My guess is that you're on Facebook a lot. I know I'm on it daily, both for business and for personal usage. In fact, according to this article on The Motley Fool, the average daily user spends 41 minutes a day on the platform. If you enjoy spending time on Facebook and would like to […]
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If you’re in the market for a new web hosting service, HostGator is certainly an option that will come on your radar. It’s a reputable company within the web hosting industry.
Like most web hosts, HostGator has a wide range of plans, options, and hosting types to accommodate the needs of different websites.
Today, I want to put more emphasis on the HostGator Cloud.
Cloud hosting is new compared to other types of web hosting. Rather than your website being hosted on a local server, it’s hosted on multiple remote servers.
One of the biggest benefits of cloud hosting is the ability to scale on-demand. So it’s a great option for fast-growing websites with high volatility in their site traffic.
For those of you who are interested in using the cloud to host your website, I strongly recommend that you review my analysis of HostGator Cloud. I’ll cover their plans, pricing, benefits, and everything else that you need to know before finalizing your decision.
There are three cloud plans offered by HostGator. The cloud uses premium hardware, low-density servers, and multiple layers for caching. As a result, this speeds up your page loading times.
As your traffic increases, HostGator Cloud plans make it possible for you to increase your resources with a click on-demand. All of this happens without any downtime, reboots, or data migrations.
Regardless of the plan you choose, you’ll have access to HostGator’s intuitive dashboard. From here, you’ll be able to monitor all of the metrics related to your website’s performance.
That’s what you’ll use to allocate any additional resources accordingly. Basically, you have complete control of your usage with the HostGator Cloud.
Let’s take a closer look at each individual cloud hosting plan.
The Hatchling Cloud is the entry-level cloud hosting plan from HostGator. It’s made for hosting one domain and has 2 GB of RAM.
Like all cloud plans, the Hatchling comes with a free SSL certificate.
Pricing for this plan starts at $4.95 per month as an introductory offer. Your contract will renew at $8.95 per month.
You can add on SiteLock monitoring, CodeGuard site backups, professional email, and HostGator SEO tools for additional annual fees.
This plan is best for new websites that want to be hosted on the cloud. Even though you can allocate new resources on demand, you’ll likely want to upgrade as your total monthly traffic increases.
Here’s a quick glance at what the Baby Cloud offers compared to the Hatchling.
As you can see, the Baby Cloud can host unlimited domains, and has twice as much available CPU space, and double the memory.
The rate for new cloud customers is $7.95 per month, before renewing at $11.95 per month. Right now they’re running a deal where you can actually get the introductory rate reduced down to $6.57 per month, which is a great value.
All you need to do is sign up and the discount will automatically be applied at the checkout.
This is the most popular cloud hosting plan offered by HostGator. I’d say it will likely be the option that’s the most suitable for the majority of you.
The Business Cloud is HostGator’s top-tier cloud hosting plan. Like the Baby Cloud, it also hosts an unlimited number of domains on a single plan.
However, the Business plan comes with access to 6 cores, as opposed to just 2 or 4 cores on the Hatchling and Baby plans. Your HostGator Business Cloud also has access to 6 GB of RAM.
It’s the only cloud hosting plan that comes standard with a dedicated IP address. This feature is not available on the Hatchling plan and it costs an additional $4 per month on the Baby Cloud plan.
Considering that the Business Cloud starts at $9.95 per month, that extra feature is a great value. However, it’s worth noting that renewals jump up to $17.95 per month once your initial contract expires.
While the primary focus of this review is on the HostGator Cloud, I would be doing you a disservice if I didn’t mention the other hosting options offered by this provider.
Cloud hosting isn’t for everyone. So if you’re in the market for a more traditional type of web hosting plan, you may want to consider one of these options as an alternative.
With a dedicated server, your website will be renting a physical server from HostGator. This server will only be used for your site.
It’s a faster option than shared or VPS hosting since you won’t be sharing any resources, storage, or bandwidth with other websites.
Dedicated servers are ideal for those of you who are a bit more tech-savvy. If you want complete control over your server in terms of security and flexibility, this is your best bet.
Pricing for HostGator dedicated servers starts at:
Compared to the cloud hosting plans, these dedicated servers are priced significantly higher.
Virtual private servers from HostGator give you flexible software options. You’ll gain full root access, which gives you added control in your environment.
The VPS plans are a step up from shared hosting, but not quite as in-depth or expensive as the dedicated servers. For comparison purposes, let’s take a look at how these VPS plans are priced, so you can weigh them as an option against cloud hosting.
If you’re already using cPannel for web hosting, SiteGround will migrate you to VPS hosting for free.
If you’re on a budget and don’t want to use the cloud, shared hosting is the bottom-tier plan offered by HostGator.
Plans start at $2.75 per month, $3.95 per month, and $5.95 per month, respectively.
The problem with this option is that you’re going to be sharing resources with other websites. So if those sites have traffic spikes or higher volumes of visitors, it will impact the metrics on your site as well.
So if you want to save some money, but don’t want to sacrifice performance, cloud hosting will be a better option for you. Shared hosting doesn’t give you the flexibility to manage your resources the way that cloud hosting does.
Now that you’ve had a chance to see some of the other types of web hosting offered by HostGator, let’s get back to focusing on the HostGator Cloud.
The following benefits refer specifically to the cloud plans. So for those of you who are considering one of those alternative options, I can’t guarantee the same advantages.
When measuring the performance of a web hosting service, uptime and page loading speeds are two of the most important metrics to consider. Let’s take a look at how a HostGator Cloud test website performed so far this year.
Over the past six months, HostGator Cloud had a 99.995% average uptime rate. That’s about as exceptional as it gets.
As you can see from the table above, the page loading speed fluctuates quite a bit so far this year. The fastest average monthly response time was 280 ms, while the slowest was 736 ms. But on average, the response time in 2019 is 514 ms.
Truthfully, it’s definitely not the fastest loading time we’ve seen. But with that said, it’s still very fast, and far from the slowest.
Based on these numbers, I can’t say that you’ll be disappointed with your uptimes or loading speed if you decide to go with a cloud hosting plan from HostGator.
HostGator Cloud is very easy to use. It’s a great option for beginners, as well as users who have more experience with web hosting.
The cloud plans make it possible for you to allocate your resources as needed whenever you’re experiencing traffic spikes. That’s not the case with their other plans, which would require you to upgrade as you reached limitations on resources.
Even if you’ve never done this before, the interface is very easy to manage.
Another reason why HostGator Cloud is so user-friendly is because you won’t have to worry about outrageous pricing. These plans don’t surprise you with monthly overage fees when you exceed your plan limits. That’s a major downside of other web hosting plans.
The reason why cloud hosting from HostGator is so fast is because it doesn’t rely on typical servers. Instead, the servers from remote data centers work in unison with a person’s web browser to limit the number of resources required to host the website.
Things like managed cloud resources, data mirroring, and integrated caching make this possible, which comes free with your cloud hosting plan.
Furthermore, you’ll get free server monitoring to alert you if there are any hardware problems.
When you sign up for HostGator cloud, you’ll have access to cPannel as well. As I said before, you’ll get a free migration if you’ve been using cPannel with your current web host.
HostGator Cloud comes with 24/7/365 customer support, which is crucial for web hosting. My favorite part about this is their support portal.
Rather than having to pick up the phone or chat online, there’s a good chance you can find the answer to your question here.
Here’s an example of a tutorial that explains the step-by-step process of how to add resources to your cloud hosting plan.
HostGator has tons of these for nearly every aspect of cloud hosting. It’s a quick way to find a solution to your problem.
With that said, phone support and live chat is always available as well. Personally, I prefer live chat as opposed to picking up the phone. But you’ll have both options depending on your personal preference.
Based on the benefits that we just discussed, I think we’ve established that HostGator Cloud is a top choice to consider if you want to use cloud hosting. But with that said, there are a couple of things that you need to keep in mind before you make that decision.
I briefly touched on this earlier when we discussed the cloud hosting plans, but the initial rates are just introductory offers. When your contract renews, you’ll be paying more.
Depending on your plan, you can expect prices to increase by roughly 80%.
While HostGator has its fair share of freebies, there are also some upsells along the way as well. Some of these are automatically checked off in your shopping cart, so make sure you review that page thoroughly before you commit to anything.
Overall, HostGator is a reputable name in the web hosting space. Their cloud hosting service is a great option for those of you who want to take advantage of cloud website hosting.
If you compare those plans to their standard shared hosting options, the cloud is the superior choice in my opinion.
However, if you don’t think cloud hosting is for you then you could always consider VPS or dedicated server hosting from HostGator as well.
For those of you who still aren’t convinced on the HostGator Cloud, you can check out my list of the best web hosting services for some other viable options.
The “Books with Impact” series takes a deeper look at specific books that have had a profound impact on my financial, professional, and personal growth by extracting specific points of advice from those books and looking at how I’ve applied them in my life with successful results. The previous entry in this series covered Triggers by Marshall Goldsmith.
You Need a Budget was the first personal finance software package I really fell in love with. I dabbled with Microsoft Money (RIP) and Quicken when I was first turning my finances around, but it was You Need a Budget that really clicked with me when I started using a spreadsheet-based version of the software many years ago, and I still use You Need a Budget 4 (the last standalone version of the software) on occasion when trying to get a clear picture of my finances because I simply love how it handles and displays my financial information.
What drew me to the software more than anything, however, was the philosophy behind it. YNAB wasn’t just a piece of software for tracking your finances; it was designed to help you follow a rather in depth philosophy and program for improving your financial state, something that other major personal finance software packages never really had (and still don’t, for the most part). That philosophy, encapsulated in four simple rules, was the really valuable part of the whole system.
That brings me around to this book. You Need a Budget by Jesse Mecham (the founder of YNAB) is basically the philosophy behind YNAB expanded with details into a short but quite powerful book, a book that I want to dig deep into because of the all-around solid personal finance philosophy and system it contains.
Let’s dive right in.
The book starts off with an insightful criticism of the traditional form of budgeting, budgeting in which you merely list a lot of categories, come up with spending targets for each category, and then aim for those targets in those categories.
What’s wrong with it? It’s inflexible. You can’t prioritize one budget category over another. It’s inherently predictive, meaning you’re trying to guess what the future holds every time you make a spending target.
The big shift that the YNAB philosophy makes is that it focuses on spending what you have right now, rather than what you project you’ll have going forward, with a particular emphasis on how that money can get you to your goals. In other words, it chops the concept of projecting future income out of budgeting entirely.
The interesting part of this method as opposed to traditional budgeting is that it highlights the scarcity of money, as is nicely described on page 20:
[T]his feeling of scarcity is a good thing. It means you’re seeing your money for what it truly is: a finite resource – and this is a huge part of that mindset shift I talked about. It doesn’t actually matter how much money we have or don’t have. Scarcity is simply that feeling of wishing their were more. This is an important moment. The feeling of scarcity might tempt us to quit, but when we step back and embrace scarcity, we make good decisions.
I found this really interesting because it seems to fly in the face of the idea of an abundance mindset. In many aspects of life, it’s much better to have an “abundance” mindset, meaning that you perceive that the pie is infinite in size so it’s not a big deal to share with others because you’ll still have more than enough for yourself. YNAB centers around the opposite idea, at least for your finances: all you have is this little pool of money.
The argument is that, in terms of your money, the future is abundant and thus very difficult to reasonably budget. The present of your financial situation, however, is scarce – there’s only a limited amount of money and you have to make the most of it that you can.
The advantage of applying a scarcity mindset to your financial state is that it shows you that each dollar is important and everything in your life is vying for each and every dollar because there’s only so much to go around. Much of the justification for splurging comes from an abundance mindset about money – there will always be more money, so why not just spend it now on something unimportant? When you walk away from that mindset and adopt a scarcity mindset for your money, splurging becomes just another competitor alongside things that are likely more important to you.
Because you’re treating every expense and financial goal as a hungry mouth wanting to devour part of that relatively small pool of money you have right now, you have to prioritize. Which of these expenses is the most important right now? If I give $200 to this, what other possible expense has to go without money for now? You begin to feel those little frivolous nickel and dime expenses actually ripping money away from things you know are more important, and that forces you to start thinking about every dollar with seriousness.
Another interesting aspect to this perspective is that it forces you to start taking responsibility for your future now. If you want to have things in the future, you have to put money aside for them now. Taking money away from future savings goals and giving it to something else is effectively saying no to your future goals. If you want that future goal, you have to put your money where your mouth is now. There is no “someday” that will take care of it.
This leads directly into the first “rule” of the YNAB philosophy.
It’s simple. From page 33:
Just check your bank account balance and assign a job to every dollar you own. You’re officially budgeting the moment you start doing this, and with every “job” you assign, you’re answering the question: What do I want my money to do for me?
Of course, this starts with figuring out what needs to get done with your money along with what your big goals are. What are the urgent things that have to be covered soon, like your current bills, the rent, your food needs in the next week or so, and so on? What long term things do you want to happen in your life? What fun things do you want to do in the near future – or even a little way down the road? What big bills are coming up?
You want to start with survival. What do you need to make it through the next few weeks with your basic well being intact? You need food, water, shelter, hygiene, and clothes on your back, basically. After that, move onto obligations – electricity, debt payments, garbage removal, and so on. Those are the basics. Those are the needs. Those are the things that, if you don’t handle them, your short term life gets bad quickly. It is vital to separate these things from non-essential habits that you’re treating as necessities. Coffee isn’t a necessity – it’s a non-essential habit. Non-basic foods aren’t a necessity – they’re just something you want because it’s tasty or healthy or whatever. Alcohol? Not a necessity. Filter those things out for now.
You’ll also need to consider longer-term obligations, like upcoming expenses that you know are coming. It’s time to cover a fraction of those things – and cover another fraction each time you get an influx of cash.
After that, it really comes down to your personal priorities, and that’s where you need to start thinking. What is actually a real priority in my life? The nice part about this philosophy is that it’s literally about putting your money where your mouth is. Once you’ve covered survival and obligations, the things you do with your money are up to your personal priorities, and there’s no hiding them here. What you do with your money is your true priority, regardless of what you tell yourself.
The use of each and every dollar you have is an expression of either the basic needs of your life or what your life’s priorities are. Each and every dollar has a “job,” in other words. It’s doing something for you.
My experience has been that the more in line your personal priorities are with the “job” you assign to every dollar in your life, the more peaceful you feel. It’s when you’re not taking care of something that you’re theoretically prioritizing so that you can spend money on something that has a lower priority for you that you run into financial trouble, every time. It’s all about carefully considering what your priorities are.
This does not mean having no fun. However, what it does mean is that things that you spend money that have a comparatively low return in terms of the pleasure they give you should be pretty low on the priority list, below a lot of your long term goals. It’s okay to prioritize a few pleasures that bring you a lot of joy in the short term, but you have to be discerning about it. Some things simply aren’t as big of a deal as others, and those lesser things need to fall rapidly down the priority list.
This becomes very real when you’re looking at the money sitting in your checking account right now and assigning each and every dollar in there a job. Where does each of those dollars go? Doing it well requires some real thought and introspection, and that’s the real value of this system.
The “true expenses” that this chapter is talking about is alluded to a little bit in the previous chapter, but this chapter brings it into focus. It’s not just about making sure the bills are covered each month, but making sure that you’re also taking care of the irregular expenses in your life.
For example, let’s say you know you have an insurance bill for $700 coming due in 7 months, and you get paid twice a month. That means you should probably put $50 out of your current pile of cash aside toward that insurance bill and then do it again every time you have a cash influx so that the insurance bill is easily paid when it comes due.
Those are your true expenses – not just the daily ones or the monthly ones, but the irregular ones that come around once every six months or once a year or whatever. In the YNAB system, those required but infrequent expenses should always be directly gobbling up a little piece of the pool of money you have right now, as well as a piece of every influx of money that comes in (like a paycheck).
There are also things that are unexpected and inevitable, like needing to replace parts on your car or having to repair appliances in your home. It can be very hard to estimate these kinds of things, but following routine maintenance on a 15,000 mile per year car is about $50 per month, and a good annual budget for unexpected home costs is about 1% of your home’s value, so you can break that down, too. Those are pieces that need to come out of the pool of cash you have.
Beyond that, this is how you plan ahead for your big life goals. What slice of the current cash you have available is going to retirement? What about college savings for your kids? Your house down payment?
This obviously requires some planning, and that’s where software can help. The YNAB software is designed to do this very naturally, and it’s why I fell in love with it years ago. You can actually do all of this on a spreadsheet, too, if you’re familiar with Excel or Google Sheets.
Just as it’s impossible to micromanage every second of your time because unexpected events always happen, it’s impossible to micromanage your money because of the unexpected events life deals us. We can have the best money plan in the world, but when something like a job loss or an unexpected family illness or a hailstorm occurs, the best laid plans are torn to shreds.
Unexpected expenses can often mean changing your budget, and changing your budget can feel like failure. It can feel like you didn’t plan for everything and now all of your planning is worthless.
It’s not.
Part of the value of this type of financial planning is that, once it gets going, it becomes very possible to roll with the punches. If a sudden high priority event comes along, you simply take cash designated for lower priority events to handle it. In other words, once you’ve been doing this for a while, your budget becomes something of a living thing, capable of changing and morphing around the unexpected moments of your life.
How does this work? Let’s say you decided you wanted to buy a new television for your family for Christmas and budgeted $1,000 for it. Using the YNAB system, you decide to put aside $50 per paycheck for it starting in February. September rolls around and suddenly the unexpected happens – you have a sudden $500 expense. Guess what? You can handle it. You have the cash set aside to do so.
But what happens to that television plan? Once the urgent thing is paid for, you reprioritize. Do you want to put aside $100 per paycheck until Christmas to cover it, or are there other priorities that you should deal with first? You get to make that choice because of the freedom that YNAB offers you.
The system really centers around prioritizing your expenses, and when an urgent expense comes in with a higher priority, then you can take away money put aside for lower priority expenses (like a $1,000 television for the holidays) to handle it. The key is understanding that you’re really only worried about the pool of money that you actually have in hand and how to use every dollar most effectively. You don’t worry about the next influx of cash until it arrives.
The real power of this system is that, over time, it moves you to a situation where you don’t need your next paycheck, and given a long enough timeframe, it moves you to a situation where you don’t need any paycheck.
It’s actually quite simple. All you really have to do is over prepare a little for each of those expenses you know are coming so that eventually you’re covering next month’s rent out of this month’s pool of cash because the next rent payment is already covered. Then you’re covering two months in advance, then three.
Let’s say that you’re paid twice a month and your rent is $1,000 a month. If you say that out of every incoming pool of cash, you set aside $600 for rent, you will have next month’s rent covered at the end of the month with $200 left over. Do that again next month and there’s $400 left over. Three months later and you actually have a full month of rent already in the can in advance and you can start preparing for subsequent months.
Mecham refers to this as “aging your money.” You’re effectively using money you brought in two or three months ago to pay your rent now.
If you do that for every bill, a lot of good things start to happen.
For one, you can survive for a while without any influxes of cash. You roll right through a job change without skipping a beat. You get fired? No problem, as long as you can find a job in the next month or two. You have a sudden life emergency? No problem – you can just nibble a bit from the money you have put aside for rent two months from now.
For another, you can start feeling confident investing for really long term stuff. If you have two months of rent checks already covered, you can tone down your $600 twice a month put aside for rent down to $550 or $525, then apply that $50 or $75 twice a month to, say, retirement savings or an extra payment toward paying off a student loan. Think of it this way: you have the money set aside to cover all of your survival needs and obligations for the next two months, so you can start working on covering a month’s worth of survival needs and obligations for yourself when you’re old by contributing to retirement savings. It’s the same thing, just very long term.
For yet another, your money starts to earn money for itself as it is aging. When you only age it for a month or two in savings, it only earns a little bit of interest, but when you age money for 30 years in a retirement account, it earns a ton of return on your money.
For yet another, the more you age your money, the larger your pool of money that you have available to make decisions with. Remember, the YNAB philosophy orients itself around making decisions regarding only the money you have in hand. Thus, the more money you have on hand, the richer your decision making palette and the easier it seems to make room for big long term goals.
So, how do you get there? The book suggests setting a simple goal (page 110):
Set a goal to save what you spend in a typical month. When you hit your goal, budget out the new month with that money. Now your next paycheck can go to the following month. Your money is officially thirty days old.
And how do you get there?
Embrace the sprint. Go on a no-spending spree for as long as you can. Also hustle to bring in extra cash in creative (and legal) ways. Anything you save or earn goes straight to your savings for the next month.
The more you age your money, the better. It not only gives you breathing room, but it also grows your money.
The rest of the book consists of a series of short chapters talking about specific applications of these four rules to specific life situations.
Here, Mecham essentially reiterates the core advice that almost everyone gives for couples dealing with money issues, because it’s hands-down the best advice and the one thing that works: communicate. You’ve got to talk about your money situation together, openly, with minimal emotion, and with a genuine intent to put you both in the best life possible.
The main focus of the chapter is on the idea of a monthly “money date,” where you sit down with your partner and fully go through your finances and budget, setting priorities together for the next month. Together is important here; there’s almost no better way for this to fall apart than for one partner to just dictate the financial rules to the other one.
One important part of “couples budgeting” is to recognize that you both need a bit of personal fun money. There has to be some breathing room in the budget for each of you to pursue your own interests or else there will be backlash against the whole idea, especially from the person less committed to the concept, so this should be a fairly high priority item. Now, if that person decides to use that personal fun money of theirs buying soft drinks at the convenience store, that’s their call.
How does debt repayment work into all of this?
First of all, accruing more debt should be pretty much entirely off the table if you’re using this philosophy. That includes credit card debt. The only time you might consider debt once you get this whole strategy rolling is something like a home loan or possibly a student loan, but consumer debt should be almost entirely avoided because you’re planning ahead for expenses now and sticking with just the pool of money you actually have in hand for your spending.
As for repayment of the debt you already have, the best strategy is to treat your basic payment as an obligation and treat an extra payment as a fairly high priority but non-essential item that you want to throw some money to each time money comes into your accounts. So, you make sure your minimum is covered, and then you put some significant priority to allotting some cash for an extra payment on that debt.
Mecham advocates giving children an allowance and using that as a basis for teaching basic money management skills when they reach middle and upper elementary and middle school. He advocates giving them one or two required commitments for portions of their allowance and then complete freedom in terms of the rest of it.
The one or two required commitments for a portion of their allowance – things like saving for college or giving to charity – are basically a microcosm of YNAB. If you talk about the philosophy behind this a little and then talk about how they can use the idea to take a portion of their weekly allowance and put it aside for bigger goals (like, say, a new game for their Nintendo Switch or a bunch of new canvases for painting), they’ll often come around to it on their own.
Even better, if you establish this kind of pattern early on in their life, they’re more likely to draw on that type of thinking later in life to build their own path to financial independence from you and financial success on their own.
This last section discusses a lot of reasons why people quit budgeting: they don’t leave themselves any breathing room, they set unrealistically low spending targets for things like household supplies or food, they assume that they can rapidly and permanently change a lot of their routines and habits, they demand too much too soon, and so on.
The key to sticking with a financial change, no matter what it is, is to accept that things won’t always go perfectly and it’s okay to be imperfect. What you’re looking for more than anything is to be a little better today than you were yesterday and to gradually move towards where you want to be while recognizing that steps backward are normal and aren’t a terrible sign of failure.
If you feel like quitting or feel like a failure, look at the progress you’ve made so far and feel good about it, then refactor your plans. What parts work well? Keep those. Which parts don’t work well? Ditch them or try new versions of them. No one has a perfect plan the first time they try.
Although my focus here was writing about the book You Need a Budget, I felt it appropriate to make some references to the software package You Need a Budget a few times, and rather than reiterating my thoughts on the software package, I thought I’d summarize my thoughts in one place near the end.
Several years ago, YNAB version 4 was hands down my favorite piece of personal finance software. In fact, I still use that exact version at home because of how well it embodies the philosophy spelled out in this book, a philosophy I strongly agree with in most ways.
However, several years ago, YNAB chose to discontinue their standalone version 4 software and instead moved to a subscription-based software package. While I have no objection to the concept of software as service, I didn’t migrate to the subscription based version because, well, I still use my old version 4 software. I did do a trial of the subscription-based version, but I was pretty happy with my old software for a number of reasons (it does what I want, for one, and it also keeps all of my data local rather than in the cloud) and I’ll stick with it as long as it still runs.
So, if it seemed like I often stopped short of a full-throated endorsement of the software in its current form, that’s why. I don’t actually use the current form. Having said that, the current form of the software is a really well executed embodiment of the principles described in that book and cloud software is mature enough that I would feel safe putting information into the software that didn’t directly reveal my identity. It is the best budgeting software around today.
This book is a great readable explanation of the You Need a Budget philosophy and how to apply it to one’s own finances. This philosophy – and the accompanying software – was a vital part of my own financial turnaround, particularly during the period when we were finishing up paying off our consumer debt and considering buying a home and then figuring out how to handle expenses with multiple children. I still use the principles of the system, and I still occasionally use the software, though much of our financial organization is automated at this point. (In fact, the automation itself is a lot like You Need a Budget, as the automation just moves a lot of our income off to various pools and accounts for specific purposes.)
If you know of someone just trying to get a grip on managing their own money and getting a little ahead of the paycheck to paycheck life while building a foundation of money principles that can really grow with them as they get more and more ahead financially, this is a great book for them. The material might seem overly straightforward for someone who is already in a great financial place, but roughly 80% of Americans live paycheck to paycheck and quite a few of them want a path out of that life, and this book’s a great starting point for them.
The post Books with Impact: You Need a Budget appeared first on The Simple Dollar.
A few years ago, when my oldest had freshly turned ten years old, he began to ask a lot of questions about our family’s financial state. He wanted to know if we saved money, how much we saved, and where we saved it. He wanted to know how we spent our money and where it went and how we kept track of that.
For a two or three month period, he kept asking these questions until, I guess, his curiosity was sated and he moved onto something else.
Unsurprisingly, those conversations gave rise to a lot of articles on The Simple Dollar. I’d start talking about something with him and realize before long that there was something in this conversation that could easily grow into an article for the site. Many articles that I wrote two to three years ago were outgrowths of those conversations.
One thing I found very interesting during those conversations with him is that there were at least a few areas he’d delve into where I would get upset or frustrated with having to talk about that issue. I kept my cool – I didn’t blow up at him or get angry or angsty or anything – but inside, I felt annoyed or frustrated or I simply wanted to avoid talking about that subject.
It took me a while to really put together what was happening, but after some reflection, it became clear: anything that I was doing financially that I couldn’t or didn’t want to explain to a ten year old was probably a bad move.
In short, if I couldn’t justify it to my ten year old son, then it probably didn’t deserve to be justified.
Similarly, if I couldn’t explain it to my ten year old son, then I didn’t understand it myself and shouldn’t be financially involved with it.
As I began to realize this, I also began to realize that the “ten year old test” was actually a pretty simple way to quickly figure out if something was an acceptable move or not. If it was something I could reasonably justify or could easily explain, that idea at least passed a basic sniff test. If I couldn’t justify it or explain it, that idea was almost certainly bad.
Over the last few years, without really thinking about it, I’ve adopted that “ten year old test” to a lot of my financial moves and to a lot of my choices in other areas of life.
It’s actually really easy to use. I just try to imagine, as accurately as possible, how my ten year old would respond if I suggest a course of action. I’d try to explain it to my ten year old as clearly as I could and then, to the best of my ability, try to imagine how he’d respond (I usually visualize my oldest son when doing this, as he was the ten year old that originated the idea).
One of four things typically happens.
One, I have trouble explaining it at all. This either means I’m trying to pitch something that I don’t even really understand myself (because of the complexity) or because I’m considering a course of action that’s really hard to justify.
For example, I’ve often thought about trying out more complex investment arrangements for our retirement, but whenever I sit down and try to explain them in simple terms, it sounds like a mishmashed mess.
Two, I can explain it simply, but it rings hollow as I’m explaining it. This happens quite often when I’m trying to justify unnecessary spending or some kind of unhealthy choice.
For example, if I try to explain why I really need to spend $40 on this game, the explanation usually rings hollow pretty quickly, so I put it back on the shelf. If I try to justify stopping at a drive-thru, the explanation usually sounds comically shortsighted, so I drive on by.
Three, I can explain it simply, but it leads to a really obvious question that I can’t easily answer – either I can’t actually explain the answer to that obvious question or else it rings hollow. In this case, again, it’s a bad idea, but there’s usually a better idea buried somewhere nearby. If I can explain the core idea well but a simple question makes it much less clear or justifiable, the core idea is probably okay, but I just need to think about the implementation of it.
For example, I might suggest that it’s a good idea to stop at a drive-thru because it’s dinner time and everyone in the car is hungry. The obvious question in response would be, “Don’t we have a bunch of good leftovers in the fridge that we could eat as soon as we get home?” The core idea of eating soon because we’re hungry is good, but the course of action is flawed – there’s a cheaper alternative that’s obvious at just a glance.
A similar thing pops up at the grocery store. I know I need some laundry detergent and I’m looking at the options, but that ten year old voice asks, “Why buy that expensive one when that store brand will do the job you want?” If I can’t really answer that sensible follow-up with a good reason, the store brand goes in the cart.
Finally, I can explain it simply and answer any follow-up questions simply. If this happens, then I know the plan is pretty good and at least somewhat sensible, and when I need a quick plan or decision, the first thing that works here is usually what I do.
This usually happens when I’m making good spending choices and focusing on actual needs and keeping costs low. It happens when I’m making good long term choices.
In fact, almost every “bad” decision I might make in any area of my life is silenced by the ten year old test.
It’s pretty hard to justify eating a bunch of junk food when there are grapes in the fridge or an apple in the fruit bowl.
It’s pretty hard to convince myself that wasting time doing something unfulfilling is ever a great idea.
It’s pretty hard to see why I would say bad things about someone else or let a friendship wither or let a friend down.
The question you’re probably asking yourself is, “Great, but I don’t have a ten year old asking these questions!”
Here’s the thing: the ten year old test works just as well when you cultivate that voice of a questioning ten year old in your head rather than relying on an actual curious ten year old. Let it be your conscience. Run your plans through that voice and see whether or not it passes muster.
What you’re really doing here is cultivating a better sense of what makes for a good financial move. If your internal ten year old is balking at a purchase, then you likely shouldn’t be making that purchase. If your internal ten year old doesn’t understand your financial plan, then you don’t understand it, either, and you shouldn’t be doing it.
That ten year old voice can keep you away from unnecessary purchases, network marketing schemes, and bad investment choices. That ten year old voice can nudge you toward saving for retirement, building an emergency fund, and making sensible buying choices.
Listen to it. Use it.
If you can’t explain what you’re about to do with your money to a ten year old, or you can’t do so without feeling angry or ashamed, you probably shouldn’t be doing it. It’s that simple.
As I write this, my nine year old is just starting to ask questions along those same lines. Why are you buying that? What are you doing with the money you make? Why are you saving for retirement? What happens if our house gets hit by a tornado?
Can I answer those questions truthfully in a way he can understand? If so, I’m probably on the right path. If I can’t, maybe I need to rethink things.
When he gets past that phase, I’ll have to go back to relying on my internal ten year old test. It might not be as loud, but it’s certainly good at separating out good ideas and truth from bad ideas and nonsense.
Cultivate your own ten year old voice. You’ll be glad you did.
The post The Ten Year Old Test appeared first on The Simple Dollar.
Anyone can create a website. Just because you own or manage a website, it doesn’t automatically mean that you’re a natural born designer.
But the design and layout of your website will have a huge impact on its success.
In fact, 48% of people say that the design of a website is the top factor they use when it comes to determining how credible a business is. 38% of people will stop using websites with unattractive layouts.
So if you want to create unique and beautiful landing pages without having to design them from scratch, you’re going to want to use pre-designed templates. WordPress is the best place to find these.
That’s because WordPress is the most popular CMS platform in the world, and has been for the past seven years in a row.
It controls nearly 60% of the entire CMS market across the globe. With more than 500 new sites launching on WordPress each day, it’s also the fastest growing CMS worldwide. 34% of the whole internet is run via WordPress.
So if you were on the fence about using WordPress to manage your site, hopefully now you’re convinced.
For those of you who are already using WordPress, you’re ahead of the game. Now it’s time to design the best landing pages for your WordPress site.
With so many options to choose from, I’ve narrowed down the top 11 WordPress landing page templates to make the decision much easier for you.
Landkit is extremely easy to use, yet it’s designed for high performance. The hybrid composer page builder makes it possible for you to design your website without having to write any code.
It doesn’t use many server resources, which makes it perfect for websites with high volumes of traffic. You can use the Landkit template to functionally present information in a way that’s attractive to your website visitors.
Another reason why I recommend Landkit is because the landing page templates are so versatile. They can be used for pages related to things like:
The list goes on and on. Landkit makes it easy for you to change the colors to match your website color schemes. It’s also compatible with the WooCommerce plugin, for those of you who are using WordPress for your ecommerce site.
Landkit has more than 70 page elements for complete customization. You can choose from 12 header styles, and add use the built-in WordPress mega menu. This landing page theme can be purchased for $49.
The Landing template from Themify is another versatile option for you to consider. It comes with a drag and drop page builder, making it easier than ever before to customize all of the page elements to your liking.
Landing has more than 25 builder layouts for you to choose from, based on the type of page that you want to create.
There are options specifically created for products, portfolios, marketers, events, ebooks, weddings, agencies, restaurants, mobile apps, personal pages, and more.
I like this template because it has a responsive design on all devices, and it’s retina ready as well. Landing has cool header options such as:
These choices are ideal for those of you who want to draw more attention to background images and CTAs on your landing page. Another benefit of Landing is the fact that it has MailChimp integration, so you can use this landing page to collect email addresses.
The standard Landing WordPress template costs $59. Developers can buy it for $69.
BeOnePage Lite is meant to portray a futuristic and interactive design. This template can be customized to be colorful as well. It comes with a full-screen layout and slider that can be used to display things like images, videos, icons, and other graphics.
Another benefit of this template is that it can support several different media files. The parallax effect of BeOnePage Lite ensures that all scrolling will be very smooth on the user’s end.
It has a responsive design, with lots of customizable options for you to consider. BeOnePage Lite is a retina ready template that can be used as a landing page for virtually any website.
So if you’re looking for a modern WordPress template that’s free to install, BeOnePage Lite should be taken into consideration.
Foton was developed with software and mobile app promotion in mind. So for those of you who are creating a landing page to drive mobile app downloads or sell software, this template should be at the top of your list.
You can import this template into WordPress with just one click. To customize your page settings, you can take advantage of the drag and drop page builder, which is extremely easy for anyone to use.
No coding is required to use Foton. It has WooCommerce integration, slider revolution, and excellent support. It’s also fully responsive and easy to change color themes.
Foton comes with free plugins and is optimized for SEO purposes. It has shortcodes designed for portfolios as well, such as lists, projects, sliders, galleries, masonry, and hover layouts.
Transitions from page to page are very smooth. The font sets and icons are attractive and easy to change as well. Shortcodes for videos and call-to-actions are definitely ones that you’ll want to take advantage of.
The Foton WordPress landing page template is priced at $59.
Jevelin is another multi-purpose WordPress landing page template. Some of the top features of this theme include:
There is a great video installation guide, making it possible for anyone to install Jevelin, even if you don’t have experience adding landing page templates to your WordPress site. The fact that it has built-in capabilities with one of the best WordPress form plugins is another added bonus.
Jevelin has great reviews from website owners who are using this template on their sites.
The drag and drop builder paired with mega menus, custom widgets, social sharing functionality, and ecommerce support make it a popular option. This WordPress landing page template can be bought for just $59.
Launchkit is definitely a one size fits all landing page template, which I’m not saying in a negative way by any stretch. I like Launchkit because it can be used for virtually any landing page for any business type.
They offer versatile headers with all different types of media in mind. You can customize headers, CTAs, and forms in a way that positions them for high conversions.
Launchkit has simple colors, so your website always looks good, regardless of the screen size or type that it’s being viewed on.
Top features of Launchkit include:
This template comes with more than 600 Google Fonts as well. With that in mind, you should check out my guide on the best Google Fonts that go together on your website.
For the reasonable price of $59, Launchkit is definitely one of the best landing page templates you can find for your WordPress site.
If you’re looking for a multi-purpose landing page that is optimized for high performance, look no further than The Gem. This template offers a creative design that’s modern and suitable for all different types of websites.
There are more than 70 built-in concepts. So you can find a landing page that fits your needs.
These are just some of the many options that showcase the versatility of this WordPress landing page template. It’s fully responsive and looks great on both desktop devices and mobile screens.
The Gem is compatible with WooCommerce, making it a top choice for those of you who have an ecommerce shop.
With the visual composer, you can easily change elements on your landing pages with the drag and drop builder. The template is compatible with plugins and also comes with premium sliders.
You can buy this landing page template for $59.
More than 35,000 websites are using Kallyas for landing page templates. They have more than 65 live demos, with new ones coming out each month.
I always like it when landing page templates offer lots of live demos because it makes it easier to give you inspiration for designing your own website. Top benefits of Kallyas include:
The one-click installation makes it easy for you to start editing your website in minutes. They have demos for things like weddings, makeup artists, bloggers, kids websites, membership sites, news, medical, sports, and dozens more.
Kallyas has more than 100 pre-built elements into the template. This gives you seemingly unlimited options when it comes to customizing your landing pages. Kallyas is priced at $69.
Softbox is perfect for those of you who want a clean and professional design for landing pages on your website. It’s easy to choose your layout and customize the elements with some of their pre-built options.
It works on all major web browsers, screens, and devices. Softbox is retina ready and fully responsive. They have templates designed specifically for home pages, blogs, and interior landing pages as well.
In a word, Softbox can be described as simple. But when it comes to your website, simple designs have higher conversion rates.
Compared to some of the other WordPress landing pages on our list, Softbox is offered at a lower price point. This template can be yours for just $39.
The Fusion WordPress template is designed with mobile app landing pages and portfolio landing pages in mind. So if you’re looking to showcase one or both of these things on your website, you should take a closer look at this option.
It’s an ideal solution for agencies and developers. The pages can be set up so that creatives can showcase their products. This holds true for both firms or individuals as well.
The typography is super clean. All of the design elements and whitespace is managed perfectly with this template, so the eyes of your website visitors are always drawn to the right spot on the page.
Fusion has a simple shortcode builder and easy customization. Everything integrates seamlessly into WordPress for you to manage.
This template has more than 1,500 retina icons, a revolution slider, and the ability to create a gallery with captions. It comes with over 500 Google Fonts, Contact Form 7, and an Ajax loading gallery as well.
Fusion costs $49 to install.
Last, but certainly not least, on our list is Leadinjection. As the name implies, this template is designed especially for generating leads.
They have pre-built layouts for things like:
As you can see, these lead generation templates are extremely versatile and can fit the needs of nearly any website.
The template comes with a Lead Modal plugin, that’s basically a popup on your site that can be used to generate leads. This can be based on timing, exit intent, or other trigger options.
Leadinjection has all different types of opt-in forms for your landing pages as well. You can fully customize your CTA, and even add a click to call button for your mobile site. If this sounds like the landing page template that you want, it can be purchased for $39.
If you need help designing a landing page for your WordPress website, I’m confident that you can find what you’re looking for somewhere in these options that I’ve listed above.
I tried to include something for everyone on here. Some of these templates are made for multiple purposes, while others are made specifically for things like mobile apps, ecommerce, or lead generation.
Price is another factor that you can take into consideration when making this decision. While there are some free WordPress landing page templates, the rest tend to be priced between the $39 and $69 range.
So keep this list in mind when you’re on the search for the perfect WordPress landing page template.
Dear E.,
Investment firms produce fancy charts that claim to tell you how much you should have saved at any given age. According to the charts, a person in their mid-50s should have anywhere from five to eight times their annual earnings in a retirement account.
But chartland is a perfect world. It’s one where we all start saving for retirement at age 22, where our wages and the stock market keep growing, and where we always have access to a 401(k) with an employer match.
Then, there’s the real world.
A 2016 report from the Government Accountability Office found that 29% of households headed by someone over 55 had no retirement savings and no defined-benefit retirement plan, such as a pension.
So your predicament is common, unfortunately. But you still have options that can make your retirement years a lot more comfortable.
Let’s start with the obvious: If you have access to a 401(k), enrolling in your employer’s plan and taking advantage of any match is a must. You can contribute up to $25,000 in 2019 since you’re over 50; for workers under 50, the limit is $19,000.
But let’s be real: A lot of people aren’t saving for retirement because they don’t have access to an employer-sponsored plan.
Since you have $30,000 in your savings account, I suggest opening a Roth IRA stat. (Seriously, like as soon as you finish this column.)
You can open and fund a Roth IRA to the max if you have taxable income that doesn’t exceed $122,000 a year, or $193,000 if you’re married. You can easily open one online. Since it sounds like you’re new to investing, consider using a robo-adviser, which will select investments for you based on your goals.
Start by investing $7,000 in your account, which is the 2019 maximum amount someone over 50 can contribute to an IRA. Then make it a priority to fund it to the max every year.
If you contribute $7,000 now and then continue to invest $7,000 until you reach age 70, you’d have nearly $200,000 saved, assuming a 6% average annual rate of return. It certainly won’t buy you a cushy retirement, but it will make things easier.
The great thing about a Roth IRA is that it’s funded using money you’ve already paid taxes on, so you won’t owe taxes when you withdraw it later on.
So now that leaves you with $23,000. You should leave about three months’ living expenses set aside in savings for emergencies.
If you have money left over beyond that, using it to pay off debt is one of the best investments you can make. Your retirement will be a lot more comfortable without a mortgage or consumer debt.
But if you’re debt-free, you could open a taxable investment account to accrue more retirement savings.
You should also plan to wait as long as possible to take Social Security. If you take Social Security at 62, your benefit will be 30% lower than if you can wait until you’re 67.
Ultimately, when you delay saving for retirement, you should plan to work longer and live on less. But you do have options for building a nest egg, even when you get a late start.
Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about saving for retirement to AskPenny@thepennyhoarder.com.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Neil Hermon is manager of Henderson Smaller Companies. Edmund Greaves talks to him about exciting acquisitions, the upside of Brexit, and his top tips for experienced and new investors
It’s a 130-year-old investment trust, which focuses on investing in UK mid-size and small companies. That is, companies in the bottom 10% of the UK market by market capitalisation [total value of a company’s listed shares], and ones valued below around £1.5billion.
For us it’s all about finding quality companies to invest in over the longer term.
A company called Bellway, a UK housebuilder. It’s not your typical growth investor story, but I think it fits well with the Growth at a Reasonable Price (GARP) idea.
Bellway has had several very good years. It’s a very successful builder, certainly helped by the robust nature of the UK housing market. Help to Buy is a key driver as well as the government’s push to increase the housing supply.
We like Bellway because it has seen good growth in the past, and it’s building and expanding across the UK. It has a good management team, very consistent, very steady. The strategy is very well defined and worked out. The balance sheet is strong and has typically met and beat expectations on momentum.
The most recent is Savills, a well-known property business. We’ve taken advantage of weakness in the share price around Brexit. As you look closer beneath the bonnet it’s quite a diverse business. People think of it very much as UK domestic-centric stock, but it’s got good diversification. It’s a business we’ve admired for a long time.
Brexit has been front and centre for the past three years now. But the UK stock market is very international by nature. Over 70% of the earnings of FTSE companies come from overseas. Even in our portfolio around half of the sales of our companies come from overseas.
We’ve got some balance in the portfolio regarding international versus UK domestic exposure. Even if the UK economy isn’t growing particularly quickly, there are some great UK businesses to invest in.
The poster child of the portfolio in the last few years has been NMC Health. We invested in 2012 when it IPO’d [offered shares to the public for the first time in an Initial Public Offering] around £2 per share. We sold it last year at £36, an 18-fold return over the course of six years.
NMC is a Middle Eastern healthcare operation, but it’s listed in the UK. We liked the market, it was fast growing in an undeveloped area with the lack of government healthcare, and a growing and ageing population.
I’ve never had a company go bust on me (Neil taps the wooden table at this point). But we’ve had several companies that have fallen substantially.
One example would be London Mining. This is kind of a case in point of not straying too far from areas you understand. It was essentially a greenfield/brownfield start-up of an iron ore mine in Sierra Leone.
I mean, why did I do that? I don’t really know. The management team had done very well with a similar project in Brazil, so there was a degree of credibility there.
But it was too far away from our comfort zone. We didn’t really understand the dynamics of the market it was operating in. Mining ventures tend to cost twice as much [as projected] three years too late.
We haven’t invested in any greenfield start-up mining companies since that happened.
No, but it would have been a good idea wouldn’t it? On paper, it looked like an attractive investment, but with hindsight you reflect on that and think: “Actually that was a mistake I made, let’s not repeat those mistakes.”
Since then we’ve never invested in any other mining small-cap company. Frankly it’s a verboten for me going forward because the risks are too high for the reward you might get.
What got me interested in this job was that I inherited a couple of shares from my grandmother when I was in my mid-teens, a long time ago.
That really piqued my interest in the stock market and fund management and I got addicted to reading the business section of the paper and looking at Teletext.
Quite sad, really – I should have been out dating girls! It gave me a real interest and from that I realised it’s what I wanted to do for a career.
First: if it’s too good to be true, it usually is. If the returns allegedly on offer are exceptional they usually carry excessive risk. Those stocks or investments that look like they’re going to make you 10 times your money usually lose you 90%.
Second: run your winners. Good companies tend to remain good companies. Always reflect on your investments – but taking a long-term approach to investing and trying to find buy-and-hold-forever stocks is the best thing you can do.
Launched: 1887
Fund size: £683 million
Ongoing charge (OCF): Yield: 2.38%
Source: Janus Henderson Investors, March 31 2019
Neil Hermon is director of UK Equities and a fund manager at Janus Henderson Investors, a position he has held since 2013. He joined Henderson in 2002 as head of UK smaller companies. Prior to this, he served as head of UK smaller companies for General Accident Investment Management (later to become CGU plc). He began his career at Ernst & Young as a chartered accountant. Neil received an MA (Hons) in mathematics from Cambridge University. He is an associate member of the Society of Investment Professionals (ASIP) and has 30 years of financial industry experience.
| Year | 0-12 months | 12-24 months | 24-36 months | 36-48 months | 48-60 months |
|---|---|---|---|---|---|
| HSL share price (total return %) | 1.8 | 25.11 | 22.96 | 3.9 | 11.19 |
| Benchmark: Numis Smaller Cos Ex Invmt Cos (total return %) | -3.42 | 7.14 | 22 | 1.82 | 6 |
Source: Janus Henderson Investors, 30 April 2019
Watch Moneywise editor Rachel Rickard Straus interview Neil Hermon at Moneywise.co.uk/Neil-Hermon-interview
If you’re anything like us, you’ve probably logged an insane amount of hours playing Words with Friends. After being stuck with all those impossible letters (Xanthum is a word, right?), you deserve something for your troubles — besides the joy of playing a dirty word.
While you’re at it, why not earn some free gift cards, too? When you play games through Mistplay, a free Android app, you get rewarded to do what you already do.
Mistplay offers new games for you to discover, plus the ones you love to play. Think games like Words With Friends 2, Yahtzee, Clash Royale, Star Wars games and more.
You can find what you want to play on the “Games” page, then you’ll be redirected to the Google Play Store for downloading. While you play games, Mistplay runs in the background and notifies you when you earn in-app currency that you can use to redeem rewards. (To give you an idea, 300 units = $1, and 1,800 units = $5.)
The amount of units you earn varies, but keep in mind that you receive units only when you play the games you add to your Mixlist, or via bonuses from leveling up. Everyone gets 200 units for signing up — and you’ll get another 100 bonus units when you enter the code PENNY100 after sign up. (I think that’s a double word bonus!)
When you’re ready to splurge, redeem your units for gift cards from brands including Amazon (our personal fave), Starbucks, Cineplex, PlayStation and more. So basically, you get to play games to earn gift cards that can… buy you more games. And more. But, more games.
Ready to get in on the game-ception? Get started here.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Gary writes in:
What exactly do you mean when you talk about financial independence? Can you break it down a little?
In simplest terms, when I talk about financial independence, I’m referring to a situation in which your living expenses are fully covered by your investments for the rest of your life. In other words, you no longer have to work for a living because you have enough in the bank to allow you to live your current lifestyle year in and year out for forever (or close to it).
Depending on which financial advice you read, that means you need to have somewhere between 25 times and 35 times your annual income in investments. That number changes depending on the aggressiveness of the investments and how many years of financial independence are being assumed. In general, I aim for the middle of that of that range and usually use a 30x multiplier (about a 3.3% withdrawal rate).
So, let’s say for example that you can live a life you like on $20,000 a year. That means you need to have somewhere between $500,000 (25 times that amount) and $700,000 (35 times that amount) invested. My target number would be $600,000 (30 times that amount).
Once you’ve reached that point, you simply withdraw $20,000 a year from your accounts and live on that amount (about $1,667 a month). You’ll be able to slightly increase this amount each year to account for inflation, so we won’t muddy the numbers with inflation.
If you need more than that, you can do the math pretty easily. Figure out how much you need per month to live a comfortable, simple life. Let’s say you decide it’s $3,000 a month. To hit that amount, you multiply it by 12, giving you $36,000 a year. You then multiply that number by 30, giving you $1,080,000. That’s how much you would need to have socked away in order to have financial independence while living on $30,000 a year.
Obviously, the big challenge is getting there, and it’s a multifaceted challenge.
In general, the journey to financial independence can be expressed with a very simple equation.
Your total income = your living expenses + money you can put aside for the future
In order to achieve financial independence, you need to be putting a lot aside for the future. That means maximizing the first number (total income) and minimizing the second number (living expenses) so that the third number can be as large as possible. The bigger that number is (and the smaller your living expenses are), the faster you can get there.
The first thing to consider is what kind of lifestyle you want to establish. Obviously, you’re going to need to be living on less than your income, but what portion of your income are you going to live on?
Let’s say you make $60,000 a year, which is pretty close to the American average household income. Can you live on half of what you make, $30,000 a year? Can you live on two thirds of what you make, or $40,000 a year?
It really depends on the kinds of lifestyle choices you want to make. Do you need to have a large house? Do you need to have a shiny car? Do you need to have a constant stream of “goodies” in your life? It’s all about the lifestyle choices. The more expensive things you choose to have in your life, the more you need to spend each year, and thus the larger your target number is going to be.
Even worse than that, the more you need to spend each year, the less you have available to save each year to reach your target number. Your expenses really do hit you both ways.
So, the absolute most important thing you can do if you want to achieve financial independence is figure out the minimal expense lifestyle that makes you happy. This isn’t worth doing if your life makes you miserable. On the other hand, this is impossible if you spend every dime you make. There’s a balance somewhere in the middle, where you’ve cut expenses that don’t make you happy and downgraded the big things in your life to the point where you’re maximally happy considering their cost and upkeep time and personal benefits.
For example, right now, I have a fully paid for house that I’m happy with, but I actually would like to live in a smaller one once my three children move out. Without kids, we don’t need this much space; arguably, we don’t need this much space right now. What does your minimal house look like, the one that minimizes expense but still leaves you with a comfortable pleasant life? Is it smaller than what you have now? If so, downsizing might be good for your financial state.
Another example: we have two cars for our family, one with more than 100,000 miles on it and another with more than 200,000 miles on it. We could definitely replace either one with something much newer… but why? What do we gain out of this that matters to us? Very little. There are others, with different lifestyles and different interests, who might get a lot of value out of a newer car, but for us, the primary use of a car is to get from point A to point B and these automobiles do the job well. What does your minimal transportation cost look like? Do you need the number of cars you have? Do you need to replace them before they utterly wear out? If you’re replacing cars before you’ve extracted the full value from them, then stop that cycle.
Do you get enough value out of cable to be spending $100 a month on it? That $100 a month becomes $1,200 a year, which adds $36,000 to your target number, and that $100 a month is $1,200 a year that you’re unable to save to get you to that target number. Is it really giving you that much joy? Are there other cheaper options that give you the good life? Consider cutting the cord (and here’s my guide for it).
Every single expense in your life needs to be considered that way. You need to find the minimal expense lifestyle that’s still comfortable and happy and joyous for you and actually live that lifestyle. The cost of that lifestyle sets your target number, and it also sets how much you need to get there.
As I just explained, your income breaks down into two parts.
Your total income = your living expenses + money you can put aside for the future
There are two variables here you can change based on your own actions. You can change your total income (ideally increasing it) by working smarter and harder and also by investing. You can also change your living expenses (ideally minimizing them) by finding ways to cut your expenses that don’t hurt the joy of your lifestyle.
Those two numbers really determine the “gap,” which is what I use to refer to that third number, the money you can put aside for the future. That’s the money that you actually use to get to financial independence.
Often, the living expenses are the more directly actionable part of the equation, as explained earlier, but you can definitely work to increase your income as well. The thing to remember is that efforts you take to increase your income don’t have to have immediate effects; if you can start doing something that improves your income a few years from now, it’s going to significantly improve the amount of money you can save each year as long as you don’t alter your spending along the way.
So, if you make $60,000 a year and spend $40,000 a year, you have $20,000 to save each year.
If you make $60,000 a year and cut your spending down to $30,000 a year, you have $30,000 to save each year.
If you get a raise to $80,000 a year and keep your spending at $30,000 a year, you have $50,000 to save each year.
The more you have to save each year, the better, obviously, so career improvements play a big role, even if they’re career choices that won’t directly pay off immediately.
Thus, if you’re serious about financial independence, you should take a strong career-focused approach to your job with an aim to improve your income as much as possible over the next decade or two.
That means doing things like getting certifications, getting a better degree, building lots of professional relationships, positioning yourself so that you’re known positively to lots of people in the high-paying places you want to work, completing projects, taking on leadership roles, and so on. I’m not going to write out an omnibus of career advice here, but I am clearly saying that part of the path to financial independence involves maximizing your career beyond just what your responsibilities are at work today. You need to be aiming for better career positions that pay a better income, and you need to not increase your living expenses along the way.
So, let’s look at that equation again.
Your total income = your living expenses + money you can put aside for the future
Once you’ve done what you can to maximize your total income and minimize your living expenses, what exactly do you do with that money left over that you’re putting aside for the future?
The first thing you need to do is pay off debts. Almost everyone agrees that the first step is eliminating your high interest debts – everything with an interest rate of about 8% or so. You’ll find a lot of debate about what to do with lower interest debts, whether you should pay them off rapidly before starting to save so you don’t have those minimum payments around your neck and can save even more or whether you should start saving for the future now and make minimum payments on those debts. A lot of that has to do with personal philosophy and personal risk assessment – I don’t think either path is strictly right or wrong. Whatever you decide, though, get rid of higher interest debt and do everything in your power to keep from acquiring any more of it.
The second thing you need to do is build an emergency fund and start saving for irregular expenses. An emergency fund is a pool of cash, usually in your savings account, that you can use to deal with major unexpected events. Avoid using a credit card for this, as many emergencies will deny you the use of that card. Cash is king. Irregular expenses are things like car repairs, home repairs, appliance replacements, car replacements, and so on; it can also include infrequent bills like property taxes. Start saving so that those things are covered when they come around rather than having to take on debt to cover them. The best way to do this is to start automatically transferring a healthy amount of cash each month to your savings account and then using that account for genuine emergencies and for any irregular bills you can’t handle out of pocket.
Once those things are covered, start putting money aside for the future. My general recommendation is to follow these steps in order, using your “put aside money” on each step until you’re out. Any further money you begin to earn from an increase in income should be handled the same way – just go through the steps and put the money in the first step where it fits.
First, contribute to your workplace’s retirement savings plan up to whatever amount you need to get every drop of matching funds from your employer. If your employer doesn’t offer a plan or doesn’t offer any matching, skip this step.
Second, if your income is low enough, open up a Roth IRA and fully fund it. If it’s too high for that, open a Traditional IRA and fully fund it. Here’s some good advice on opening a Roth IRA that almost entirely applies to Traditional IRAs as well.
Third, go back to your workplace’s retirement savings plan and contribute up to their limit. There’s almost always some cap on contributions, so keep adding to this until you hit that cap.
Fourth, open up an account with an investment firm of your choice and start investing in a broad-based index fund like the Vanguard Total Stock Market Index. If you’re at this point, it probably makes sense to start learning more about investing, so pick up a book like The Bogleheads’ Guide to Investing or The Simple Path to Wealth.
All of these contributions should be automatic ones. Your workplace should be able to handle automatic contributions to your workplace retirement accounts and your investment firm of choice should be able to handle automatic contributions to those investments.
The trick, of course, is living on what’s left.
Part of what you’re actually doing with aggressive automated investing, where you never actually touch the money at all, is learning how to live on what’s left behind once those investments are covered. You’re paying yourself first, but doing so with gusto.
This will require some adjusting as time goes on. You might learn that you’re being too aggressive, so you need to dial something back. You might decide you can be a little more aggressive, so you increase a contribution. Aside from that, this entire system should move you automatically toward financial independence.
People have somewhat different exact definitions of what it means to be financially independent, but my view is that if you can meet your living expenses for the year solely by withdrawing 3.5% or less of your investments, then you’re financially independent.
So, what happens then?
At that point, you have a lot of freedom to decide what to do with your life. In short, you no longer have to work to earn an income, so your sole motivations for continuing to work are either because the work fulfills you in some way, you want to slowly increase your standard of living now and when you’re no longer earning an income, or you want to do something else with that income (like make charitable gifts). If none of those are present for you, then walk away from work and fill your day with whatever you like.
For some, work might be deeply fulfilling and they choose to continue to do it. In that situation, salary really doesn’t matter too much unless it’s being used for one of the other purposes listed here. My feeling is that, if you’re financially independent, you shouldn’t be spending your time doing work that isn’t fulfilling – otherwise, what is the point of becoming financially independent? I’m all in favor of doing fulfilling work, but if work isn’t providing deep meaning in your life and you don’t have to work for income… find something else to do.
Some others may want to continue to increase their savings for the future, either so that they can slowly start ticking up their lifestyle or so that they can have even more security when they do choose to walk away from work. Many people may be theoretically financially independent but don’t want to do it quite yet because their standard of living would be thinner than they would like, so they keep working. Others may want even more security.
I know of at least two people who continue to work at jobs they’re content with even thought they’re financially independent and could live on their savings. In both cases, they give significant amounts to specific charities they care about – in at least one case, this person is sustaining a pretty important charity just out of their pocket.
The point is this: once you reach the point where you no longer have to work for money, you have a lot more freedom to decide what to do with your time, but that doesn’t mean you have to retire and sit at home and do nothing going forward. There are countless options for you.
Many people start down this path and, after several years, realize it’s not what they want. They may decide that they want to raise their living expenses. They may get married and have children, which requires at least some raise in living expenses. They may want a less intense career or a more meaningful one. There are lots of reasons why people might choose to stop working toward financial independence.
What happens then?
Usually, people who make that decision after years of saving heavily for retirement have a very, very nice retirement nest egg built up, so even if they dial back their retirement savings significantly, they’re still going to have a very nice retirement when they reach typical retirement age, and that’s something they’ll always appreciate and have in their back pocket. I can’t imagine anyone seriously saying “I wish I had less money saved for retirement.”
In other words, chasing financial independence is a goal that, even if you decide to switch to another goal, you’re not going to regret the progress you made along that path. That cash will be there for you no matter what you decide between today and full financial independence.
Financial independence is a wonderful financial goal, but achieving it early in life (say, well before typical retirement age and Social Security benefits) is a stiff financial challenge. For some people, the personal freedom that it offers makes it an intoxicating target, particularly if they’re willing to take a radical approach to their spending habits and live on a relatively small percentage of their income. Thus, financial independence is often very appealing to individuals who are interested in living a minimal lifestyle while chasing a high-paying career.
Sarah and I have financial independence as a long term goal in our lives, but because we started down the path relatively late and chose to have three children (like it or not, children are expensive and delay large financial goals), we won’t be retiring incredibly early in life. We do aim to retire somewhat early, likely right in time with our youngest child leaving the nest.
Financial independence might not be the right goal for you, but it is a sensible financial goal for people who are driven for personal freedom and opportunity above all else.
Good luck!
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