Listen Money Matters - Free your inner financial badass. This is not your father's boring personal finance show.

We’re joined by a previous guest. Chris Costello joins us to talk about how to retire happy when you optimize your 401K account with Blooom. For many Americans, their 401k’s are their primary or maybe only, retirement account so we need to get the most value we can from them. What is a 401k? A 401k is an employer sponsored retirement savings vehicle that allows you to invest part of your paycheck, pre-tax, into an investment account where it grows tax-free until you are ready to start withdrawing from it after age 59 1/2. The money is taken directly from your check before it hits your checking account so it’s invested before you get a chance to spend it which makes it a great way to invest for people whose money burns a hole in their pocket. A 401k also lowers your taxable income. If you earn $5,000 a month and invest $1,000 into your account, you are only taxed on the remaining $4,000. Some employers offer matching. If you invest 6% of your income for example, the company will match 3%. Even if you have high interest consumer debt, like credit card debt, you should invest enough to get the match because it is free money! For 2017, you can invest up to $18,000 a year in your 401k. Your employer will offer you a few choices of different investments, most plans are made up of mutual funds that include stocks, bonds, and money market investments. This is where most people run into trouble. They simply don’t know how to pick or what makes a good pick. This is where Blooom can help. What Does Blooom Do? Blooom helps people manage their 401k’s. Once upon a time, only people with serious money had access to financial advice but technology has made investing and financial services more democratic and available to a much larger pool of people. Think of Betterment and how easy it is for anyone to invest with them. Blooom has used that same kind of advancement to make 401k advice available to anyone with $10 a month. The problem with 401k’s for many people is that they don’t understand what investment to pick, what is a good allocation, what even is an allocation. Schools don’t teach this stuff and it’s not really intuitive. And often times, the choices offered aren’t very well thought out. There is no investment strategy, just a hodge podge of choices. Eighty million Americans have a 401k, a 403b (similar to a 401k but for employees of not-for-profits), or a TSP (Thrift Savings Account, similar to a 401k but for government employees). If you’re among them, Blooom will do a free analysis of your account. It takes just three to four minutes and the most complicated question you’ll be asked is when you want to retire. In a play on the company’s name, you’ll see how healthy your account is in the form of a flower. The healthier your flower, the healthier your account. When you join Blooom, you’ll pay a flat fee of $10 a month. They will show you how your money should be invested, what your allocation should be and if changes need to be made, Blooom will make them for you. They’ll also offer advice on other financial matters like refinancing your mortgage in order to get a better interest rate. Picking Funds If your choices of 401k investments are bad, why are they so bad? Is it your company’s fault for giving you such crummy options? Well, kind of.

We’re very excited to have found this guest and bring him to you. Today we’re joined by the founder of MissionU, Adam Braun, to discuss the debt free, one-year college alternative. We have covered the problem of student debt many times and we are always trying to find alternative ways to get a good education without being saddled with debt. Today we will show you a  way not only to get a great education that will put you on the path to a great career without incurring debt but also takes a fraction of the time that getting a traditional college education takes. What is MissionU? Adam Braun founded Pencils of Promise in 2008. The non-profit builds schools and increases educational opportunities in the developing world. After Adam wrote his book, The Promise of a Pencil, he began speaking about it on all sorts of college campuses. He found all of the students had the same concern, the cost of higher education in America. He also had some personal experience with student loan debt, his wife having graduated with $100,000 of it. Adam started to research debt free college alternatives and that’s how MissionU was born. What’s Wrong With College? Part of the research involved speaking to employers. He found that students who had traditional college degrees didn’t have the skills employers were looking for. MissionU partnered with companies like Lyft, Uber, Spotify, and Warby Parker among them, to learn what employers needed in employees and found that candidates who had graduated from traditional colleges were lacking certain skills. Employers want employees who have a passion and conviction for the work being done. They want soft skills like effective written and verbal communication, people who work well within a team, people with critical thinking and problem solving skills. They also needed the hard skills like Excel modeling and while colleges were teaching theory on hard skills, they weren’t necessarily equipping students with hard practical skills. Employers have had a big hand in helping MissionU design their curriculum. Getting Into MissionU The students MissionU target are between the ages of 19-29 but there are students older than that. Ideally students have spent some time working or in college but a four year degree is not required. MissionU does not look at a potential student’s GPA or SAT scores. The application process happens in steps. You answer some questions about your background, go through a series of online problem solving models, participate in a group project after which you assess your own and your team’s performance, write an essay about why you want to attend MissionU, and then do an in-person interview. Ugh, group project? I guess that leaves the introverts out. Not at all! In fact, it’s the non-stop extroverts that will fair worse. When you never stop talking and trying to dominate a group dynamic, you tend not to be the ideal team player and being a team player is something both MissionU and employers are looking for. MissionU has three start dates throughout the year. Currently they operate in the San Francisco area and students must be willing to locate to within 50 miles of that location. Housing is not provided but MissionU does help students find housing. San Francisco is expensive but students spend about 40 hours per week on their studies Monday through Friday leaving enough time to work part time to help cover living expenses. And part of the curriculum includes paid internships. MissionU is planning to open in additional cities in 2018. Each class gets more than 5,000 applicants but only 30 students are accepted. Students have one month to decide if the program is a fit for them. The program starting in January 2018 offers a major in data a...

There are a lot of questions in personal finance but maybe the biggest is invest or pay off debt? That is the question today. This is the question we get at LMM most often. What should I do first, invest or pay off debt? Today Andrew has done the math. There is a lot of emotions involved when it comes to making financial decisions but this framework largely removes emotion. This is straight up what you should do to optimize your finances. This framework has to be applied to each debt individually, you don’t average out your debts and then follow the guidelines. One debt, one rule. And the most important part of any debt repayment plan is focus. You can’t use a scattershot method and effectively pay off debt. Concentrate on one debt at a time. You can use the snowball or stack method, we went in-depth on both. TLDR; stacking saves the most money. Once the debts (at least the high interest ones) are done and dusted, you need to apply the same focus to investing. Debt seems to concentrate the mind and our efforts in a way that investing doesn’t because debt is an emergency and we react to it as such. But investing deserves the same kind of focus so don’t neglect it. The Framework: If This, Than That If Initial Debt Interest is Above 10% If you have a debt with an interest rate over 10% (usually credit card debt) it makes sense to try to refinance that debt. Even getting a new interest rate that is 1% point lower can save you hundreds or even thousands of dollars over the life of the debt. There are a few ways you can do this. If the debt is on credit cards, look into a balance transfer. You open a new credit card that has an introductory period with 0% APR. The length of the introductory period varies but you can find some cards offering as many as 21 months. You transfer the balance from the old card or cards to the new card. Now instead of paying mostly interest, you are only paying on the principle. The catch is, you must pay off the entire balance before the 0% APR period runs out. If you don’t, the remaining balance is subject to the new interest rate which may be higher than what you were paying on the old card. You can also apply for a personal loan through a bank or a peer to peer lender like Lending Club. You still owe money to a creditor but at a lower interest rate. Be aware of the fees involved, they may actually mean that you’re paying more overall even if the interest rate is lower. If Initial Debt Interest is Between 7% and 10% Refinancing is your best option for debt interest in this range too, again be aware of any fees involved to refinance. If You Have $0 in Your Checking Account The first thing you need to do is to calculate your monthly expenses and multiply that number by 1.5. This is the minimum amount you should always have in your checking account. This is not spending money nor is it an emergency fund. This money is merely a safety buffer. What constitutes monthly expenses? Add up the minimum payments on all of your debts, your fixed monthly expenses like rent or mortgage, utilities, and car payment. Now look at your variable monthly expenses, things like groceries, entertainment expenses, clothes, for the last couple of months. Add the lowest of each of those expenses. If one month you spent $400 on groceries and another month you spent $250, use $250. You have your monthly expense number, multiply it by 1.5 and add another $500 to the number, just for peace of mind.

There are a lot of rules when it comes to real estate but there are ten that should never be broken. These are 10 real estate investor commandments. This is real estate month so we want to cover some of the most important rules to follow if you want to become a successful real estate investor. 1. Have a Strategy Jack of all trades and master of none applies to real estate investing too. There are lots of niches in real estate investing, house flippers, buy and hold, cash flow investors, type of property (we had a guest who invested solely in trailer parks), types of tenets (our contributor Allison likes to rent turnkey properties to grad students), certain areas of the country. If you are trying your hand at a lot of different niches, you are never going to learn enough about any of them to be an expert and optimize your investments. Choose one niche, learn everything you can about it, and stick to it. 2. Know Your Requirements You have a relatively short list of requirements to meet when you are shopping for a home to live in compared to shopping for an investment property. When you are buying rental property you have to consider price, what the cash flow needs to be, the average appreciation for the area, the age of the home, how much work it needs, how much reserve you need to have, the vacancy rate, what the property taxes are, is there an HOA, the quality of the neighborhood, your you’re going to rent to. Gah! There are a lot of factors to consider and everyone will have their own requirements but the point is, once those requirements are set, you must stick to them. Don’t be tempted by a place that meets most of them or comes close to the numbers you set. You set these requirements for a reason and they’re called requirements for a reason.  3. Do Your Own Research You can use a company like Roofstock to handle the whole process of finding, buying, owning, and managing a rental property for you but you still must do your own research. Why? Because no one will ever care more about your money than you. Nearly all of the research you need to do to choose an investment property can be done online. You can do a lot of it through the tool Andrew created, Simple Wealth. 4. Be Skeptical Do you know who got a really good deal on a house? The Lutz family. A super cheap price for a fully furnished home right on the water. What was the catch? It was where some months previous, Ronald DeFeo had murdered his entire family. The house, of course, is the house the Amityville Horror book and movies were based on. (The whole thing was a hoax but the point stands). There is no such thing as a good deal. Everyone is in real estate to make money so who is selling you such a good deal? Is it an LLC, a person, how long has that person or entity owned it, why are they selling it? Could be full of old blood stains and demonic pigs named Jody.   5. There is Safety in Cash Flow The cash flow of a property is the total income (rent) generated from the property minus the total expenses of the property including taxes, repairs, the cost of the property management company, etc. If your property rents for $1,200 per month and your expenses are $1,100 per month, the cash flow is $100 per month. How much cash flow you need depends on lots of factors but having a positive cash flow is a commandment for a low-risk investment. Well, duh! But sometimes commandments are obvious. Buying a home with good cash flow is the one of the lowest risk investments you can make in real estate. Some investors operate differently. They buy speculative properties without regard to negative cash flow.

It’s been awhile since we did a this financial life episode. Today we have this financial life with Broc. Some of our this financial life guests were just getting their financial footing and we got to learn along with them. Broc is doing pretty much everything right so his this financial life gives us the chance to learn from him. The Numbers Broc and his wife managed to pay off their mortgage in just five short years! The home cost $325,000, they put down 20% leaving a mortgage of $260,000. They had a 30 year, variable rate mortgage. That meant their interest rate for the first seven years was 3.3%. After that, the rate could change but it was capped at 8%. Broc took this seven year period as a challenge and decided to pay the mortgage off before the seven years was up and the rate would change. Their property taxes were $5,000 a year and they figured large, yearly expenses like that into their regular budget so it wouldn’t sneak up. The mortgage payment was $1,200 a month. During this period, the expenses were about $5,000 a month and their gross income was about $200,000. Broc’s wife was maxing out here 401k, Broc was working for a start up that didn’t offer a 401k. Their emergency fund was fully funded at $10-15,000. The family had an extra $2-2,500 a month to throw at the mortgage. Debt or Invest? There is a lot of debate in the personal finance world about whether it is better to pay off all debt, including low interest debt like mortgage or student loan debt as quickly as possible or to focus more on investing where you can expect to get an average return over time of 7%, so you are still growing your money even while you have that debt. Dave Ramsey believes all debt should be paid as fast as you can, Broc’s wife agreed and aside from maxing out her 401k, they paid off the mortgage at the expense of investing. Mr Money Mustache credits paying off his mortgage quickly as a big part of the reason he was able to retire early. LMM generally believes in investing if your debt is low interest. However, if your debt is high interest, like credit card debt, than nothing is more important than paying that off as quickly as you can either with the stacking or snowballing method. The only investing you should do if you have high interest debt is putting enough into your 401k to get matching from your employer because that is free money. Otherwise, no investment is going to give you a return in the mid teens which is what the average credit card interest rate is. Broc and his wife had no other debt during this period so it made the decision a little easier. Had they still had student loan or credit card debt, they may not have been so aggressive on the mortgage debt. Money in Relationships Money is one of the most contentious issues in a relationship. Broc admits to being the spender in the relationship but you can’t achieve a goal as ambitious as paying off a mortgage in five years if both partners aren’t on the same page. Money should be talked about in a relationship early and often. Broc and his wife included personal spending in their budget and his indulgence is shopping on Amazon for things that cost under $100.

As we continue our back to basics series, we’re going to talk about debt. We interview the founder of the blog, Dear Debt, We Need to Break Up. Melanie Lockert of Dear Debt who paid off $81,000 in student loan debt joins us to discuss all things debt related. What is APR? When you borrow money, whether you are using a credit card or taking out a mortgage, the amount you borrow is not the amount you will have to pay back (unless you pay off your credit cards in full every single month for life). You will also pay interest, this is the cost to borrow money. The interest you pay on a credit card is APR, the annual percentage rate. The average APR for a credit card is about 16%. Credit cards have a set APR so your credit score doesn’t impact the rate you pay. Not all APR is the same though. There may be one for balances you carry, it may increase if you miss a payment, taking out a cash advance against the card may have a different APR than the balance APR and there is no grace period on a cash advance. It starts accruing the moment you take the cash. Nerd Wallet has full reviews of credit cards and lays out all the terms. Their site is easier to read than credit card fine print so if you are looking for a credit card, do your research there. If you have a credit card with an annual fee (not necessarily a bad thing if the cost of the perks you use add up to more than the fee but there are plenty of good rewards cards that don’t have fees) you may be able to get it waived if you are in good standing. It doesn’t hurt to call and ask. If your fee is because the card is a secured card you were using to build credit, ask if you can upgrade to a non-fee card without closing the account (closing accounts hurts your credit score, more on this below). If you have a premium rewards card with a fee and the company won’t waive it, you may be able to downgrade to a card with no annual fee, a Chase Sapphire Preferred to a Chase Sapphire for example without closing the account. Paying Off Debt is an Emergency You must have a plan to pay off debt, just throwing money pell mell isn’t efficient. There are two methods to pay off debt, snowballing and stacking. We wrote an article on this with lots of details and the pros and cons of each. The short version is that snowballing means paying off the debts in order of lowest to highest dollar amount. Stacking is paying them off in order of highest to lowest interest rates. Strictly from a money saving standpoint, stacking makes the most sense because it saves more on interest. Melanie offers two more methods, pay off the debt that pisses you off the most, maybe a loan you took out with an ex or the loan that keeps you up at night. Your Credit Score Your credit score is made up of six factors; payment history, utilization, derogatory marks, the length of credit history, total accounts, and credit inquires. We wrote a detailed article on credit scores.  The best possible credit score is an 850 but it’s almost mythical and there is no reason to chase it. If you have a score above 760, that is good enough to get you the best interest rates on loans or to be approved to rent an apartment. If you’re at 760, use your personal finance energy on something else like investing rather than tinkering with your score.

We haven’t done a five questions episode for awhile. Here are five awesome questions from you about mortgages, credit cards, and retirement. Your questions about mortgage rates, side hustles, rental properties, and analyzing individual stocks. Question One Hey guys, It’s your long time Canadian fan Tina. I know most of your stuff is based out of the States (last time I emailed about an alternative to betterment for Canadians) but what are your thoughts on fixed vs.variable mortgage rates in Canada? My boyfriend and I have just secured a purchase on our first home. The bank has offered us a 1.97% variable rate for a 5 year term. Our mortgage would be for $400,000. I keep reading that the prime rates are expected to go up and so it might be a better idea to go with a fixed rate while the rates are still relatively low but haven’t this been the word on the street for like ever? I mean, for the next 5 years at least, do you think we should keep with the variable or should we go ahead with a fixed rate now? Kinda sucks that the fixed mortgage rates have now already gone up but if we’re looking at the big picture would it still be more favorable to go with a fixed rate? Any thoughts and/or insight you could share with me would be much appreciated :) There are a few options. If you are buying rental property, fixed rate is best because you base your purchasing decision on your predicted returns and having a variable rate mortgage makes it impossible to calculate that number since you don’t know what the variable rate will change to. If you plan to stay in the home for less than five years, a variable rate is better. You can pay the low “teaser rate” for whatever period of time it’s set for, usually between one to five years, and then sell the house before the rate is set to rise. You can also do a mix of the two; start with a variable rate mortgage and then if the rate goes higher than you want to pay, you can refinance to a fixed rate mortgage. Question Two YOU GUYS ROCK MY SOCKS OFF EVERYDAY! I’m 26 with no credit card debt, no credit, and no school debt. I live with my boyfriend and together we make a decent amount of money for podunk Mississippi but, we are spending almost as much as we make each month. My boyfriend has okay credit, but he isn’t building it in any way. We have payments we make on a computer and a car, but they are just paid out of his bank account. I know I could switch those to a credit card if he got one. I’m not sure what cards to go for tho. I’m really liking USAA’s cards. Do you guys have any experience with those? What are other cards great for beginners? He wants to buy a house and I’ve talked him into waiting for about a year so we can both build credit and save up a down payment. What would strategies for that you guys recommend? I will be signing us both up for Betterment very soon. Thanks! Kat We have more experience with Capital One cards for those trying to build credit. Those with limited, average, or fair credit can qualify for their Platinum card. If you can’t qualify for that, they have a secured card. You pay a deposit and that deposit is your credit limit. Once you have built or improved your score, you can transition to a traditional, non-secured card. The biggest factor in your credit score is on-time payments so the best way to improve your score is to make lots of on-time payments. You can do that by charging small, recurring charges like your Netflix or gym membership payments over a few cards.

The most important thing in real estate is location, location, location. Today we discuss the key factors to finding the perfect rental property neighborhood. Zach Evanish from Roofstock joins us to discuss what factors to consider when choosing a rental property neighborhood. Near or Far? The majority of rental property owners buy within a 30-minute drive of their own home. There are advantages to that; you know the area well, you can visit the property, if you don’t want to hire a property manager, you’re close enough to handle things yourself. There are also risks and disadvantages. If you live in an expensive area, you may not be able to afford as many properties as you would like to own. You are also more vulnerable to economic and weather events. If there is a big downturn in the local economy or a natural disaster, your investments are vulnerable because you have all of your eggs in one basket. Okay, Far Great, you’re convinced that far is a good idea when it comes to a rental property neighborhood. But where can you find insight into non-local markets? Roofstock has developed a neighborhood metric that rates neighborhoods based on five factors: Median Home Value: In regard to list price, half the homes are listed above this price and half below it. Median Income: Median income is the amount that divides income distribution into two equal groups, half with incomes above that amount and half below. Percent Employed: This is the rate of employment in an area. A number above 70% is considered high, under 50%, low. Percent of Owner Occupied Homes: This is the number of people in the area who own rather than rent. Average School Rating: Whether or not an area has good schools is one of the most important factors when considering rental property. Cash Flow or Appreciation? When determining an area to invest in, you must consider your goals. Are you more interested in cash flow or appreciation? Cash flow means you’re making money on the property right away; the rent is higher than your expenses, including the mortgage. Appreciation means the house will gain a lot of value over a period. If you’re looking for cash flow, a less expensive house in less expensive markets like the Midwest is what you should look for. The price to rent ratio will be better for cheaper homes in less affluent areas. If you want appreciation, your investment will be more long term. You won’t make money right away, but the property will generally be newer, easier to manage because it won’t need a lot of repairs and the tenets tend to stay longer. The prices in these areas often don’t match rents, so you have to count on appreciation to make money on these types of properties. Zach recommends areas like Miami and Orlando for appreciation investments. No Vacancy Another factor to consider is a vacancy, how long do properties in an area typically sit empty between tenets? You should put aside 5-7% of the monthly rent aside for vacancy times. That comes out to about one month of no rental income every two years. Local property managers can get you these numbers. Requiring 60-90 days notice from your tenets and charging a fine if they don’t provide it can help protect you from a long vacancy. Where the Cool Kids Are There are certain areas that are hip and attracting young, educated people and the industries that employ them. How do you know what those areas are? Net move in and net move out data can give you an indication. People are moving out of rust belt areas in search of better jobs and moving out of markets where they’re being priced out...

Are you being paid what you’re worth? How can you find out what you’re worth? None of us deserve to be undervalued so we will tell you how to know your worth with Adrian Granzella Larssen. Do you think you are being paid what you’re worth? How do you know what your position is worth? Adrian Granzella Larssen from the Muse is here to discuss getting what you’re worth. Know Your Worth Many people accept a job offer or a raise without knowing what kind of salary or increase their position commands. We don’t like to talk about money, but there are plenty of places to research salaries in your position and your geographic area. Sites like Salary.com, Glassdoor.com, and PayScale.com let you see what other’s in similar positions are earning. Get What You’re Worth Great, now you know what you should be getting paid, how do you convince your company to pay that? Many companies don’t give automatic raises like they used to so if you want more money, you’re going to have to ask for it. We did a terrific episode on how to negotiate. It’s not enough to ask for a raise. You have to be able to back it up. Why should you get a raise? It’s our responsibility to keep a running file of reasons; new skills we’ve learned, additional tasks we’ve taken on, compliments we’ve received from co-workers and clients. Many of us were raised not to sing our own praises, but that doesn’t apply when you’re asking for more money. While you need to be armed with information from your side of the equation, you should know how your company is doing too. If the company has just closed down some offices and laid off employees, now is not the time to ask. Ask when things are good. You’re part of the reason things are good, and you have a right to ask for a share of the success. Break the Stigma A big reason we don’t know how much we’re worth is that there is such a stigma when it comes to talking about any aspect of money but mainly about salary. It’s understandable because our society places a lot of value on how much people earn. The more you earn, the better you are so no one wants to admit they don’t make a lot of money. It takes some finesse to bring the subject of salary up, but it’s the best way to know if you’re being paid fairly. Do it over drinks! In vino veritas. Start subtly, don’t just go in for the kill. Ask if they keep a budget, if so, what tools do they use? Do they like Mint or YNAB better? Ask what percent their last raise was, not a dollar amount. The more information you have, the better but even talking to one person is better than nothing. You’re Already Getting What You’re Worth You did your research, and it turns out, you are being paid what you should be. What now? Money isn’t the only thing worth negotiating for and sometimes not even the most valuable. What else do you want? To work from home occasionally, to condense your 40 hours into four rather than five days, so you have an extra day off, more vacation time, a higher match percent for your 401k? All of these things are negotiable too and time is often more scarce than money so if you can’t get more money, ask for more time. Do you want a higher position in the company? Talk to people in that position both inside and outside your current company. What skills should you start acquiring? Start doing the job you want before you actually get the job. You’re Fired

Much has changed for the average American family from a financial standpoint in the last few decades. Much of the advice we receive is outdated in today’s climate. Today we discuss The U.S. Financial Diaries with Jonathan Morduch. Today we discuss the new book The U.S. Financial Diaries with Jonathan Morduch. Jonathan Morduch is a  Professor of Public Policy and Economics at the NYU Wagner Graduate School of Public Service and Executive Director of the Financial Access Initiative at New York University. He joins us to discuss his new book, The U.S. Financial Diaries: How American Families Cope in a World of Uncertainty (Princeton University Press; April 2017). The Old Advice No Longer Works Financial advice is still geared towards a model that no longer exists. The advice works well when we assume people will graduate from college, get a secure job that provides, predictable, steady income with yearly raises, buy a home, save for college, retire at 65 with a pension. But for millions of Americans that path is no longer available. The cost of college has soared 538% since 1985 and people are saddled with tens, sometimes hundreds of thousands of dollars of debt before they even enter the job market. Job security is a thing of the past and will only get worse as more and more jobs become automated. Even those employed at larger companies may not be employed by those companies. Many work on contracts. Companies no longer share their success; profits are now only for shareholders. Home prices are out of reach. Pensions are part of a bygone era. Only 4% of American workers in the private sector have a pension as their only retirement account, down from 60% in the early 1980’s. You can see why the old advice doesn’t work. Getting a college degree is no longer the almost sure path to the upper middle class. If you do get a degree, it’s hard to save for a home when your student loan payments are so high. It’s hard to make a budget when your hours and therefore your paychecks vary week to week. An employer-sponsored 401k is the first introduction to retirement savings and investing for many people. If your employer doesn’t it, you may never know there is such a thing as tax-sheltered savings and lose out on all of the time that money had to compound. The U.S. Financial Diaries The study is based on 235 families from all across the United States. For one year they gave the authors access to every detail of their financial lives. The families were not among the poorest nor were they among the richest. A quarter was below the poverty line, half were at or making two times the poverty line, and a quarter were above the prior group. To understand what that means, federal poverty guidelines for a family of four is $24,600 per year. The book bears out what we described above, that the model has changed, but the advice has not. And many people, notably politicians, don’t want to admit that the model has changed. To them, the advice is excellent and the people struggling are entirely to blame for their situation because they have failed to follow it. The book proves otherwise. The model is no longer predictable, and people can do everything “right” and still find themselves one relatively small, unforeseen expense, away from financial disaster.

Many people are afraid to get started investing. Some are scared to lose money, feel they don’t have enough money or it can be due to lack of personal finance knowledge. Investing is not hard and anyone can do it. You can start investing with any amount money and the earlier you start, the better. We’ll explain the fundamental concepts, lingo, types of investments and the basics of how to start investing. You got this! No Time Like The Present Well, there is a better time than right now to start investing and that time was when you were 18, the age you have to be to open an investment account. But most of us didn’t have money on our minds when we were 18 so the second best time to start investing is now. Right now. Without investing as early as possible, it will be hard to reach your financial goals. The Two Magic Ingredients You don’t need a lot of money to invest or some insider information or innate intuition regarding what to invest in to make money in the stock market. What you do need are the two magic ingredients of compounding interest and time (and a little personal finance knowledge). Compound interest is interest you earn on your interest. That’s hard to understand, here is an example. If you invest $10,000 at 7% interest for 20 years without adding anything to the initial investment, that $10,000 will turn into $38,696.84. You didn’t do anything to earn that extra money, you didn’t even add anything to your initial investment, and like magic, you end up with an additional $28,696.84! That’s the power of compounding interest. The other ingredient is time for the compounding interest to do its thing. There is no substitute for time when it comes to growing your money. Don’t believe us? Take a look at the numbers. Example 1: Ryan invested $1,000 a month from ages 25-35. He didn’t invest any additional money, but he didn’t touch the $120,000 invested until he retired at 65. Example 2: Elizabeth got a later start. She invested the same $1,000 a month for ten years at 7% but did not start investing until she was 35. No further contributions but the money was left to grow until Elizabeth retired at 65. Example 3: Amanda got a really late start. She invested $1,000 a month for ten years at 7% but not until she was 45. No additional investments and the money grew by 7% until Amanda retired at 65. So how did each of our investors do? Each invested the same amount of money, $120,000 for the same amount of time, ten years, at the same average return of 7%. Ryan: $1,444,969 Elizabeth: $734,539 Amanda: $373,407 The numbers speak for themselves. The only thing different between these three investors is the amount of time their money had to grow. There is no substitute for time when it comes to investing. Investing 101 Investing can be complicated, timing the stock market, short selling, day trading, opportunity funds, but it doesn’t have to be, and you don’t have to know anything to get started. But you want to understand some basics of investing. Common Types of Investments When many people hear the word “investing” they think of stocks, and while individual stocks are one type of investment, they are not the only kind. These are the most common types of investments. Stocks: When you buy a share of stock, you are buying a tiny bit of a company. Stock prices follow a company’s ups and ...

When buying investment properties, most people focus on the cash flow. However, there are greater benefits that are sometimes overlooked – rental property depreciation and tax benefits. It can get complicated but we want to lay it all out for you. Rental Property Depreciation Depreciation is the loss in value to a building over time due to age, wear and tear, and deterioration. You can also include land improvements you’ve made and items inside the property that are not part of the building like appliance and carpeting. Simply put, rental property depreciation allows investors write off the structure and improvements to the property over a period of time. This is an “expense” that you can use as a write-off on your taxes. However, you can only depreciate the improvements to the structure itself -not the land. Depreciation is one of the biggest benefits to real estate investing because it can reduce reportable net income and therefore, your taxes. Calculating Depreciation Basically, the IRS allows owners to take a tax deduction based on the perceived decrease in the value of the property over a period of 27.5 years.  Depreciation deductions are spread out over the “useful life” of a property. The IRS allows an owner to depreciate the value of the home over a 27.5 year period. Depreciation is calculated with this formula: Cost of the Building- Value of the Land = Building Value Building Value / 27.5 = Yearly allowable depreciation deduction It would look like this for a property worth $75,000 and land worth $25,000; $75,000 – $25,000 = $50,000 $50,000 / 27.5 = $1,818 Cross Segregation Landlords usually depreciate all of the things that can be depreciated, together with over the 27.5 year period. That’s a long time. What if you want to speed things up? You can use a method called cross segregation. Rather than grouping all the items together, you can depreciate them individually. It’s more complicated to do so and requires a lot of detailed record keeping but it means a bigger total depreciation each year for the first several years you own the property. Personal property and land improvements have shorter depreciation periods than the building itself, usually, five or seven years so can be depreciated on an accelerated schedule. The total deduction doesn’t change but you get it more quickly; you get them upfront rather than on the back end. Why would you want to do that? Because if you take that money and invest it, it will have more time to grow and there is no substitute for time when it comes to growing money through investing. This is all too complicated for you to do on your own but you can hire someone to do it for you. It can be pricey though so unless your property is valued at more than $250,000, it’s probably not worth the cost. Passive Losses It’s common to have losses on a rental property in the first few years. Losing money on an investment is a bad thing but in the case of rental property, it can have tax benefits. You have a loss if the total operating expenses for your rental are greater than the yearly rent you make on it. You can even have a loss for tax purposes if your rental income is more than your expenses because you can deduct a certain amount of depreciation on your rental every year. Passive losses can only offset passive income, you can’t deduct them from income you earn at your job for example. If you don’t have enough passive income, the rental losses are in limbo. You can’t deduct them until you have a sufficient amount of passive income sometime in the future or until you sell the property. Because those losses can sit there for years, you have to plan properly or you can lose your l...

We’re going back to basics. Today we will discuss how to spend your money with Farnoosh Torabi. Some of you are OG LMM listeners, but we gain new listeners every day. For those new to the podcast, we want to spend this month teaching essential money skills everyone must know. Smart Splurges There are certain things that we should splurge on. When we spend more money on things like good food, a good mattress and bedding, and good medical care, we improve all the other aspects of our lives. You can’t function properly if you don’t eat and sleep well. Spending money to see a functional medicine doctor rather than a pill pushing doctor can preserve your quality of life for decades. When the inputs are quality, the outputs will be quality. Time and Money Some people don’t understand that time can be more valuable than money. Do you work 70 hours a week and spend your weekends doing things like cleaning the house, doing the laundry, and mowing the grass? Is that how you want to spend the little bit of free time you have? Some people hate to pay for anything that they can do themselves. Sure if you only work part-time, it doesn’t make sense to pay someone to do those kinds of jobs and you might not have the money anyway. But if you work a lot, have money coming in, and limited leisure time, outsource some of the life’s more mundane tasks. I can never understand why DINK couples don’t at least hire a cleaning person to come in once a week and instead fight over whose turn it is to clean the bathroom. Money Buckets We shouldn’t keep our money in one big pile; it should be kept in individual “money buckets.” One bucket is your long term savings. That money is kept in 401k’s, IRA’s, and ETF’s like Betterment. Short-term savings, any money you are planning to spend in the next five years, saving for a house, for example, should be kept somewhere safe like a checking or savings account. Money for your monthly expenses is kept in your checking account. Your emergency fund can be kept either an investment account or your checking or savings account, depending on how risk averse you are. Where is my Money Going? Personal Finance 101 is to know where your money is going. The only way to know is to have a budget. Mint is our favorite budgeting tool because it’s free and easy to use. You can break down your budget categories as broadly or as narrowly as you want. If you are doing well financially you can keep them broad. “Food” can encompass groceries, work meals, dinners out, and the snacks you bought at the drug store. If you’re struggling to figure out where you money is going, you should break your categories down further. The Right Way Costs More Sometimes extra money spent means less aggravation. Yes, it’s cheaper to fly with stopovers than to fly direct. But how often do you get to go on vacation? If you’re American, not much. If spending an extra $100 means you get to your destination sooner and less frazzled than if you had done a couple of layovers, isn’t that worth it? And if you’re over six feet tall, fork out for the extra leg room seats while you’ve got your wallet out. Moving is another good example of this. Moving is one of life’s most stressful events, why make it worse by trying to do it yourself or tricking...

How many fucks do you give? Too many? If it’s more than one, today we will learn the subtle art of not giving a fuck with Mark Manson. Big News! Before we get to the show, Andrew made a big announcement. After years of hard work, he quit his day job to do LMM full time! All of the stuff he has been preaching to us for years, invest early, save your money, start a side business and if you work on it consistently, you can make it your full-time gig, he did. Congratulations Andrew! Now Back to the Show In 2007, Mark was working in an investment bank at a job he hated. He had been doing some freelance work, had about $10,000 saved, and was making $500-1000 a month from his blog. So being 23, he decided it was a great time to quit his job. It was rough for a time, but it turned out to be the right decision in the end. Mark took a chance by not giving a fuck, and now he gets to not give a fuck full time. Change the Metric The way we define happiness is personal to each of us. Often it’s how we choose to feel about something more than the actual thing, that dictates our happiness. Mark uses his brother’s lack of responsiveness to texts as an example. This used to annoy Mark until he realized that his brother wasn’t sitting on the couch ignoring the texts to piss him off. He is just a different person.Texting is something he doesn’t give a fuck about. When Mark changed the metric he used to measure how good their relationship was, he was happier. Did they see each other regularly? Did they get along well when they were together? The answers were yes so the texting stopped being the measure of the relationship. Money can be the same. If only we made $80,000, we would be happy. Now we are making $80,000, but if only we made $100,000, we’d be set, life would be perfect. But when we get what we want, or thought we thought we wanted, it can bring its own set of problems. Continuously pushing happiness just a little further out means we are continuously pushing it beyond our reach.  Listen, money matters. No one thinks it doesn’t. But the problems start when we think it’s the only thing that matters and the only thing that can make us happy and solve our problems. It Could Be Worse If you’re listening to this podcast, you are more financially savvy than the vast majority of people. You may have debt, you may have not yet started to invest, but just being aware of finances and putting yourself in a position to learn more, puts you leagues ahead of so many people for whom finances are not even on the radar. It’s called being an adult. For most of us, things could be better, and they could be worse. Many of us would like to make more money but dare I say, none of us are living on the streets unsure of where our next meal is coming from. Happiness comes not from struggle. If you’ve struggled with being poor, and I mean poor, not broke, if you’ve struggled with illness, there is no happiness there. But there isn’t happiness on the other end of the spectrum either. That’s why so many trust fund kids are miserable assholes. The happiness is not in the struggle; it’s in overcoming challenges. You didn’t grow up poor, but maybe you didn’t go to a great school, so college was a challenge. But you met the challenge. You worked hard and graduated. You can also find happiness is challenged you set for yourself.

Owning rental property doesn’t have to mean being a hands-on landlord. What you need to know when choosing the best rental property management company. If you’ve been an LMM listener for awhile, you know that rental property is one of the best sources of passive income. If you don’t want to get calls about leaky roofs in the middle of the night, we’ll teach you what you need to know when choosing the best rental property management company. What is Roofstock? Our guest today is Andy Boyum from Roofstock. Roofstock is a curated market place for buyers and sellers of single-family rental homes. We wrote an extensive review of the company and interviewed the CEO of the as well (interview is embedded in the review linked above). If you want to invest in rental property but want to be as hands-off as possible, Roofstock lets you do that. Why You Need a Property Management Company Passive income isn’t passive if you have to work for it. If you are getting calls about broken air conditioners and chasing raccoons out of chimneys in the middle of the night, that isn’t passive. Hiring a property management company also lets you invest in far-flung locations. If you live in New York City, you may not be able to afford a local rental property. With a property management company, you can own in more affordable markets because you don’t even have to visit your property, never mind live near it. Staying on top of landlord-tenant laws can be a job in itself, especially if you have rentals in more than one location. A property management company takes care of that for you. Evicting a tenant is the worst case scenario for a landlord. It can get ugly and messy, especially if you don’t know what you’re doing. Your management company can handle the thorny issue with minimal involvement from you. If you don’t hire a management company, you may have to become an employer; hiring a resident manager, a maintenance person, landscaper, etc. Suddenly, you’re dealing with payroll and taxes and a lot of other issues you hadn’t bargained for.   What Does a Property Management Company Do? A full-service property management company does pretty much everything. They handle the up-front work of making a home tenant ready, market the property, the details of the lease between the owner and the renter, are on call for emergencies, handle repairs, collect rent, and if the owner decides to sell, the company can handle that too. How to Find a Good Property Manager Roofstock has a very thorough vetting process their local managers must pass. The most important qualifications are responsiveness and transparency. They get referrals from people in the local real estate community, schedule phone interviews where they are asked a series of questions about their background and experience, their due diligence documents are reviewed, a market visit is arranged, and the local manger signs an agreement. The local managers whom Roofstock work with are certified, licensed, and bonded in their local area. If your manager is not living up to their duties, Roofstock can step in to mediate and even fire and replace that manager for you if it’s required. What should you ask of when you’re interviewing management companies? Know exactly what services are offered. You don’t want to find out that you have to handle evictions, especially if you are an absentee landlord. What are the fees? On average, you can expect to pay between 8-12% of the monthly rent.