Author: Small Budget Retiremet

I am an elementary school teacher, landlord and father of four amazing kids, trying to reach my financial retirement in the next ten years. We enjoy frugal living in one of the most sought after Chicago suburbs as we manage our small budget to push us towards financial independence and early retirement. This blog will share some of our strategies and stories of our journey from $0 to FIRE.

Should teachers invest in 403B plans? Maybe…

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Maybe you are investing in your 403B plan at the same time you are financing a retirement plan for a financial adviser.

If you are a teacher or have a teacher in your family you may know that in most cases these folks with nerves of steel have very few options to make their working time worth more; in other words, it’s not easy to get raises. The only raises teachers get are either based on years of service or additional credit hours of professional development.

Many people may read this and wish for a political debate; not my intention with this post.

However, if one thing is true is that teachers’ opportunities to grow their wealth are limited. And the reason is two folded. On one hand, you have to either spend years of service in the trenches or take more coursework that requires an upfront investment.

Another option that is available to teachers and other public institutions is a 403B plan. A tax-deferred account that allows you to save money. The way it works is you let your employer know how much money you want to be taken out of your paycheck and your money, free of taxes, gets put in a special account with an investing company. Once the account is set and the money is transferred you can invest it in the stock market. You will not be able to touch this money until you are 59.5 years of age, and with the magic of compound interest you will have a decent a mount of cash to supplement your pension or retirement fund.

With that last word I probably lost YOU because many people think of “the market” and Wall Street as some sort of hocus pocus. A too complicated form of money investing for the common Jane or Joe. I get it. That’s what I always thought myself. Moreover, if you lived through the 2008 crash you are probably thinking of potential massive cash losses.

But with all and the market crashes, nothing could be farther from the true. All it takes is a bit of casual reading and few podcasts to get your mind set on track.

Most importantly, don’t make the same mistake I made. Let me tell you my 403B story. Well, not a pleasant one but definitely one that I learned a lot from and should help you avoid some of the pitfalls of investing as an educator .

When I first started working in the public school system I became acquainted with the P.E. teacher of my building. He was about 4 years away from retirement. He was animate about getting me to open a 403B account through my district. I had no idea what it was or how it worked. Coming from a different country, that was something totally out of sight for me. In my mind I had no business trying to invest in the U.S. stock market.

Somehow though, I ended up throwing $40 into it each month with Fidelity. I figured it couldn’t hurt. My P.E. friend told me where to put the money. I did and forgot about it.

A few years later, I remembered about it and went to check how much money was there. Wow! To my surprise, there were $6k+. Not that it was a huge amount of money, but it was a decent amount of cash for someone who was living from paycheck to paycheck.

At the time, when I was working with Fidelity I had no clue about what to do, where to invest or whatever pertain to investing. I did have the desire though of continuing seeing my money grow.

Sure enough, someone I knew from work happened to also work for an investment company. More importantly, it was part of the School District’s 403 plan providers list. He explained to me that the great thing about working with him was that he was also a financial adviser, which could certainly help me finding the right allocation for my money and bring the best yields. What can be wrong with that right? He also let me know that there was a fee of up to 2.5%. Nothing wrong with that I figured. At the time, I was paying 3.6% with my home mortgage; in my mind, I was getting a deal!

You can’t know what you don’t know, right?

I worked for about 3 years with this individual and his company. My money was invested in a lot of Vanguard stuff; remember I had no clue. However, in the midst of all this fog, there was something in me saying that I had to figure out my money. I always had that feeling of being blindfolded and I wanted to take the reins. My ignorance and the convenience of having someone resolving my finances were costing me more than what it should have and I wasn’t even aware of it.

It wasn’t until one day sitting on the couch with my wife, after listening to Dave Ramsey in a YouTube video that I got thinking about my 403b again. Few searches got me to the doors of the Financial Independent community. I started with the MadFientist podcasts. I listened to “Why you should retire before you hit your number” with Chris Hutchins and I WAS HOOKED! My gears really started spinning.

I felt enlightened. What I thought was a great deal of 2.5% for placing my money in Vanguards funds, I realized I could get it for 0.017% by managing my own money. In other words,  what was costing me $850 a year I could get it for $6.8! Holy s***!!! I am not a math genius but I knew that was a huge difference. Even worse when you think about this same difference if you get to have half a million dollars. $12,500 Vs.$85. Nope. It’s not an error. That is the difference of having half a million dollars and paying 2.5% a year or 0.017% in fees.

Needless to say, I pulled my money from that company and went back to work with Fidelity. My then financial adviser argued that he could actually help me to stay invested in the market if it went down and I panicked, and that argument was supposed to justify his fees.  Really? This was laughable to me.

I have kept on reading and listening to awesome podcasts like the ones from Afford Anything with Paula Pant. I read a few books and I feel confident about what I am doing with my money. I am escaping high fees and the hocus-pocus BS of financial advising from someone that is just trying to skim my account and profit from me.

If you are a teacher, or if you are thinking about investing in your 403B, which I would highly recommend to any friend or co-worker, make sure you are not paying high fees. What is a high fee? For me anything above 1% I would have to challenge it and find reasons as of why I am choosing that fund over a total market index fund with fees of 0.017% or at least under 1%.

Currently, there are a lot of school districts handing out their 403B plan management to third-party administrators, also known as TPAs. Unfortunately, no all investment companies are willing to work with TPAs because they work as gatekeepers. TPAs charge a fee to investing companies like Fidelity and Vanguard to serve individuals in the 403B plan of any given institution. As a consequence, many times you have that most of the companies available to employees to invest are garbage. Why garbage? Because they charge an arm and a leg in commissions. They rip you off! It absolutely sucks! Particularly beware of annuity programs. On the other hand, companies that do offer low fees for their services like Vanguard and Fidelity become off limits to you because they are not willing to pay any fees to the the Gate keeper TPA company. Otherwise they couldn’t offer the low fees they offer to their investors.

What to do? Is there a solution?

First and foremost, be in charge. Take the reins of your money and get involved. Nobody will make better choices for you. Learning this stuff is not that hard, and you really don’t need to know the ins and outs of Wall Street to figure that you don’t need a financial adviser to manage your 403B. A financial adviser might have its time and place but I would highly suggest paying an hourly fee before having someone completely in charge of managing your wealth.

Companies like Fidelity and Vanguard, make it easy for people like me. They offer what they call target funds, which are portfolios already preset according to your estimated age of retirement. Do you think you can find a way to outperform the market by finding “that one stock” that will make you a lot of money? Well, don’t. That’s your first lesson as an investor: Don’t try to outperform the market or you will get burned. Shoot for market average, low-cost index funds. Market average is great and all you need.

Also, very important, challenge your current options with your district. It’s your money. You work for it, so you should have a say about where you want your money to be invested. It might take some pressure but don;t just comply with whatever. Talk it over with coworkers, educate yourself and push your administration to find the best possible options for you. Remember, it’s your money; you are not begging.

You may also be paying Union fees regularly with every paycheck, so this is something that all Unions should be talking about and fighting for. Teachers need good and sound 403B plan opportunities. You Union should be fighting this at state level. If you are not in a Union you should find a collective voice about this matter. It’s your money, it’s your life.

I would love to hear about your 401K/403B opportunities in the comments. Do you feel that your company or District selects providers in your best interests? Do they care about the fees some providers charge?

Used Items Depreciation

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Thanksgiving is just hours away and you really have to hold on tight so you don’t end up giving in to all the holiday sales. Time to tame your emotions! If you have made it this far you may be able to resist the infamous “Black Friday.”

Hey, I am not opposed to a good deal if it’s something that I truly need, and more importantly that I can’t buy used on Craigslist or Marketplace. I probably wouldn’t buy used underwear, socks or hats, but for sure anything that falls into the tool category or electronics deserves a search in sites where you can buy used.

Basically, you just save a ton when you buy used and if you do decide to get rid of the purchased item, most likely you will barely lose any money; used items hold their value better than newer items.

Not too long ago I decided to buy a bike rack system for our camping trips. I wanted something secure, trustworthy that would not be rattling all the way to our destination.

Sure enough, I ended up looking at Yakima products. They are expensive; at least for me. The model I wanted is called the “full swing” and it retailed for about $500 plus tax.

With a little bit of patience and a few daily searches on Craigslist, Ebay, and Market Place, I was able to find one for $350. Already almost 50% off. Still a lot of money though. I was able to negotiate it and ended up getting it for $300.

We used it a lot and it always met all of our expectations. It was solid. A great product. But like everything else, especially with a family, you transition from one stage to another and things end up in the garage. After a season of not using it, I decided it was to part with it.

I posted an ad in the same places where I buy used and in no time I had over 100 hits. Long story short, I was able to sell it for $290.

Think about my $10 loss, versus the loss of the person I bought it from who paid the $500+. Not to mention the tax savings! You buy a $500+ item and you may end up paying up to 8.75%, depending on where you live in Illinois. No thanks! I am not again paying taxes, but before I even touch my salary a big chunk of money is already taken out. If I can save myself some money by buying used items, I will. In this case, just in taxes I saved almost $50. Plus about $200 by choosing to buy something relatively used.

Many times we fall prey of our emotions. We think we deserve a treat. Go to the store with the perfect temperature and upbeat music and walk out with a bag like everybody else. We want the cutting edge technology or gadget everybody is talking about.

Well, nothing more sobering than an estate sale. You walk in and you see room after room full of clutter and items that at some point were also “the thing to have.” Now, there they are; being sold for pennies, and if they don’t sell they make their way to the garbage. Think about the fortunes we spent on crap that we don’t really need, and that after a while we just give away or trash. It’s not just something you throw out or you lose money on, it’s hours of work and time in our lives that we invested to afford those items and now we are just disposing them; we are disposing our lives!

Remember the best sale is the one you don’t buy.

 

Making extra cash with a side business or hustle

20181118_130806.jpgWhen thinking about retirement one of the key points is finding a way to increase your savings. You can achieve that in two ways. You can increase your earnings and lower your expenses.

Sometimes increasing earnings is difficult to do right away and requires casting hooks for a new job; or as it is in the case of teachers you have to take a certain amount of university coursework to step into a different lane in the salary schedule. Whatever your situation is you know it will not be immediate or easy.

In that case, lowering your expenses may be the most immediate option. Challenging every single dollar you pay for any product or services should be part of your path to be in a better financial situation.

However, the one thing that needs no delay and can help making you some extra money is a side business. What kind? Well, it depends on what you enjoy and what you would like to in down times.

This is an opportunity for you to explore what your interests are, your inclinations; what Sir Ken Robinson refers to as “The Element.” We all have it. We have talents that can bring a lot of satisfaction in our lives. Unfortunately, sometimes we get caught in the hamster wheel and we just run from 9-5 leaving behind every drop of energy and creativity in us.

Therefore, it is so important to find the time to exercise, meditate, go on walks or whatever your jam is when you can clear your mind and think about what you truly enjoy, or what you really would like to do.

If it’s something you don’t know much about it, don’t give up on the idea. Not knowing about it today doesn’t mean you can’t learn it. It may take a while, but if it’s something you are really interested in, even going through the process of learning the needed skills will bring a bundle of satisfaction into your life.

In my particular case, my side hustle has been photography and wood-working.

I didn’t know much about photography and lighting but that didn’t hold me back. I researched different sites online, got some books from the library and started experimenting. I would come home after work and after the kids went to bed I would do Photoshop lessons at my own pace and use my wife as a model. It wasn’t long until I started doing family sessions, weddings and making some extra cash on the side.

Also when you turn an interest or hobby into a side business, you also get to reap some tax deductions for your equipment that otherwise you would have to pay out of pocket.

If you haven’t tried a side business, give it some thought and try to find your Element as you make some extra cash to help you along the way.

Stop paying for commercials on TV!!!

Advertising on TV is crazy expensive, which makes it a very exclusive marketing tool for businesses to reach their audience. When companies advertise on TV they do it as premeditated damage control. They incur in a huge expense with the purpose of selling more products or services they manufacture or provide.

Regardless, all that money spent is an investment. They spend X amount of money expecting to make X+ Y%.

Those expectations get crystalized when families like yours and mine surrendered our cash to them in exchange for what they sell. Indirectly we are paying for all those forms of advertising.

To illustrate my point, I want to share with you my experience hiring contractors. Two summers ago our air conditioning broke; it wasn’t cooling enough. It needed a charge of gas.

Exactly the same week, my neighbor was going through the same situation. With the difference that he decided to call one of the big names that advertise on TV. They came within 24 hours. He was also charged $580. There was a $150 fee for being an emergency call, plus $120 per Lbs of gas, and then some sort of extra fee for tuning the unit or whatever they told him.

The guy I usually call, could not come right away. We waited for three days. Yes, those were hot days. It was uncomfortable. However, I am aware that AC is not “a thing” all around the world. Most people open the windows when it’s hot and bare the heat; so we pushed through those days.

Finally, our technician came over. I asked him if I had to replace the unit? My AC unit looks so bad, I am not kidding, that you wouldn’t think it even works. His response was “don’t worry about it. Save the money for the kids. If we make it work don’t bother.” A few minutes later he had it cooling the house with no problems. Coincidentally, just like my neighbor we also paid for 3 Lbs of gas. Out total was $120!!!! No service call fee, tuning and all the other scam fees my neighbor paid for. This is not pocket change. This was a $460 difference!!

My advice to you: Stop calling those companies on TV to fix your washer and dryer; you AC!  Post something on facebook and ask your friends for recommendations. Most likely, someone will recommend you a reliable contractor that will not bleed you to death.

Once you establish a relationship with a contractor, treat them well, respectfully, and be thankful for their help. It doesn’t take much to say “I really appreciate you came;” that goes a long way.

On my end, that day we scored a 79% savings!!!! It’s not rocket science. It’s all about choices we make on daily basis that put us in a hole of debt or set us forward in our path to build wealth.

 

 

 

Are we cheap or just money efficient?

Nobody wants to be seen as the cheapskate. As parents, we fear being seen as the parent who is not willing to spend money on their kids. With that thought, we spend a fortune on brand new strollers for each child we have, new playpens, new clothes, shoes, bikes, backpacks, lunchboxes, etc, tec, etc. Before you know it, you have spent a fortune; literally, thousands of dollars.

The worst is when we buy the same clothing item but of a different color just because we have a child of a different gender. What a great idea it was for all industries to latch on that idea of blue for boys and pink for girls. Think about what a difference it would make if there were no stereotypes about what color clothing our kids wear. We would save tons!

Well, unfortunately, that’s not the case, and kids can be really nasty towards other kids if they brake some of these stereotypical rules. But that should not be the reason for you to spend tons and conform to all these social pressures; especially in these times when technology is at our fingertips.

Recently our little boy was in need of some snow pants. He wants to be outside playing and the early snow kind of got us off guard. He wore some hammy-down from the older sisters and sure enough, they were some pinkish red color.  It was becoming an issue for him at school because even some of the teachers were mistakenly thinking he was a girl; I don’t blame them, all kids are in coats, bundled up and it’s hard to tell, so you just let yourself roll with the stereotypes. With whta you are used to.

So, we decided to go to our favorite shopping place. Facebook, marketplace. In no time we were able to find a pair of snow pants for $6.00 right around our neighborhood. They look brand new and fit him perfectly.

The cheapest pair I found online was at target for $16.99. But the story doesn’t end there. Besides the price tag, don’t forget that “the man” takes his cut. Illinois takes 6.25%. In this case $1.06. Total $18.05. Which also means we scored a 66% savings.

Think about all you could do and invest if you could cut all your discretionary expenses 66%. That’s the way we live. We could go to the store and buy what we need and want at retail price. But why? why would I do that if I can get it for cheaper and just as good?

I don’t think we are cheap. I just think we are very efficient with what we have.

I would love to hear from other people’s hacks and savings. Information is power. Let’s share.

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Budgets are important for rough times

Your life depends on a budget

Besides using a budget to make the most out of your earnings, a budget can be a lifesaver during rough times.

Most people go through days caught in the hustle and bustle of life. You drive your kids to whatever practice, it gets late, maybe pick up some fast food for the convenience of not cooking. Maggie broke her ballet shoes and bang! Amazon delivers for you.

The one thing that we are unable to order from Amazon and solve so easily is a new job. If you lose your job and you lose your income it can throw your family on the street in no time; especially when you are in debt and if can’t make drastic changes quickly.

We tend to think these things won’t happen but we know they do happen, and in a slow job market it can be very destructive.

That has always been something in my mind during those times that have had credit card debt, despite having a very “secure” job personally; as a teacher at least that’s what people say.

One of the greatest things about creating a detailed budget is that you can clearly see what your minimum income must be to keep yourself afloat covering the basic needs of shelter, food and heat. If rough times come into your life that would be the worst moment for you to try to figure out where your money is, or what you truly need to cover the basics.

I like to call this sort of preparedness “pulling the plug.” If I happened to lose my job tomorrow I might not have the money runway to keep my family’s current expenses for very long. However, I can quickly look at my spreadsheet and in a minute I can make drastic decisions about what needs to be cut so that we can make our savings go much farther.

If you have not beefed up your emergency fund make sure you are at least ready to tackle rough times by having a budget, so you can pull the plug in case of an emergency.

Budgets are important for rough times
Are you ready to pull the plug?

Do you really need a budget?

Do you really need a budget ?
The importance of a budget when you want to be live debt free.

Making a budget can be a daunting task and a deal breaker for a romantic night with your spouse or significant other. But it doesn’t have to be that way if we change our mindset.

Is it necessary? Absolutely! Does it really matter even when you make more than enough to cover your expenses? It does if you want to take charge and go from just having enough to having a surplus of diligent mighty dollars that go to work 24/7 for you.

In my personal experience, nothing has helped me more than budgeting. And to be fair, I have always made a budget along with my wife. We go through expenses, making sure we have enough to cover our monthly expenses and move on.

However, I am talking about going beyond covering expenses and really analyzing every item, so that we can maximize our income and make those dollars go farther.

In the past, we would take a piece of paper and jot down mortgage, utilities, groceries, kids lessons and other expenses. However, every month it seemed like the $400-$500 we were supposed to have left at the end of the month had simply vanished. 

It wasn’t until about a year ago when I heard this idea of thinking of myself as a CFO, managing my household income and expenses as if it was a company. With that came our monthly meeting report, where we both sat down to discuss different items; decisions were made, and before we knew it we went through a whole year with no debt for the first time ever. We even managed to put a brand new roof on our house without any credit or financing.

If you are in a financial predicament( We have all been there), first of all, take control of your money. For that, you need to know where your money goes. I highly recommend using either Excel or Google Spreadsheets. 

Start by knowing how much income you earn in a month; that’s the easy part.

Next, start by noting what your fixed expenses are. Understand by fixed expenses your mortgage or rent, utilities, groceries, etc; anything that you pay for, that is a need ( Not cable) and has somewhat a constant value each month. If the value is no constant, try to work it so that it becomes constant. In other words, if you have fluctuations in your grocery bill from month to month you have to find the sweet spot of what you should spend every week for your groceries. 

After that, the game is on! Subtract your expenses from your income and whatever is left challenge it. Notice how much you are paying for it a month and yearly. Question how you are allocating your money in movies, restaurants, all the new crap you buy and ends up in the closet, garage, garbage or even worse a storage place. Are all those things necessary? Could you have made it through life without those new things?

The minute you start analyzing your finances that way and you take control things will start falling into place. You will feel better about yourself and the decisions you are making for you and your family.

And what once was a deal breaker for a romantic night, might become nothing short from candles and wine /;-)

Why cable is the biggest waste of money

https://www.youtube.com/watch?v=e8Zx0JJjM_0
 
You better cut it and open your eyes!!!!!

Not too long ago I decided to hire a cable service. More than the cable service itself  we felt that we wanted the security system offered by one of the big companies in the country.

Sure enough we started with a promotional rate in the sixty dollar range and before we knew it we were close to $100. No much later after that, we decided to move and according to the cable company TV commercial you could just call them up and they would move your service at no charge. So we did.

We moved, settled in, and a month later bills started coming in. To my surprise the almost $100 we were paying, now had become $158!!! That was an immediate what that …!!! I called them up and I was informed that when we moved my service from one house to another they had re-initiated my 2 year contract; of course, at their current rate. I was livid! That was $1,896 a year!

Luckily we were able to find another company that bought our contract out, and we went from paying $158 to $35 a month for only internet connection. We added the $10 no-contract Netflix service, and we never looked back. That is 72% savings every month!

Cable is a terrible option to watch anything. You are paying to watch commercials and roam from channel to channel to find nothing. Cable service and cable companies are deceiving predators taking your money ( You may already know it). Always trying to trap you in a cage of small prints and skim your account; don’t let them!  Just cut it! Save yourself a big chunk of cash!

What would you do with extra $1,300 a year? Put it in your 401K/403B? Pay and extra month on your student loan? Pay an extra month on your mortgage? Remember, once you cut it the savings will be forever.

 

 

Thanksgiving’s greatest savings!!!

Alright. This post doesn’t come with a print-out coupon but actually you don’t even need it to get some wicked savings! You won’t have to get in line the night before either and sleep in the cold.

As you know I have a large family, and without budgeting your food expenses food can really eat up your monthly savings. Would you believe me if I tell you that we have amazing meals under $1.50?

Yep! And it isn’t cardboard or merely crumbs for each plate. 

Usually we budget $150 for each week, for this family of six+one. That’s about $21 per day, $7.14 per meal; $1.02 per person. Pretty good as it is, I’d say.

However, comes Thanksgiving and my wife is ready to stock up our freezer. She just pays attention to the deals at our local grocery store by looking at the weekly ads they send in the mail.

Well, that’s it. No magic. We just got 4  twelve pounder turkeys, each at the amazing price of about $5.00!!!

On Sunday night we cooked the first one and had it for dinner. We made turkey sandwich lunches for the next day, then we had it again for dinner with stuffing and salad.

As we carved the turkey and uncovered the carcass, we decided to throw it in the Crockpot with some onions, canned corn, and spices to make some soup we had for dinner.  Next day, guess what we had for lunch? Turkey sandwiches! Dinner was another repeat of turkey, salad, stuffing and soup. The kids love it and so do we.

We have easily two more meals left and potentially one more of just soup. 

$4.77 for the turkey, $2.50 for the stuffing, $1.45 for celery, $1.25 for a can of corn. Total $9.97! Divided by seven meals it comes to $1.42 per meal. Divided by seven people, 3 adults and 4 kids, we come to $0.20 per person. If my calculations are right we are all eating like kings for under $2.00! That is a 81% savings, if you take the original $1.02 (102 cents) we usually budget per person  and divided by the 20 cents of our turkey hack.

Don’t miss out. In the meantime, I will keep an eye out for even better sale prices right after Thanksgiving! I might get it cheaper.

Saving big on Thanksgiving
That’s it folks. $4.77 for seven meals!
Thanksgiving super saving
We might buy some more to ensure the protein supply for months to come.

The Journey Begins

Thanks for joining me!

“A journey of a thousand miles begins with one step” – Lao Tzu

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