to have a training plan a few months before the race to get your body and mind ready.  At the least you should have an idea of how many times you want to train per week and how you want to ramp up the distances you run.  Not having a plan can greatly decrease your chance of finishing a race.

The same thing is needed to pay off student loans.  You have a certain amount of debt and you want to get out of it as soon as you can.  You can’t just make random payments and hope they’ll be gone soon.  On top of making the minimum payments for all of your loans, apply anything extra to the highest interest loan to get the most bang for your buck.  This is called the Avalanche method and is the only sure fire way to pay the least amount of total interest and get out of debt sooner.  Ready for Zero is also a great program to get you on top of your debts and can even tell you the exact day you will be debt free.

Take one day at a time.  One of the more frustrating parts of running for me is the monotony of it.  I could play basketball for 10 days in a row and have a different experience each time.  But with running each day is more or less the same, especially if you use a treadmill.  But it’s really important to remember to take one day at a time and focus on making a great effort on that day.  That’s because every day of training will contribute to your success (or failure) on the day of the race.  If you give a consistent good effort on each day of training, you will most likely be able to finish the race and run well.  Each day you run well prepares your body and mind a little more for that race.  It may be tough to detect on a day to day basis, but your heart will work more efficiently and your muscles and tendons will be able to handle all that pavement pounding a little bit more.

Keeping the big picture in mind is also important when paying off student loans.  Even if it’s going to take a few years to pay off those loans, realize that some lenders want you stuck paying minimum payments for 25 years!  It’s definitely tough seeing that big balance go down slowly, but each payment you make will get you that much closer.  Since most of your payments early on will be paying a lot of interest, it seems that the principal is not going down that much.  But for every payment you make the principal goes down which means you will pay less interest on the next payment.  Each payment is definitely making a difference so it’s important not to get lackadaisical and miss some payments here and there.  As time goes on you will see that principal go down faster and faster, which will hopefully motivate you to make some more money and pay the damn thing off!

The end will be oh so sweet.  When training for a race it’s important to visualize yourself finishing the race and how good it will feel.  If any of you have trained for a race and finished it, you know what I mean.  It’s a great idea to try to bottle that feeling and go to it whenever you lose motivation or decide you want to take today’s workout a little easy.  It’s also important to celebrate your accomplishment.  Go out and get something nice to eat and relax for the rest of the day.  You’ve earned it.

I imagine making my last payment on my student loans.  There will be fireworks and fan fare and a marching band.  Or I will just click the mouse and quietly ride off into the sunset.  In either case, it will certainly be a great feeling that I can’t wait to experience.  Though it may seem far away, having a plan certainly helps because I know each months payment will get me closer and closer to that fateful day when the heavens will open up.  Keeping that day in mind keeps me going on my plan and wanting to get rid of these loans even faster.

That’s my latest installment of me finding ways to equate sports and finances.  If you just can’t get enough, check out my other posts about baseball and soccer.

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Frugality Can Make you Wealthy

They should call him "Froog" Mc Duck

They should call him “Froog” Mc Duck

The word “frugal” can elicit different emotions from different types of people.  In the personal finance world, frugality is a virtue that allows you to save money every month and not get caught up in Keeping up with the Joneses.  The frugal practices of Warren Buffet, for example, are well documented and legendary.  For those people who know money, being frugal is a way of life.  But if you tell a guy who knows nothing about money that you try to live a frugal life, one word will come to their mind: cheap.  This is loaded with a ton of connotations and this person will think you are this stingy and mean person who only cares about keeping their money (as if keeping your money was a bad thing?).

Being considered frugal (or cheap) is frowned upon by most people.  But it shouldn’t be.  In fact, if everyone practiced frugality this would would be a much better place with much happier (and wealthier) people.  This post is not going to talk about different ways to live frugally.  You can search my other posts for that (like how to save money on eating out) or the countless other great frugality blogs out there.  I just wanted to touch on the idea that frugality is the ULTIMATE way to become wealthy.  It’s an idea many people propagate but I have not seen it explained better than in this article by the Badass himself, Mr Money Mustache.

While saving ten bucks a month doesn’t seem like a whole lot by itself, the implication is much greater.  If you’re able to kick a habit that costs $10, you have to realize that will be $10 a month you shouldn’t have to spend for the REST OF YOUR LIFE.  This will allow you to reach your savings goals that much quicker and will let you retire that much earlier.  The whole point of personal finance is increasing your assets and decreasing your spending.  Saving $10 a month does both of those things.

It should be obvious that the goal is not to stop at just $10 a month.  Look at ways to save on housing and transportation, usually the biggest money sinks for most people.  Learn to eat more at home and bring awesome lunches to your workplace.  Evaluate your cable and cell phone needs.  Most people can easily find ways to save a few hundred dollars a month by looking at where their money is going.  At the same time, you should try to increase your income and put those savings and increased income to work in the form of investments and/or paying off debt.  This is the sure path to financial success and it all starts with living a frugal lifestyle.

One thing you will most likely get from living a completely frugal life is resistance from others.  People are not used to living frugally.  Most want to spend their hard earned money on things that will only end up bringing temporary happiness.  Many people scoff at the idea of trying to cut down on your morning coffee, for example.  But this little change can free up money which you will have for the rest of your life.  Cutting out things you can live without to create a life that you enjoy is nothing to scoff at.  Let others think what they want while you trim your monthly expenses and reap the enormous benefits.

One final argument for frugality.  Living a frugal life and being able to live on less will teach you skills that will last you for a lifetime.  Almost everyone will go through tough times financially at some point, so it would be ideal to learn to live on less when times are good.  Cutting expenses won’t be such a shock and that will help you dig out of any hole you get in.  Besides, living frugally when times are good will allow you to save more which will hopefully prevent those tough times from affecting you too much!

Taking the time to go through your monthly expenditures and cutting things you don’t need, and banking the savings, can be one of the most powerful things you could ever do for your finances.

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The 3 Letter Word You Need to Know to Get Ahead

There are cliches abound when one tries to find ways to get ahead in the workplace or in their business.  “Work smarter, not harder” is a frequent one.  “Keep it simple, stupid” is another famous one.  In the hyper consumer culture that we live in, it is generally frowned upon if someone takes days off of work and does not to give 110% at what they’re doing.  We need to be working as hard as we can whenever we can, often to the detriment of other important things in our life.  In my work experience, however, I’ve noticed there is one powerful thing that will nearly always get you on the fast track to success.  I have noticed this working as an optometrist and even the jobs I’ve worked before I became a professional.

What is this magical method to success?  It’s actually pretty simple.  One word.  ASK.

You heard it here first.  ASK.  That is the path to success in any field.  And this is because when you work, be it as an employee or self-employed, you’re working to prove something to someone else.  As an employee of a company, you most likely have a supervisor or someone that will want to know how you’re progressing.  As someone who is self-employed, you are working to gain customer satisfaction, not only to bring in new customers but to keep the people coming back.

Most people usually try guess what their boss wants and hope it sticks.  As an employee, many people will make it a point to work hard and hope that the powers that be will notice that hard work and keep rewarding you.  This may work in certain positions where everything is based on numbers, but even then hard work alone won’t differentiate you from the others.  The best thing to do is just ask.  Ask your supervisor what is most important to them and find ways to make their job easier.  Ask if there are any extra projects you can work on.  If you’re looking to get promoted to the next position, just ask what it will take and do what you can to get there.  If you make a habit of this and make a habit of succeeding, you will fast track your way to success.

For those who are self-employed, the customer is king.  It might take a little more work to find out what customers want because you can’t just go around and ask people random questions.  That will annoy them.  Set up some type of survey on your website or give the customers the ability to leave feedback after their experience.  After a while, you will notice some trends and you can adjust your business practices along the way.

I can personally attest that simply asking worked for me recently at the workplace.  About a year ago I had a conversation with one of the more seasoned doctors in the company.  I just asked him what the next positions available are int he ladder and how to get them.  He mentioned what it would take but did say all those positions are filled in my area.  A few months ago, one of those positions opened up and in a discussion about who should get the new spot he mentioned my previous interest to the higher ups and it went from there.  It was not necessarily because of hard work that they asked me, though I’m sure working hard didn’t hurt, but simply because I asked at one point.  That’s all it took.

And asking just shouldn’t be used to help yourself get ahead.  It can be used to help others and make things easier for everybody in general.  If you see a co-worker struggling or just in need of some help, ask them what you can do to help.  There doesn’t have to be anything you receive in return right away, but it can give you the reputation as someone who can be counted on to help when times are tough, which is definitely a good reputation to have.

Part of getting ahead in the workplace is being able to showcase yourself and your talents.  If everyone just worked hard at the task they’re given, it would be very difficult to see who should get a promotion or a raise.  Managers look for those who are proactive, and simply asking a supervisor what they are looking for can be the first step to get your foot in the door to getting some recognition.

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What Soccer (Futbol) Can Teach you About your Finances

Savings GOOOOOOAAAAAAAALLLLLLLL!!!!!!!!

Savings GOOOOOOAAAAAAAALLLLLLLL!!!!!!!!

Regular readers of my blog know that I’m a big basketball and football fan.  But like the rest of America, I have been stricken with a case of World Cup fever.  I hardly ever watch soccer, but the games in this year’s World Cup have been really exciting, especially in the knock out rounds where there has to be a winner.  And in my never ending quest to equate sports and life, and specifically personal finance (click here to see how baseball is related to your finances), I have thought about some ways that the “beautiful game” is a lot like your financial life.

Make BIG goals

One very unique thing about soccer compared to most other American sports is that scoring doesn’t happen often.  In basketball, most teams will score a basket on 30-40% of possessions.  Scores are routinely in the 100’s.  In American football, touchdowns are scored in pretty much every quarter, with the good teams scoring multiple times.  And in baseball, you do have your 1-0 score once in a while, but most games will have at least a couple of runs by each team.  But in soccer, scoring is much tougher and you will regularly have games ending in a score of 0-0.

To an outsider, this can make it seem that it was a slow game and nothing was really going on.  But the exhausted players and torn up field will show that hard work was definitely being done.  The players and coaches can evaluate the game tape and find out what they did well and what they need to shore up.  And eventually, when a team scores a goal and is able to win a game, that hard work in the scoreless game was definitely worth it.  This should be similar to our approach to our financial goals.  While making lots of little scores is nice, we should try to make big and worthwhile goals and work tirelessly towards them, constantly evaluating what works and what doesn’t.  While it may be frustrating not to reach a goal quickly, the worthwhile goals almost always take some time.  Finally hitting that goal will make that effort all the more sweet.

It takes determination AND skill

A soccer game is 90 plus minutes of constant play.  That’s a long time.  With hardly any breaks in play and few substitutions, all players have to be constantly on alert.  Even a momentary lapse can produce disastrous results.  This is where the determination to stay involved and alert comes in.  Having this constant determination will help you play great defense and maybe even get a shot or two at the goal.  But you also need players who have the skill and creativity to overcome any defense that comes their way.  You need those type of players to have any long term success.  This is particularly seen in the US team as they are described as having a lot of “grit” and determination but hardly ever make it close to the World Cup finals since they lack the talented players that the Brazils and Germanys of the world have in abundance.

This concept applies to our personal finances as well.  While we definitely need consistency and determination to achieve any big financial goal, such as having a comfortable retirement, it also takes skill and creativity find ways to cut your expenses and make more money so you can increase your chances of being successful in the long term.  Things like inflation and changes in your field will be there, so you have to find smart ways to overcome those to stay on track.

Diversify, diversify and diversify

Some people say that the NFL is the ultimate team sport since you need offense, defense and special teams working together.  But there are plenty of examples of teams that do well while having a poor defense or a poor offense.  Heck, the Baltimore Ravens won the Super Bowl in 2000 with an offense that couldn’t score a touchdown for 7 straight games!  I would argue that soccer is even more of a team sport because any deficiency on offense or defense will severely hinder your chance of winning.  Most games are decided by a goal or 2, so if you have a defense that is not playing very well you almost have no chance to win no matter how good your offensive players are.

This couldn’t be more true in our finances as well.  The two sides of the personal finance coin are making money versus spending money.  If you make good money but spend it with reckless abandon, you’re gonna be in bad shape.  If you are also frugal with your money but don’t start making more, you’re not really going to go far.  It takes a combination of a good income and good spending habits, with adequate insurance serving as your goalkeeper, to have a solid and balanced financial team.

I meet a lot of people that hate sports, and even more people that hate sports analogies.  If you’re one of them, you probably didn’t read this far.  And you should get some professional help.  But if you did, I genuinely appreciate that and will ask you to add some analogies of your own in the comments.  Here’s hoping for an exciting finish to the World Cup!

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