The Role Personal Finance Plays in Your Life

We’re going to go down a road for a while that seems to have little to do with personal finance, but bear with me for a while. I think you’ll find the journey interesting.

It isn’t very often that I can say with complete seriousness that an article changed my life. How Will You Measure Your Life?, an article by Clayton M. Christensen that appeared in the Harvard Business Review in 2010, meets that threshold for me.

When I read that article, my primary motivation in life was to simply secure a “good life” for myself and my family. That motivation had led me to frugal living and some difficult but rewarding career decisions, but it hadn’t really changed who I was as a person. The reason was that, at least at the time, I didn’t really have any clear concept of what a “good life” meant.

That article struck a deep chord with me and started me down a long path of figuring out what exactly I wanted out of life in a large sense and, perhaps even more importantly, how that related to my own choices on a day-to-day basis.

I really started with a single question, one that I actually wrote down on paper and thought about a lot for a while. How can I ensure that my relationship with my family proves to be an enduring source of happiness? What would my relationship with my family members have to be like such that it would continue to be an enduring source of happiness for me throughout my life?

On one level, it was kind of easy to answer that. I want to have a really good marriage with Sarah, one where we’re connected on lots of levels, and an enduring relationship with my children that begins when they are children and persists (though changed in many ways) as they become independent adults with very distinct identities and lives.

OK, great, but what does that really look like? What does that mean?

Part of the difficulty of a lot of goals like that is that they inherently rely on things outside of my control. The success of my marital goal, as I describe it there, relies a lot on Sarah. Her choices, completely independent of me, could render that goal completely obsolete. A similar thing is true with my children. True success with that goal, as I thought of it, relies so much on the choices and efforts of my children. I could do everything perfectly and those goals could still completely fail.

I am reminded of a quote from Jean-Luc Picard, the ship captain from Star Trek: The Next Generation (a television series that was enormously impactful on me growing up):

It is possible to commit no mistakes and still lose. That is not a weakness; that is life.

This led me to a simple realization: I cannot measure my success in life by what others do. Rather, the only real measure of success in life is by what I do, by what I contribute to the world, and by what I put into myself and into others.

If I can genuinely look myself in the eye and truly know that I did my best to build a great relationship with my children that helps to shape them into independent, thoughtful adults, then that’s all I can ask, even if I don’t necessarily end up with the relationship I dreamed of. Rather, I will know that I did everything I could to maximize the chances of that great relationship and, honestly, that’s enough. Nothing else can be asked.

So, if I make this list of what I think my best life would be, one that I could lay on my deathbed and look back on with basically no regrets, it would involve mostly things that rely on certain behaviors and actions from other people. Since I can’t really control that, I inherently need to focus on what I can control: my own behaviors and actions.

What can I do to ensure the greatest likelihood that I have a marriage to Sarah that lasts and involves connections on many levels?

What can I do to ensure the greatest likelihood that I have a great relationship with my children now and as they grow up to be independent adults and good people?

What can I do to have a large number of truly great friendships?

What can I do to ensure that all of those important people in my life, as well as the people in my community and the people that I help through my work, live the best possible life that they can?

In the end, measuring my life boils down to assessing my own progress at those things (and similar questions related to all of the other things I want for my life). If I am not putting forth the effort to make those things happen, they’re far less likely to happen. The only real way to measure my own life is by my own efforts toward making the things I want most from life happen (or to avoid the things I don’t want).

So, how do I measure that? To put it simply, I define what I want out of life, consider what I need to do daily to make that most likely to occur, and then ask myself whether I’m doing my best each day in those efforts.

What about fun, though? If life is about measuring things in this way, doesn’t that take the fun out of life? For one, doing these things well is inherently fun. It feels really good to know that you are consistently putting forth effort to make those life goals happen, and the steps that I take are often fun on their own. Writing a really good article feels great. A bonding moment with Sarah or a kind or a friend feels fantastic. For another, there is plenty of room for rest and leisure in this life, because without that rest and self-care and leisure, you can’t do the other things well. A life where you’re completely burnt out is a life where you’re not doing anything particularly well, just getting by. For me, a lot of self-care comes from making sure I get good sleep and exercise, reading books, hiking, making foods, and playing tabletop games, and sometimes those overlap nicely with other life goals like building friendships and being a good parent or spouse.

Thanks to that article, I spent a lot of time figuring out exactly what I wanted out of life and how to measure it in a meaningful way, by developing daily systems and personal behaviors to get there and considering whether I did my best each day to do what I could to make those things happen.

Great, but how does all of this connect to finance?

Very few people truly have a life goal centered around wealth accumulation. They might have good financial health as a goal, but it’s usually secondary to the other things they want to achieve. In other words, their goals tend to rest on a foundation of good personal finances. It’s not about the money itself, but what the money can give them the freedom to do.

I don’t want to be rich, but I do want to maximize the flexibility of my time. I don’t need to have millions in the bank, but I do have a list of things I want to do that aren’t free.

Because of that, sound personal finance is a foundational part of the life I want to lead, and thus my financial state is one of the things I measure when I’m measuring my life.

What can I do to ensure the greatest likelihood that I have a marriage to Sarah that lasts and involves connections on many levels? Not having money stress is certainly one big aspect of this, as is having the financial resources to actually do some of the things we dream of doing together.

What can I do to ensure the greatest likelihood that I have a great relationship with my children now and as they grow up to be independent adults and good people? Being able to support them securely and pay for their educational opportunities when they’re young is a part of that, as is the financial ability to remain a part of their life when they’re older by traveling to see them wherever they may go.

Healthy finances simply underline a lot of my life goals because healthy finances keep my daily stress level low, allow me to focus on doing other things, and open up opportunities going forward. In other words, having a reasonable level of financial success is indeed one of the elements by which I measure my life. I don’t expect or even particularly want exorbitant wealth, but I want enough financial security so that I can do the other things I truly want to do in life, executing everything that would make me feel as though I lived a good life when I’m in my final years.

Because of that, I see healthy personal finance as a daily choice, one that is a fundamental part of the overall life I want to live. The ordinary, daily financial choices I make are genuinely important in shaping my life. Those choices support my desire to be a good husband, a good parent, a good friend, a good citizen, a thinking person, and other goals.

(I feel the same thing about personal health, too, though the development of that viewpoint came along a little later.)

Simply put, if I choose to spend money on something that isn’t genuinely in line with the other things I truly want out of life or isn’t highly likely to bring me some significant level of lasting joy, it is almost always the wrong choice.

Again, it’s easy to think of this as “never spending money on anything fun or spontaneous,” and that’s not the case. There are a lot of fun expenses and quite a few spontaneous expenses that are either directly in line with the big things I want out of life and also quite a few that are potential sources of lasting joy. The trick is really knowing which is which – some expenses that seem appealing in the moment really aren’t in line with anything I want out of life and really aren’t bringing me any lasting joy, either. Spending money on those things are mistakes.

The challenge, then, is knowing which expenses fall into that category of “in line with life goals or likely to produce lasting joy” and which expenses do not, and that’s a constant challenge. In fact, for me, that’s the daily challenge of personal finance, as most of my bigger financial choices are almost entirely automated through online bill pay and automatic savings plans.

Let’s see how that really plays out.

Ordinary small spending decisions really do connect to the big things you want out of life.

Let’s say you’re standing in a grocery store and you need to buy some dijon mustard. It’s an ingredient for a lot of things that you enjoy making – sandwiches, sauces, and so on – and cooking at home is something that you do frequently.

You come to the condiments area of the grocery store and there are a lot of options for dijon mustard. Several different brands in bottles and containers of different sizes with wildly different prices.

Which one do you buy?

Here’s the answer I’ve come to over the years, and it’s one that I’ll walk through carefully in just a minute: I buy the least expensive one available unless I know that brand hasn’t served me well in the past; usually, I buy the store brand one.

If a dijon mustard is good enough that it makes an appealing sandwich topping and works really well in the sauces and dressings that I make with it, then it serves its purpose.

Spending more on an ostensibly “better” dijon mustard, one where I really can’t tell the difference or the difference is slight, is a poor use of my money. Unless there is a truly significant difference between the “least expensive good” dijon mustard and a truly great mustard, the difference in cost is an expense that doesn’t bring me any noticeable real-life benefit. At most, it might bring me a very brief burst of pleasure, one that’s gone almost immediately because it’s not significantly any different than the cheaper mustard.

Thus, the money I spent to buy more expensive mustard that isn’t significantly better than the “least expensive good” mustard is money taken away from supporting all of those other things I want out of life.

Sure, you can argue that it’s just a dollar or two, but what am I getting out of that dollar or two? Furthermore, if I continually justify spending a dollar or two extra on things that bring me only the slightest, most temporary additional pleasure, over and over again, where is all of that money going?

Here’s the thing to remember: this is a daily process, one where I ask myself each day if I’m doing my best to create a financial life that supports all of the things I want to do. Spending extra money on things that do nothing but provide an instant of extremely fleeting pleasure — or no real benefit at all compared to the “least expensive good” version — don’t serve that.

Again, this doesn’t mean “no fun spending” — it just means choosing opportunities to spend money on fun that’s really meaningful or lasting.

For example, if I’m spending the day out and about with my daughter and we discover a sushi restaurant we’ve never seen before and she’s just having a great day with her dad and is excitedly looking in the window, then the $25 (or whatever) we spend there is a very good spontaneous expense. Yes, it’s probably $10 more than we’d spend on lunch, but this is a moment that has a high likelihood of creating a lasting memory for us and it’s going to be a genuinely enjoyable meal for both of us — we share a love for sushi. That’s $10 incredibly well spent, in my opinion. It is very likely to provide lasting pleasure in a way that restaurant meals rarely do because of the shared experience with her, plus it’s strongly in line with my life goal of having a strong relationship with my daughter.

I am getting so much more value out of the extra money spent on that sushi meal than I am out of buying three name brand products at the store and a forgettable coffee at a drive-thru. Thus, in order to ensure that I can always afford things like that sushi lunch without even thinking about it, I make constant effort to forego forgettable low-value things like name-brand mustard instead of store-brand mustard and forgettable drive-thru coffee instead of coffee at home and buying a book I may or may not like instead of just getting it from the library. Those things are forgettable. A great meal with my daughter that’s very likely to be a memorable father-daughter moment is not forgettable at all.

Instinctively knowing the difference between a meaningful expense and a non-meaningful one — and acting appropriately — is vital.

All of this comes down to a simple truth: a huge part of successful personal finance is making consistently good spending choices, day in and day out, and for me, that comes down with understanding how spending choices are in line with how I measure my life as a whole. A good spending choice is one that is in line with doing the best I can to have the life I want, and a bad spending choice is one that is not in line with that.

I’ll be honest: this takes a lot of reflection. This is a topic that has been tossed around in my mind for years in various ways, not just in understanding how my spending choices really connect to these things but also in simply understanding how I want my life to be measured.

However, the closer you get to a real understanding of what you truly want from life and how to measure your effort toward those things, the clearer and easier spending choices and other financial decisions become. Spending that isn’t in line with or directly supportive of those things you want out of life feel more and more wasteful, and financial decisions that do support the things you want out of life feel more and more joyful.

Yes, you most certainly can feel pretty joyful about not spending money on something temporarily fun and instead putting it aside to support something meaningful later on.

For me, this started with that key question I shared earlier, which I’ll share again here: How can I ensure that my relationship with my family proves to be an enduring source of happiness? In really, truly, deeply answering that question, I wound up with a much deeper understanding of what my spending choices really mean and how they affect me.

Here are some ideas for getting started on this path.

First of all, spend time thinking about how you measure your life. What is your idea of a good life? How do you want to live out your remaining years, and how do you want to be remembered?

Then, start translating those thoughts into daily actions. What can you do today to make sure that those things are happening, that those things are moving forward, that those things are supported and will be supported by my finances and my health?

The more you think about those things, the more you begin to see your financial decisions — even the little ones — as stepping stones for the life you want to live. Buying something frivolous that only brings momentary pleasure before it’s forgotten begins to seem really wasteful, even when it’s a small expense. Rather, the expenses that begin to seem more meaningful and more joyful and more pleasurable are the ones that are directly in line with or supportive of those big things you want out of your life.

Most of all, stop blaming others for your problems, or, if you must do this, ask how that blame translates directly back into personal action. Yes, there are times where life is incredibly unfair, but no good outcome ever arises if you don’t step up and take action in your own life. When you blame others for your problems, you are giving yourself permission to not put forth effort to improve your own situation. As long as you draw breath and think clearly, you have the capacity to make decisions that will put you in a better place or give you a better opportunity for a good outcome. Don’t sacrifice that out of self-pity due to the unfairness of life. Make the best outcome out of the hand you’re dealt, every single day. This isn’t to say that people don’t deserve help, but that the surest route to a better life is through your own consistent positive actions, no matter how bad the hand you’re dealt is. No one else can do that but you.

Think about what you want your life to be like. Then, ask yourself what you can do to maximize your chances of that life. The rest flows from there.

Good luck.

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Farmers Renters Insurance Review 2020

Founded in Los Angeles in 1928, just one year before the Great Depression, Farmers Insurance survived the worldwide economic disaster and expanded to become one of America’s premier insurance providers. In its infancy, Farmers offered car insurance for farmers, but over the years, the company expanded its portfolio to include insurance for businesses, homes and recreational vehicles. Farmers also has investment products.

Farmers sells renters insurance through independent insurance agents and numerous subsidiaries, including Farmers Financial Solutions, Farmers New World Life Insurance Company, Foremost Insurance Group, The Bristol West Insurance Group, The 21st Century Insurance Group and Toggle. Farmers writes insurance policies in all 50 states and boasts a workforce of 21,000 employees, who serve nearly 20 million policyholders.

Find the Best Renter Insurance

Enter your ZIP code below and be sure to click at least 2-3 companies to find the very best rate.

The Specs

Price	$181 nationwide average annual premium
Best for	Renters who want inexpensive basic coverage
Not for	Renters in flood or earthquake zones
States served	All states
Discounts	Yes, a few
AM Best Rating	A (Excellent)
Standout Features	Customizable policies

The claim

Farmers’ standard renters policies offer no-frills protection and include additional living expenses, liability, medical payments and personal property coverages. You also have the option to add replacement cost and identity protection coverages.

Farmers claims to offer superior customer support and a simple claims process, giving you the option to file a claim by calling the company, through your insurance agent or online.

Is it true?

In its 2019 U.S. Renters Insurance Study, J.D. Power ranked Farmers eighth in the nation. Farmers received lackluster scores in all ratings categories, which include billing process and policy information, claims, customer interaction, overall satisfaction, policy offerings and price. J.D. Power awarded Farmers two out of five stars in all categories except claims, which did not receive a rating. Power’s top renters insurance company, American Family, earned five out of five stars in all categories, except claims, which did not receive a rating.

Our deep dive

Most people need a variety of insurance policies to cover what’s valuable in their lives. Farmers Insurance offers a range of insurance policies, including:

• Car insurance
• Business insurance
• Homeowners insurance
• Landlord and rental properties insurance
• Life insurance
• Motorcycle insurance
• Pet insurance
• Recreational insurance
• Umbrella insurance

Farmers also offers a handful of financial and investment products, including:

• Annuities
• College savings plans
• Mutual funds

Cost rundown

Numerous factors can affect the cost of a renters insurance policy, including:

• Age of the policyholder
• Dog ownership
• Dwelling features, such as a pool or trampoline
• Location of the home
• Marital status of the policyholder
• Safety features such as security systems, smoke alarms and sprinkler systems
• Unrelated roommates

American households pay an average annual renters insurance premium of around $188. We requested a renters insurance quote from Farmers and liked the price we received. Based on $25,000 in personal property coverage, for an apartment in San Francisco, California, Farmers delivered an annual rate of $130 per year. The standard rate requested also included $5,000 in additional living expenses, $1,000 in medical payments and $100,000 in personal liability coverages with a $1,000 deductible.

Cheaper (or free!) alternatives

Farmers offers a few ways to reduce your renters insurance rate:

Earn a discount when you purchase other Farmers insurance policies.
Non-smoking households may qualify for a renters insurance discount.
Install a fire alarm or security system for even more savings.

Toggle, a Farmers subsidiary dedicated exclusively to renters insurance, may offer you more options and lower rates. The Toggle website enables you to adjust coverage for specific types of property such as technology, furniture and sports equipment. The quotes we received on Toggle offered a savings of $1 to $2 per month compared with the Farmers quote.

The competition

Insurance companies that received the best overall satisfaction ratings in the 2019 U.S. Renters Insurance Study included:

• American Family: 5 out of 5
• USAA: 5 out of 5
• State Farm: 5 out of 5
• Auto Club of Southern California Insurance Group (AAA): 3 out of 5
• Erie Insurance: 3 out of 5

USAA only offers insurance and financial products to military members and their families. However, if you qualify, a USAA renters policy offers much more protection than Farmers coverage. Most insurance companies don’t cover losses caused by flood or earthquake damage or they sell optional flood and earthquake policies. However, USAA covers earthquake and flood damage in its standard renters insurance policies.

American Family offers impressive optional coverages, which you can add to your rental policy. For example, travel protection coverage helps protect your belongings when you hit the road and includes global medical expense coverage and trip cancellation.

AAA auto club members can earn a discount when they purchase a renters insurance policy. AAA’s standard renters policy includes replacement cost coverage, which many other companies only offer as an option. Replacement cost coverage comes in handy if you need to replace items that depreciate, like computers or electronics.

When shopping for renters insurance, always consider the quality of coverage. Renters insurance is relatively inexpensive, so paying a few dollars more for better coverage can pay off in the long run.

What others are saying

The Better Business Bureau gives Farmers Insurance an A+ rating. The BBB has received around 700 complaints against Farmers in the last three years. In the last year, Farmers has settled more than 200 BBB complaints.

The National Association of Insurance Commissioners gives Farmers a 0.66 score on the homeowners complaint ratio report, much lower than the national average. In 2019, complaints filed against Farmers with the NAIC dropped 19%.

In 2019, Apartment Guide ranked Farmers renters insurance the tenth best in the country.

The bottom line

Farmers offers great rates for renters insurance, but its standard renters policies provide rather average coverage. While Farmers allows you to increase your coverage levels, standard renters policies with some other companies have better features, such as earthquake, flood and replacement cost coverages.

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Liberty Mutual Renters Insurance Review 2020

Liberty Mutual has been in the insurance business for more than a century. The Boston-based insurer sells insurance products nationwide and boasts a workforce of 50,000 employees in 30 countries. With an estimated $126 billion in assets, Liberty Mutual ranks #75 on the Fortune 500 list, where it has appeared for 25 years.

In recent years, Liberty Mutual has earned an impressive number of awards for its charitable contributions, green energy initiatives and workplace diversity. Liberty Mutual has a history of supporting entertainment and sports programs, sponsoring U.S. Hockey and the U.S. Olympic and Paralympic Team, along with PBS programs such as American Experience and Antiques Roadshow.

Find the Best Renter Insurance

Enter your ZIP code below and be sure to click at least 2-3 companies to find the very best rate.

Liberty Mutual sells a wide range of insurance products, including renters insurance. But how do Liberty Mutual’s renters policies stack up against the competition?

The specs

Price	$285 nationwide average annual premium
Best for	Renters who want low-cost basic coverage
Not for	Renters who want earthquake or flood insurance in a standard policy
States served	All states
Discounts	Claims free Military Early shopper Smart Home Protective devices Multi-policy Automatic payment Online purchase Paperless policy
AM Best Rating	A (Excellent)
Standout Features	Loads of discounts available

The claim

Liberty Mutual’s standard renters insurance policies include the basic coverages most insurance carriers offer, including additional living expenses, liability, medical payments and personal property coverages. Liberty Mutual claims to have the best discounts on the market for renters insurance policyholders.

Is it true?

Liberty Mutual offers renters insurance policyholders nine discount programs. Nonetheless, in J.D. Power’s 2019 U.S. Renters Insurance Study, Liberty Mutual earned just two out of five stars for its pricing.

Our deep dive

One-stop insurance shopping makes protecting your valuables a little easier, so it’s important to find an insurance company that can handle all your needs. Liberty Mutual’s portfolio of products holds an impressive variety of insurance policies to cover your:

• Automobile
• Boat
• Condo
• Home
• Life
• Mobile home
• Motorcycle
• Pet
• Recreational vehicle

In the personal insurance category, Liberty Mutual also provides policies to help protect you from identity theft losses, pay for critical illnesses and cover flood damage. Business owners can also turn to Liberty Mutual to protect their interests in land- and marine-based businesses.

Cost rundown

When shopping for renters insurance, various factors can affect your rate, including:

• Your age
• Location of your home
• Security and safety features of your home such as alarm systems and smoke detectors
• Dog ownership
• Recreational features such as swimming pools
• Roommates

Based on a study by The Zebra, a company that researches the insurance market, U.S. renters pay an average annual renters insurance premium of $188. We requested an online quote from Liberty Mutual and were pleasantly surprised by the rate we received. According to the quote, we could purchase $25,000 worth of personal property coverage, for an apartment in San Francisco, California, for around $100 per year. The quote also included $5,000 of additional living expenses coverage, $100,000 of liability coverage and $1,000 of medical payments coverage, with a $1,000 deductible.

Cheaper (or free!) alternatives

Some insurance companies offer just a few discounts to lower your renters insurance rate. But Liberty Mutual provides nine discounts to make your policy more affordable, including:

• Claims-free discounts
• Early shopper discounts
• Military discounts
• Multi-policy discounts
• Online purchase discounts
• Paperless policy discounts
• Preferred payment discounts
• Protective devices discounts
• Smart home discounts

The competition

While Liberty Mutual earned a top-ten spot in the 2019 J.D. Power U.S. Renters Insurance Study, several companies received significantly higher overall satisfaction scores, including:

• American Family: 5 out of 5
• USAA: 5 out of 5
• State Farm: 5 out of 5
• Auto Club of Southern California Insurance Group (AAA): 5 out of 5
• Allstate: 2 out of 5

J.D. Power rates renters insurance companies in several categories, including billing process, claims handling, customer interaction, policy offerings and price. Liberty Mutual received two-star ratings in most categories, while the top two companies earned five stars in all categories.

Some of the top J.D. Power winners offer renters insurance policies with features that Liberty Mutual doesn’t. For example, USAA’s standard renters policy covers damages caused by earthquakes and floods. Liberty Mutual offers optional earthquake and flood insurance at an additional cost. USAA only offers products to military members and their families, but if you qualify, you can take advantage of their exceptional renters insurance.

AAA offers renters insurance discounts for its auto club members. That’s not unusual and comparable to Liberty Mutual’s multi-policy discount program. However, AAA renters insurance policyholders can also receive discounts with major moving and relocations companies, saving big on expenses such as moving vehicles and storage.

Allstate and Liberty Mutual received the same overall satisfaction score, five out of five stars. However, Allstate earned five stars for its superior claims handling. We’re also impressed by Allstate’s seniors discount program, which offers up to a 25% discount for policyholders 55 years of age or older.

What others are saying

The Better Business Bureau awards Liberty Mutual an A rating. Many of the complaints filed with the BBB against Liberty Mutual involve billing issues and product or service problems.

In a comparison of car and renters insurance discounts, The Zebra ranked Liberty Mutual in the top four, beating Nationwide, Progressive, State Farm and USAA. The study determined that Liberty Mutual renters insurance policyholders earn an average discount of 5.06%.

Bankrate also gave a nod to Liberty Mutual for its excellent discounts, listing the Boston-based company among the best renters insurance companies of 2020.

The bottom line

While Liberty Mutual’s standard renters insurance policies offer basic coverages, the discount programs exceed most other insurance companies. If a standard policy doesn’t fit your needs, Liberty Mutual has a few options such as earthquake, jewelry and replacement cost coverages to provide more comprehensive protection.

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Maximizing Your Tax Return’s Value

Sometime in the next few months, many millions of Americans will file their taxes and a large portion of those Americans will receive a tax refund check after they file, giving them back the extra money that had been taken out of their pay beyond the taxes they owed.

It’s a pretty nice feeling when you open the mailbox and there’s a nice check in there, or you peek at your checking account and discover a fresh direct deposit above and beyond your paycheck. It can be really tempting to start imagining fun things to do with that money.

But before you decide to spend that check on a jetski, consider the advantages of just using that money for something financially wise instead.

Putting yourself in a better financial position lowers your personal and professional stress levels. It can give you more financial flexibility going forward with each and every paycheck. It can help save you when things inevitably go wrong, turning what could have been a disaster into something entirely tolerable.

In other words, you can use the money for a fleeting moment of fun, or you can do something to make your life notably better for the foreseeable future.

Here are six great ways to use your tax refund check. Choose one of these, use that check and move on with life. You’ll find that your life is noticeably better in a lasting fashion.

1. Create an emergency fund.

It’s simple. Take the check to your bank and deposit all of it into a savings account. Then, just leave that money alone until something unfortunate happens that you can’t handle. Maybe your car needs some serious repairs. Perhaps you lost your job and need to keep food on the table and bills paid for a few weeks while you find another one. Maybe your best friend is getting married six states away and the trip is pretty expensive.

Whenever something like that eventually comes up — and it will come up — tap that money you set aside for it. It’s an emergency fund for just these kinds of situations.

How does this make my life better? Having an emergency fund means that unfortunate events become a lot less stressful, of course, but it also eliminates some background stress in life. You no longer wonder what you will ever do if your car doesn’t start or if you lose your job. You have a plan now, so those things don’t have to keep you up at night anymore.

2. Pay off a debt.

If you have a credit card bill or a student loan bill, simply use the tax refund check to pay it off in full. The debt’s gone. You’re free from it.

Going forward, you’ll no longer have to deal with that bill each month. It means that whatever the monthly amount of that bill is will stay in your checking account rather than disappearing into yet another bill. Thus, it becomes easier to keep all of your other bills paid, to avoid overdrafting and late fees going forward and to start considering other moves like signing up for the 401(k) at work (you can just contribute the money you were spending each month on that bill you just paid off).

How does this make my life better? Eliminating a monthly bill means less stress about keeping the bills paid. You suddenly aren’t walking quite as tight of a tightrope each month, and that feels pretty good. With that added flexibility, you’re probably reducing your overdraft fees and late fees on other bills, too, and that’s even better.

3. Put money aside for retirement in a Roth IRA (or a traditional IRA if you’re a high-income earner).

You can simply take that check and deposit it in your own Roth IRA (or, if you earn a high income, your traditional IRA) account. Once you’ve done that, it will sit there and earn a solid return each and every year, with the balance compounding and growing, until you reach retirement age, at which point (if it’s in a Roth IRA) you can withdraw it and the investment gains without any taxes. It’s all yours.

Making that choice now is going to be incredibly helpful for you when you’re older. Sure, you might forego something fun in the moment, but you’ll have some of what you need to keep the lights on and food on the table without having to work when you’re in your 70s.

How does this make my life better? Obviously, every dime you save for retirement, particularly when you’re younger and have many years for compounding to work in your favor, will have a tremendous positive impact on your quality of life in old age. However, simply having money in retirement savings is a stress reliever in daily life, and the more you have, the less worrisome retirement becomes.

4. Put it aside for your child’s college education in a 529 College Savings Plan.

If you’re a parent, putting that check aside for your child’s college expenses (or other educational expenses) is a powerful choice. Doing this will directly reduce your child’s student loans, regardless of the educational choices they may make after college.

In particular, putting that money into a 529 college savings plan is a great idea. In a 529, the money can easily be invested with the investment income being able to be used tax-free for educational expenses. It’s just money for your child, which will reduce (or even eliminate) their student loans.

How does this make my life better? Obviously, your child is the one that will benefit the most from this choice. In doing so, however, you’ll find yourself worrying just a little less about their future, and the prospect of them going to an expensive school seems a little less financially intimidating. If you’re planning on helping your child with educational expenses, then this will reduce your own burden in the future, which can be a great stress reliever.

5. Put it aside for a big upcoming expense you know is just around the corner.

Are you planning on replacing your car in the next year or two? Are you saving up for a home down payment? Are you planning on moving to another part of the country soon? What about a major home repair or addition?

If you know there’s a big expense of any kind coming up soon that you’re going to struggle to pay for, put your tax refund check aside to handle that expense or at least part of it. Putting enough money aside to cover a down payment on a car, for example, will reduce your car payments significantly and also reduce the total amount of interest you hand over to the finance company. Having a house down payment reduces your mortgage payments and can also get rid of mortgage insurance.

How does this make my life better? By simply taking care of a portion of those known bills now, you make those bills much easier to deal with in the future. You have less worry and stress about them going forward and much more financial flexibility when they do arrive.

6. Use it to pay for lasting energy efficiency improvements in your home.

Investing some money in improving the energy efficiency of your home will result in permanent reductions in your energy bill going forward.

If your return is small, consider things like switching to all LED lighting, putting a weatherstrip along the bottom of a couple of exterior doors, or putting caulk around the edges of a window where there’s a constant draft. Those simple moves will cut significantly into heating and cooling bills and, with the LEDs, will reduce the constant monthly energy cost for lighting.

If you have more money to spare, consider adding to the insulation inside the walls of your home to keep warm air inside in the winter and cool air inside in the summer, replacing light fixtures with ceiling fans to improve airflow and reduce the running of your much-more-costly furnace and AC, invest in a geothermal heating unit or solar panels or invest extra in an appliance replacement to get a more energy-efficient model.

How does this make my life better? Going forward, every single energy bill that comes into your home will be smaller than it otherwise would have been. While that change won’t be enormous, seeing an energy bill that’s 10% or 20% smaller means $20 or $40 or $60 that you wouldn’t have otherwise had every single month for as long as you live there. That kind of money can mean an end to a cycle of overdrafts, a faster pace of paying down debts, or just a little bit more breathing room in a tight budget.

Investing in your financial future helps you sleep better at night.

The real advantage of doing something wise with your tax refund is that it makes your financial future better, no matter what happens. You will always be in better shape than you would have been had you spent the money wastefully, and that will always mean less money stress and fewer worries keeping you up at night.

Good luck!

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Food Preparation, Frugality and Time

I love preparing food for myself and for my family. I cook most of the meals in our house simply because I enjoy the task, and I really like figuring out ways to make meals and food items that are simultaneously healthy, inexpensive, tasty and efficient to make.

That’s actually trickier to balance than you might think. Almost always, efficiency is counterbalanced with inexpensive — if a meal is more convenient, it’s usually also more expensive. There’s also a tension between healthiness and tastiness and, to a smaller extent, all of the others have tensions between them as well. If you really try to emphasize one or two factors, you’re often making compromises on the other.

It turns out that those priorities aren’t always constant. At times, I prioritize healthiness — I’ll make a really healthy stir fry dinner one night, for example. Another night, I’ll make a thick homemade pizza that really leans into being tasty. I aim to prepare things from a more “healthy” perspective than “tasty” most of the time (while still trying to be tasty with nice seasonings), but I definitely do make some meals that are all about the flavor.

Perhaps more of interest, however, is the balancing act between time and money. If I’ve learned anything about home food preparation, it’s this: the more time you put into a meal, the less expensive it will be and the tastier it will be. This is almost always true, but it’s incredibly hard to balance perfectly in the context of a busy family life.

Hummus is a perfect example of this balancing act.

Most of my family really like hummus. We like dipping crackers and vegetables in it and I particularly like spreading it on a piece of toast.

Because we eat hummus so often, it’s something that’s frequently a part of our grocery shopping routine. This leaves us with several options.

One option is to buy a container of hummus at the store for about $3. That’s about as time-efficient as can be — I just grab the container out of the cooler at the store, bring it home and open it when we’re hungry. Hummus!

Another option is to make my own hummus using canned beans. I’ll buy a can of chickpeas at the store. I dump the contents of the can of chickpeas in the blender, add a few other ingredients depending on what I have (two tablespoons of tahini, one tablespoon of olive oil or plain yogurt depending on what I have, half a teaspoon of cumin, and maybe a quarter teaspoon of garlic powder, and sometimes a bit of other ingredients, too, like some red pepper flakes). I hit the “blend” button, wait for a bit, then scoop the contents of the blender jar into a resealable container. The blender jar and lid goes into the dishwasher, the can goes into recycling, and we have hummus! This takes perhaps three to five minutes, makes for really good hummus, and costs about $1, saving me $2 over the store-bought hummus. I think it tastes better than the store hummus, too, though the store hummus is pretty tasty.

Now, I can get that cost even lower and make hummus that (I think) is even a little tastier, but then I add even more to the work. I can buy dried chickpeas at the store, boil them, and use two cups of cooked chickpeas with just a very tiny bit of the water as the base for the hummus. This, in my opinion, makes the best hummus I can make at home, even better than the canned chickpeas, and the cost is even lower. The cost of this hummus recipe, by my math, is about $0.65 for an equivalent amount to the $1 hummus using the other recipe and the $3 store-bought hummus.

If I’m trying to make literally the best hummus I possibly could, I’d boil the chickpeas in vegetable stock, which does raise the price somewhat depending on if I’m using vegetable stock I made at home or store stock, but if it’s homemade vegetable stock, I’m adding even more to the time.

The problem, of course, is time. I have to boil the dried chickpeas, which takes quite a while. As I noted, if I go even further and use the vegetable stock and I made the stock myself, I’m also looking at the time invested in making the vegetable stock. Neither process is particularly hard, of course.

Boiling the chickpeas isn’t hard — you soak them overnight, change out the water and cook them in the slow cooker for 8 hours on low or 4 hours on high.

Making the vegetable stock isn’t hard, either — just take a ton of vegetable scraps, put them in a slow cooker with some peppercorns, cover the vegetables with water, and boil for a long time, then strain off the vegetable scraps and save the liquid, which can easily be frozen.

The issue is time. If I go to all of that effort, I can make some incredibly good hummus and saved about $2.35 over the store-bought hummus, but I’ve probably invested 20 minutes of effort and a lot of waiting over the course of days. If I go the medium route, with a can of chickpeas, I’m investing probably 5 minutes of effort and $1 to make really good hummus, better than the store but not as good as the stuff made from my own boiled chickpeas.

What’s the right call?

Before I answer that, let’s look at another example.

Homemade pasta offers a similar array of choices.

One of my family’s favorite meals is lasagna. The layering of flat noodles, cheeses, pasta sauce, and vegetables and/or meat, placed into a nice pan and baked in the oven.

Again, with this, there are a ton of options based on time, money, and quality.

I can buy a pre-made lasagna at the store — a take-and-bake that costs $10 or so. It’s all right, but not particularly great.

I can make it myself using oven-ready noodles, and I can assemble a pretty good pan for about $7 or so in ingredients by my math. This takes more work, perhaps 15 minutes of assembly and 5 minutes of cleanup, but it’s tastier.

If I boil the ordinary store-bought lasagna noodles (not oven-ready ones, but normal ones), I can make a pan for just a bit cheaper and I think it tastes better, but I’m adding the time it takes to boil noodles.

If I make the lasagna noodles from scratch, though… that’s a different story. The best lasagna I’ve ever made in my life involved me making from-scratch noodles, from-scratch sauce and freshly grated cheeses. The cost for a pan of it was actually really low, somewhere in the $4 range, the taste was amazing and the relative healthiness was pretty good too, but the time investment was tremendous.

I have a pasta machine, but even with that, the time to make a batch of fresh pasta approaches an hour. The noodles are sublime and less expensive than the store noodles (it’s just a couple cups of flour and an egg, basically), but the time investment is real.

How does a busy frugal family solve this problem?

For us, this challenge is solved by applying a few key principles to every meal.

First of all, I recognize that sometimes convenience is simply paramount, and I do my best to work around it. I try to plan out the meals for the week in advance and do my best to know which evenings are going to have very little meal prep time. For us, for example, Tuesdays and Thursdays are typically pretty challenging, and I usually know that in advance.

Since I know that Thursday is going to have a very small window for getting a meal on the table, I’ll plan around that in advance. I’ll pencil in a “dump” slow cooker meal, where I just put in all of the ingredients in the morning, turn the slow cooker on low, and let it sit all day. I’ll set the table in the morning. Basically, I will do every single thing I can to minimize the time I actually need to prepare the meal during the evening crunch time, which brings us to the next tactic.

I try to always move as much food preparation as possible to less busy times. Let’s look at that hummus example. If I know I’m going to want some hummus later in the week, I can always boil the beans on Monday and stick them in the fridge, putting the slow cooker in the dishwasher. I can make the hummus on Tuesday and put it in a container and stick that in the fridge.

During the week, you’ll often see the slow cooker or the rice cooker active or a pot simmering on the stove with things in it that have nothing to do with the meals for that day. Rather, I do those tasks because they’re convenient at that moment. Cooking beans on Tuesday because I have time means that I have better, cheaper beans for Thursday’s meal, and because I’m choosing to do it when I have ample time to do it, it’s not stressful.

I have made homemade pasta sauce on a Monday, made homemade noodles and done lasagna assembly on Tuesday evening, and actually had the lasagna for supper on Wednesday. Basically, on Wednesday, I pulled the lasagna out of the fridge at lunchtime, tossed it in the oven, went to soccer practice and came home to amazing lasagna.

I have some meals I know by heart that are really easy and fairly healthy, and we use those as fallbacks. I can make one-pot spaghetti in literally 14 minutes. I put a pot on the stove, add four cups of water and a jar of sauce, bring it to a boil while I find a box of spaghetti and a few other things to throw in there (black olives, mushrooms, and so on), toss in the spaghetti, and cook it down while stirring until the liquid is gone and it’s just a sauce on the cooked noodles. I can usually toss a salad while the pasta is cooking and there’s a simple, inexpensive, reasonably healthy supper. It takes exactly 14 minutes and I always have stuff on hand for it. To keep costs low, I’ll buy those ingredients in bulk when I get a chance to do so.

If time is really going to be tight, I can actually just cook the spaghetti in the morning, leave it in a covered pan in the fridge, then just heat it on the stovetop in the evening, pouring sauce on it and tossing it as it heats, taking five minutes or so.

Other similarly fast suppers I can assemble automatically include soup and sandwiches (I have some fast soup starter kits that turn into soup in 15 minutes), grilled hamburgers (I keep a bunch of pre-made patties in the freezer and they can go straight on the grill or onto a griddle), flash frozen vegetables that can easily be microwaved as a side, and so on. I keep ingredients for most of those on hand all the time, just so I know I can always tap them if needed.

Another key factor is that our family often has “leftovers” for dinner. We’ll take leftover portions of meals from the last two or three nights, set them out on the table, and let people make plates of what they like and heat them up. This works really well for nights when we don’t have a whole lot of time, and it works well if the meals are home-cooked because those tend to re-heat well.

Finally, I don’t begrudge occasional meals or food items done purely for convenience, as long as that doesn’t devolve into a pattern. Sometimes evenings go haywire. Someone’s practice runs late or something else happens and the meal prep time that I thought I had vanishes. It happens.

In those situations, we have a few convenience meals in the freezer (sometimes, they’re things I made earlier, like pre-made burritos, but those run out sometimes) or I’ll get takeout. It’s my last option because, frankly, it’s expensive.

I know my family likes hummus, and if they’re clamoring for some and I don’t think I’ll have the time to make a batch, I’ll spend the extra $2 and buy some hummus. Much of the time, though, I’ll just buy a can of chickpeas instead and make some in the blender — it tastes better.

For me, the true key here is to avoid turning convenience meals and takeout into normal routines. Why do I avoid that as a routine? It’s because convenience meals almost always sacrifice cost, flavor, and health for convenience. They tend to be expensive, don’t taste all that good (particularly when you’re used to making your own foods), and usually aren’t particularly healthy, either.

It’s not as much work as it seems.

The real magic of balancing food preparation, frugality and time is planning ahead. That’s really the only trick at work here. I make a meal plan for the week and consider how busy that day is going to be and how much of the meal I can make in advance to minimize my actual prep time at that moment.

So, how exactly do I do this meal planning?

The process is pretty simple. We have a giant whiteboard that we hang in our entryway that includes the weekly schedule for everyone in the family. From that, I come up with an estimate of what my time window is for putting together dinner that night. Most nights, I have an hour or so; some nights, only 30 minutes; others, 15 or less.

I then take a peek at the grocery store flyer and see what items are on sale that week. What can I make with those ingredients if I have an hour or two? What if I have less time? What if I can offload some of the prep to other evenings? Is there a night when “leftovers” makes sense?

From there, it’s pretty easy to slot in meals. Here’s what my thought process might look like. Turnips and potatoes are both on sale, maybe I can make that slow cooker root vegetable soup again on Monday. Everyone liked that. They have a sale on canned chickpeas, so I’ll make some hummus and cut up some vegetables as a side for dinner on Tuesday — I have time for that. Lasagna fits in on Wednesday, but I don’t have a ton of time — oven-ready noodles and sliced mozzarella are probably good choices here, but I can make a sauce on Tuesday evening, so I’ll get some stuff for that. Thursday… ugh. No time. Looks like leftovers. That lasagna will reheat well and I’ll make plenty of hummus because I know my daughter will eat a ton of it every time it’s available. Friday, we won’t be home until 8 p.m. We can get takeout that night. Make sure there are leftovers for lunches on the lasagna and the soup we’re having on Monday and get a few simple breakfast items and we’re good to go.

I make up a grocery list from that meal plan, go to the store with that list, and then just follow the meal plan throughout the week. That’s pretty much it.

Another strategy I often use is making very large batches of some meals. If I’m making slow cooker root vegetable soup, I know it will reheat well if I put some aside just barely undercooked, so I’ll fill up a container and put it aside to freeze. That way, in a few weeks, one of my meals for the week can just be to pull out that container of soup. I do the same thing for lots of meals. If I’m making lasagna, I’ll often make two, three or even four pans of it and freeze the extras so that I can just pull them out in a few weeks, let them thaw in the fridge, and heat them up for supper.

The real secret to being able to pull this off within the constraints of a busy life is moving tasks from when I’m really busy to when I’m less busy and keep convenience foods for emergencies. If I do things like cook rice on Monday for Wednesday’s meal, make two batches of lasagna at once and freeze one, use the slow cooker, and have leftovers sometimes and convenience meals when everything else fails, I can actually make a lot of pretty high-quality homemade foods.

A final note: it helps that I enjoy doing this. If I didn’t enjoy cooking, I would rely more on the quick meals that I can make almost automatically. I think that, if you don’t enjoy cooking at all, that is a far more frugal approach to meal preparation than getting takeout or delivery all the time.

Sometimes you’ll find the $3 hummus in my cart. At other times, you’ll see a can of chickpeas. Sometimes you’ll see dry ones. It’s all about working around the realities of life and sticking with the core truth that eating at home is incredibly cheaper than having people make the food for you.

Good luck!

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How to Invest in Real Estate to Achieve FIRE

The goal of the FIRE movement is to obtain financial independence through smarter spending, saving and investing more money than is typically recommended. The eventual goal of FIRE practitioners is to retire early — hence the acronym FIRE, which stands for Financial Independence, Retire Early. According to FIRE enthusiasts, it’s “complete freedom to be the best, most powerful, energetic, happiest and most generous version of you that you can possibly be.”

People who practice FIRE tend to save or invest 50% to 75% of their income. They live frugally in the meantime and avoid taking on unnecessary debt or making large unnecessary purchases. The FIRE movement has especially influenced the saving habits of younger generations. Those between 18 and 37 years of age save nearly 16% more of their annual income for retirement when compared to older generations.

One popular investment for achieving FIRE is real estate. In most cases, it means buying rental properties, then collecting rent from tenants to boost one’s income. But being a successful real estate investor — with the goal of becoming financially independent and retiring early — requires education and planning. There’s much more to practicing FIRE, though, especially when it comes to real estate.

Everyone who practices FIRE does so in a different context. Some have children while others do not, and some have high-paying jobs while others make a middle-class income, but there are a few basics to FIRE that are necessary to retire early.

First, you must start planning for retirement as soon as you can, ideally the moment you reach adulthood. You must keep your regular expenses as low as possible by avoiding debt and you must look for ways to increase your income. If you do have high-interest debt such as a student loan debt, you should pay it off as quickly as possible to avoid suffering unnecessary losses from interest.

You must also make saving and investing your biggest priorities. The younger you are the more aggressive your portfolio can be, but you should also diversify. This means putting money away in tax-advantaged retirement accounts, but it also means making investments in other important areas — like real estate.

The pros and cons of investing in real estate

If you’re investing in rental real estate to achieve FIRE, you need to know how to leverage properties to improve your cash-on-cash investments each year. If you want to make money through rental income, it also means you need to know how to be a landlord. There are a ton of pros and cons for investing in real estate for FIRE, including:

The pros of investing in real estate

1. Quick way to fast FIRE

You have the potential to achieve FIRE faster by investing in real estate than if you invest in retirement accounts or other stock market products alone. You’ll need an initial down payment if you want to buy property, but you can finance the rest with other people’s money — money provided by real estate investors who have the cash on hand to make the investment but don’t have the time to manage it.

This will provide you with a steady return of rental income, which you can use to supplement your existing income and put more away for retirement. If you need to, you can use traditional mortgages to finance your property purchases, but you’ll need to calculate whether your monthly income will be worth the monthly payments you’ll need to take on that debt.

2. Less volatile than the stock market

When you retire and begin withdrawing from your retirement investments, you’ll still be beholden to market forces. If the market crashes as soon as you start to cash out, you could be the victim of “sequence of returns” risk, and because you’re no longer contributing to your retirement, you run the risk of your portfolio diminishing faster due to your withdrawals.

On the other hand, the income you receive from rental properties is ongoing. If you maintain them and keep the properties occupied, they’ll keep generating income for you well into your retirement. Investing in real estate is much less volatile than investing in the stock market.

3. Adjusted returns 

When you put money into an investment fund, you must adjust for inflation when predicting your returns, but rental prices rise alongside inflation and as the cost of business goes up. As a landlord, you can raise the rent after each leasing agreement is complete, usually once a year.

The cons of investing in real estate

1. They’re expensive

Even if you finance the bulk of your real estate investment with other people’s money, investing in real estate still comes with a high upfront cost. Buying property means shelling out thousands of dollars and then spending additional cash on closing fees, insurance, maintenance and repairs. If you don’t have the money on hand, it could take years to save it.

It’s also important to factor in that you may end up with vacant houses during some points in your real estate investing. Markets fluctuate and rentals can sit empty for months, or even years, if you aren’t careful about where you buy. It’s also crucial to think about what it will cost to invest in a property manager to take care of the day to day needs with your properties and handle things like broken appliances or damages done by renters.

If the real estate market crashes, it could be an even bigger hit to your finances, as you’ll have to keep paying on the home while it loses value or risk selling it at a loss. Real estate markets fluctuate constantly, and it can be a big risk if you aren’t careful.

It’s also important to consider diversification. If you invest a significant portion of your savings in real estate, that investment is tied to a small handful of physical assets or a single physical asset. Physical assets are susceptible to depreciation through forces other than the market. If you can’t keep tenants, you won’t earn rental income, either.

2. Lots of work 

Investing other people’s money in real estate requires you to take on the bulk of the work involved with managing the properties. If you’re investing in rental properties and collecting rent, that means acting as a landlord, and being a landlord is an entire profession in and of itself.

Landlords must ensure their properties are safe, clean and livable. You may also be responsible for taxes and utilities. If tenants don’t pay the rent, you’ll need to ensure they know they are overdue. In a worst case scenario, you may need to evict tenants who don’t or can’t pay, which costs time, money and also involves the legal system.

3. Very little liquidity

When you invest in the market, you can sell stocks when you need cash, but that isn’t possible with real estate, as selling a single property can take months, or even years in some cases. Real estate is a good long-term investment, but it’s not the best choice if you think you’re going to need that cash back in the near future.

How to invest in real estate

You don’t necessarily need to take the landlord route to invest in real estate. There are many ways to do it. Your first step should be to decide which type of real estate investment is best for you.

1. Decide what kind of real estate you want

Owning rental property 

If you’re confident you can act as a good landlord and keep tenants, this is perhaps the safest and most predictable way to earn income through real estate. You’ll know exactly how much you’ll make each month and you can factor that into your FIRE plan.

House flipping

If you’re particularly handy, or if you’ve partnered with someone who does home improvement work, you could also consider house flipping. This typically requires much more sweat equity, but the payout could be substantial if you know what you’re doing.

House flipping involves buying a property when its price is low, then selling it quickly to turn a profit. Investors often focus on foreclosed properties and short sales to do this, but house flipping does come with risks.

For one, a foreclosure may not be livable, which means you’ll have to invest more money into it if you want to turn a profit. Making these types of repairs and improvements is also a lot of work and you can run into trouble if you don’t have the time or experience to handle it.

Real estate investment trusts (REITs)

You could also consider putting money into a real estate investment trust (REIT). These are investment equities run by companies who own and operate real estate properties. These investments tend to produce high dividends but they also come with risks.

REITs are traded on the market, so they have market risk just like any other stock. They are directly affected by the real estate market as well. They tend to have good long-term returns, but they might underperform in the short term.

In most cases, diversifying your investments is key. This could mean investing in one type of real estate in addition to a traditional portfolio of stocks and bonds, or you could try all the above.

2. Choose a good property

Choosing which property to invest in is one of the biggest challenges of being a real estate investor, but there are a few things you can keep in mind that will help you avoid the most common mistakes.

Location, location, location

First, you should only invest in an area that is growing. While it may be tempting to buy up properties on the cheap in places that are struggling, keep in mind that you need people to live in your properties if you want to make any income. Growing areas will have more demand for housing, which means you may be able to charge higher rental prices as well.

You should also start with locations you either already know or have researched thoroughly. Work to understand an area’s vacancy rates and demographics before putting any money down. Investing in a brand new building filled with high-end condos might sound nice, but it won’t make you much money if the people living in the area can’t afford to live there.

Choosing a property within budget

Unless you have an electrician or plumbing license in your back pocket, try to avoid the worst “fixer-upper” properties. It might be a good investment if the walls just need a new paint job, but if the core of the property is compromised, you could lose thousands of dollars trying to make the location livable.

Finally, you should calculate your returns, including your cash-on-cash return rate, before putting any money down. You should be able to project well into the future to determine how your real estate investment fits with your budget and your FIRE objectives.

3. Prepare your finances

Most people have to get their finances in order if they intend to buy a house to live in. Investing in real estate is no different.

Have a good credit score

You’ll need a strong credit score if you intend to get a mortgage or rental property loan with a low interest rate, and you’ll need a low interest rate if you intend to profit off your property investment. By most standards, a score of 700 or more is considered “good.” In order to get the best rates, you should try to achieve an “excellent” credit score of 720 or more.

This can be challenging if you’re still young and you haven’t built up that much credit, as the length of your credit history affects your score. The length of your history is an average of the lengths of your debts, so don’t take out any new debts while you’re trying to improve your score.

Assemble your documents

You’ll also need certain documents to acquire a mortgage:

• Recent pay stubs (W-2s)
• Two years’ worth of tax returns
• Property tax documentation
• Proof of property insurance
• Existing mortgage statements
• Statements from your bank and from your investment and retirement accounts

You’ll also need documents associated with your purchase:

• A purchase agreement
• Proof of funds for the purchase
• Statement of current property taxes

Even if you intend to use other people’s money to finance your purchase, a good credit score and clear documentation will be important for convincing investors you’re a good bet.

Make sure you have savings

You’re going to need to front some cash for your real estate investments, whether that’s on the front end or when repairs and updates come up. Make sure you have an adequate amount stashed away to pay for any unexpected expenses and closing costs on your properties, as well as anything else that may arise, like gaps between tenants.

Finance your investment

There are a few ways to acquire the financing you need to invest in real estate.

Investor capital

One of the most attractive ways is to use investor capital, also known as other people’s money or (OPM). Of course, this isn’t always an option, and succeeding with it often comes down to having the right people in your network.

Traditional loan options

If you don’t have a ton of cash on hand, you can also use traditional loan options like mortgages to fund your real estate purchases. With an investment property, the lender may require more than the standard 20% down payment, however. Banks typically prefer to provide mortgages to people who intend to live in the homes they buy, not to investors.

You’ll also need to rely on your personal financial history to secure a mortgage.

Fix-and-flip or hard money loan

Another option is to get what’s often referred to as a “fix-and-flip loan” or a “hard money loan.” These loans typically have terms of just one year. The money you can get is based on the lender’s determination of how much the property will be worth after you fix it up.

The downside to this route is that these loans are not cheap and you only have a short time to pay them back. They come with high interest rates and the fees associated with obtaining one can eat away at your returns.

HELOC or cash-out refinance loan

You could tap into your own home as a source of equity through a home equity line of credit (HELOC) or cash-out refinance loan. These are risky loans for any borrower, though, as you’re putting up your own home as a source of collateral.

A HELOC will come with a variable interest rate, but you could capitalize on it if you only have to make payments on interest before you’re ready to pay it back. With a cash-out loan, you’d get a fixed interest rate, but it could extend the life of your existing mortgage.

From a FIRE perspective, taking on additional high-interest debt is almost always a risk to your goals. If you’re stuck with high monthly costs, you’ll have a hard time setting money aside for retirement. You’ll need to do the calculations beforehand to determine if these types of loans are worth it for you.

Common mistakes when investing in real estate

Real estate investment can be a great avenue for achieving your FIRE goals, but it involves risk, just like any other investment. It’s important to avoid some of the common traps real estate investors fall into, including:

1. Failing to get educated

You may be a guru when it comes to managing your personal finances, but managing real estate investments is a different animal altogether. Learn as much as you can before deciding to invest in real estate, especially if you want to make it a part of your FIRE strategy.

2. Failing to plan beforehand

A plan-as-you-go strategy never works in real estate investing. There are just too many variables to consider with a physical asset, and if you don’t calculate your expenses, returns and interest beforehand, you could find yourself with real estate assets that are costing you money rather than making you money.

It’s important to find a property that fits your plan, not force your plan to fit a property. You should also have contingencies in place in case something goes wrong. After all, while the rental market can affect the profitability of your real estate assets, so can hurricanes.

3. Paying too much for a property

“Buy low and sell high” is one cliché that almost always applies to real estate investments. Once you purchase a property, you’ve already sealed in how much profit you can make from it. Search for bargain properties that fit your plan, but focus on those properties that won’t require too much investment to get up and running as well.

4. Miscalculating maintenance costs

Investing in a physical asset like a property always involves costs for maintenance and upkeep, especially if you’re investing in a rental property. If you fail to fix the problems from general wear and tear while people are living in your property, they could turn into expensive problems down the road.

You’ll need to have enough cash flow to cover repairs and keep your property livable during an emergency, such as a natural disaster, a burst pipe or a long-term power outage.

Advice from one FIRE enthusiast to another

It can be tricky to figure out how to make the FIRE movement work for your specific needs, especially when it comes to real estate investing, as every market is different and requires a unique approach from investors. Still, even with the potential investing difficulties, the young investors who have found success with the FIRE method swear by it and have plenty of advice for young would-be FIRE enthusiasts.

“For young investors that are a part of the FIRE movement, my best piece of advice is to invest aggressively. The fastest and most profitable way to invest in real estate is to leverage the properties as much as you can,” Kevin Vandenboss, Broker at Vandenboss Commercial, said. “In most cases, you will get a higher return on your cash by spreading it out among several properties than it will by owning a single piece of real estate free and clear. The cash flow per property will be less, but the cash flow from four with a mortgage will be more than from one property without one. As you build equity in your investment properties you can either leverage the equity to buy more or use a 1031 exchange to trade up to a larger investment. It’s a game of monopoly. You have to stack up properties if you want to win.”

Caleb Liu, owner of HouseSimplySold.com, said you should “get educated in real estate first. You’re buying a house, not a share of Tesla stock. Mistakes hurt. Real estate, as great as it is, is generally not ‘retire early.’ There’s one exception: the young hustlers who put in eighty to one hundred hours looking everywhere to find great deals. Never buy based on quoted returns. Everything looks great on paper. But there are some shady people in real estate.”

Jared Hauf, a FIRE blogger for 30sum.com, said investors do their homework beforehand.

“Run your numbers multiple times and then run them some more. You can wipe out a lot of progress by purchasing the wrong property. If it doesn’t meet your exact goals, walk away,” Hauf said. “There are always more opportunities; picking the wrong one can sink your ship. To best achieve FIRE using real estate, the investor needs to have a firm understanding of what they’re trying to achieve. It’s easy to say we want to achieve making more money, but you must understand how, and have a plan in place to deal with all aspects of the business.”

Brian Davis, Director of Education at SparkRental, also has some very specific suggestions for FIRE real estate investors.

“My best advice for new real estate investors pursuing FIRE is to focus on just three fundamentals before anything else because there are so many micro-skills and moving parts involved in real estate investing…,” Davis said.

“First, focus on learning how to find good deals. As an investor said to me once, ‘There’s no deal tree that you can walk up to and pluck deals from; you need to learn how to go out and find them.’

“Second, learn how to accurately forecast rental cash flow. Financial independence requires income, so generally FIRE-oriented real estate investing means rental investing. Get very familiar with forecasting expenses, in particular, and get comfortable with running the numbers in a rental cash flow calculator. The last place you want to find yourself is buying a property that costs you money each year, rather than earning you money.

“Finally, learn how to screen tenants thoroughly. It sounds simple, and it is, yet so many new landlords gloss over this step. The quality of your returns directly correlates with the quality of your tenants, and bad tenants can cost you tens of thousands of dollars.”

The bottom line

FIRE is achievable even on a middling income if you make the right financial moves, according to practitioners and enthusiasts. If you intend to invest in real estate to achieve FIRE, you’ll need to avoid all of the most common pitfalls in the business and choose investments that will provide you with the best opportunity for steady income.

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USAA Renters Insurance Review 2020

In 1922, United Services Automobile Services (USAA) was born when 25 members of the U.S. Army formed a small organization to insure each other’s automobiles. What began as a well-orchestrated effort to help fellow Army members later became a booming organization serving all branches of military service.

To illustrate its rich history, USAA includes a timeline on its website to show current and future customers where it came from to get where it is now. USAA is now one of the only fully integrated financial services organizations in the United States and it has a net worth of over $31 billion. The company serves the insurance needs, including renters insurance, of over 12 million military service members. It goes without saying that it ranked in the top 10 of our review of the best renters insurance companies of 2020.

Find the Best Renter Insurance

Enter your ZIP code below and be sure to click at least 2-3 companies to find the very best rate.

Aside from USAA’s deep American roots, it’s also known for excellent customer service and has a reputation for providing sophisticated technology along with the flexible renters insurance options.

The specs

Price	Starting at $12 per month
Best for	Military members who are renting
Not for	Non-military or military homeowners
States served	50
Discounts	Renters and auto bundle discount Monitored security alarm discount
AM Best Rating	A++
Standout Features	Long-standing company reputation Excellent customer service Replacement cost coverage Affordable rates Innovative technology

The claim

USAA offers affordable renters insurance to the U.S. military and their families with more features than many other insurance companies. With one of their renters insurance policies, USAA promises your belongings will be taken care of in the event of damage, theft or destruction.

Is it true?

Our research shows that USAA’s claims are true. USAA offers renters insurance to active duty military, veterans and the families of both. Unlike many competitors, things like flood and earthquake coverage are standard parts of the USAA renters insurance policies.

Because it understands the mobile lives of active-duty military, USAA ensures that all your personal belongings will be covered, no matter where they are located. In addition to the excellent coverages, USAA ranked five out of five in overall satisfaction, policy offerings, price, billing process and policy information and interaction in J.D. Power’s 2019 Renters Insurance Study.

Our deep dive

• Replacement cost coverage: Many insurance companies offer actual cash value policies in addition to replacement cost policies. USAA differs in that it only offers replacement cost renters insurance policies. No matter how old your belongings are, the policy will cover you for what it costs to replace the item with a new one.
• Liability coverage: If someone or their property is damaged while on your property and you are liable, your USAA renters insurance policy promises liability coverage to cover those costs.
• Active-duty, veteran and family coverage: If you are active-duty military, a veteran or a family member of either, you are eligible for USAA insurance. However, if you do not fit into one of those categories, you will not be able to get insurance from USAA.
• Discounts: Though USAA’s discounts may seem limited, remember that they are highly competitive with its affordable rates. Consider bundling your renters and auto insurance and installing a monitored security system to save on a discounted premium.
• Quick turnaround: USAA has claims centers that are open 24/7, which means you will never be delayed in filing a claim.
• Mobile app: USAA offers a mobile app that gives 24/7 access to your insurance documents, claim filing and claim tracking. The app is now also accessible for those with visual impairment through voice-guided technology.
• Military uniform and equipment replacement: True to its roots, USAA offers special coverage for military uniforms and equipment as outlined below and on the website:
  • Repairs or replaces military uniforms and issued military equipment at full cost with no depreciation.
  • There is no deductible for covered losses sustained while on active or active reserve duty.
  • Includes coverage up to $10,000 for damage caused by war.

Cost rundown

While USAA’s renters insurance rates start at $12 per month, there are a variety of factors involved in determining what your rate will be. USAA underwriters will look at things like geographical location, the proximity of the rental unit to fire hydrants and first-responder stations, age of the property and potentially even your credit score.

Your premium cost may increase if you need to add any special endorsements. However, things like flood and earthquake coverage are built-in as a part of USAA’s standard renters insurance policy.

Cheaper (or free!) alternatives

Here are some ways to make USAA renters insurance even more affordable:

• Consider bundling your renters and auto insurance to save money on your annual premium.
• Install a monitored security system to save money on your annual premium.
• While it is important to have adequate coverage, don’t overdo your personal property coverage. Make an inventory of all personal property before seeking quotes.
• Monitor your credit score and make changes necessary to improve your score.

The competition

• Allstate: Allstate offers renters insurance coverage that is comparable to that of USAA, but with the added bonus of several discount options like a multi-policy discount, safe home discount, easy pay plan discount, 55 and retired discount and claim-free discounts. However, Allstate got below-average rankings nearly across the board in the J.D. Power’s 2019 Renters Insurance Study, which assessed customer satisfaction in a variety of categories.
• Erie Insurance: Erie Insurance, like some of its competitors, has been around for more than 90 years. Its local agents are known for providing personalized customer service. Erie’s renters insurance policy offerings are comparable to that of its competitors, and Erie received average to among-the-best ratings in all categories of the J.D. Power 2019 Renters Insurance Study.
• Nationwide: Nationwide Insurance is a nationally recognized name in the insurance industry, making it a competitor of USAA for renters insurance policies. It offers a variety of options on renters insurance policies, and things like theft extension for your belongings in any motor vehicle, trailer or watercraft. Nationwide also offers several discount options to lower your annual premium. However, on the J.D. Power survey, Nationwide scored below average across the board in all categories assessed.
• State Farm: On J.D. Power’s 2019 Renters Insurance Study, State Farm gets five out of five ratings in every category except claims. In that category, State Farm ranks two out of five, which represents below-average customer feedback on their claims process. While State Farm is inferiorly ranked in claims, we consider State Farm a competitor of USAA due to its long-standing history, reputation for good service and comparable renters policy options.

What others are saying

For the 2010-2018 time period, USAA received the highest scores in Satmetrix Net Promoter Benchmark Study. Between 2016 and 2019, USAA earned a ranking in the World’s Most Ethical Companies. These accomplishments are representative of USAA’s service excellence. Its No. 100 Fortune 500 rating in 2018 is indicative of superior financial strength.

In 2019, USAA was awarded the 2019 Gallup Great Workplace Award and FORTUNE’s Best Workplaces in Finance and Insurance Award. USAA also received a 100 percent rating on the Human Rights Campaign Foundation’s Corporate Equality Index. While these awards may not be directly related to USAA’s renters insurance policies, they are representative of the type of company USAA is and the morals it is founded on.

The bottom line

Renters insurance is a critical part of protecting your financial well-being. With a great reputation for customer service and flexible policy offerings, USAA is an excellent choice for renters insurance if you are a current or former military service member.

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