Lead image credit: Jeremy Blair/The Luxury Level & Kris Krüg via Wikimedia Commons
Canadian ice hockey legend Wayne Gretzky is looking for a buyer for his sprawling Colonial Revival-style estate in Thousand Oaks, Calif.
The gated (and highly private) compound has 13,000 square feet of luxury living space spread across a 6-bed, 8-bath main house and two guest houses, which Gretzky and his wife, Janet, are hoping will fetch them $22.9 million.
Gretzky is parting ways with the Thousand Oaks home for the second time, after first selling it in 2007 to baseball star Lenny Dykstra, who went bankrupt just a few short years later. At the time, Wayne Gretzky and his wife, Janet, moved to Arizona where Gretzky was coaching the Phoenix Coyotes.
More than a decade later, when the property came back on the market, the couple couldn’t resist the appeal of the home that they had built for themselves, so they bought back the estate.
Wayne Gretzky’s house in California. Image credit: Carsten Schertzer/The Luxury Level
Emotional connection aside, it’s easy to see why the ice hockey star and his wife wanted their old home back. The property sits on a 6.5-acre promontory within the prestigious Sherwood Country Club Estate — a premier lakeside, gated community near Los Angeles.
More sports celebrity homes
Past its gated entrance, there’s a motor court with stunning 360-degree panoramic views of the Santa Monica Mountains and Lake Sherwood, pairing stunning views with the ultimate privacy.
And we haven’t even gotten into the merits of the house itself, which is a timeless gem that’s bound to win the heart of anyone that crosses its doors.
Wayne Gretzky’s house in California. Image credit: Carsten Schertzer/The Luxury Level
Gretzky’s house was designed by “Megamansion King” Richard Landry
The home was designed by renowned architect Richard Landry who, just like Gretzky, is a Canadian-born sensation. Famous for his high-end residential projects, Landry has designed over 500 private homes, including some for Michael Bolton, Rod Stewart, and Tom Brady, boxing legend Sugar Ray Leonard as well as other athletes, celebrities and corporate moguls.
This, along with his ultra-luxurious designs, earned him the nickname of “The King of the Megamansion”.
Best described as timelessly elegant, the Colonial Revival-style estate boasts exquisite craftsmanship wherever you look.
At the entrance, you’re greeted by a dramatic entryway with crown moldings, a sweeping staircase, and arched doorways that lead into the formal space, with a chandelier-topped living room and a beautiful, marble-decked chef’s kitchen.
Wayne Gretzky’s house in California. Image credit: Carsten Schertzer/The Luxury LevelWayne Gretzky’s house in California. Image credit: Carsten Schertzer/The Luxury Level
As expected, the former NHL player’s house comes with a mile-long list of amenities, including a primary suite with a sitting room and dual baths, screening room, fitness facility, billiards room, office, championship tennis court, outdoor entertainment area, wood-burning pizza oven, wood and gas barbecue, and formal gardens.
Wayne Gretzky’s house in California. Image credit: Carsten Schertzer/The Luxury LevelWayne Gretzky’s house in California. Image credit: Carsten Schertzer/The Luxury Level
This is the 2nd time Gretzky is selling the mansion
Funny story: the NHL Hall of Famer and his wife Janet built the Colonial-style mansion soon after his retirement in 1999.
They then sold the property in 2007 to Lenny Dykstra, a former professional baseball center fielder who played in Major League Baseball for the New York Mets and Philadelphia Phillies. Dykstra paid $18.5 million for 6.5-acre property.
Following Lenny Dykstra’s very public financial fall, the opulent estate went into foreclosure and, after switching owners a couple more times, landed right back in Gretzky’s arms — who swooped in and bought it back for $13.5 million in 2018. Which means he basically he got it back for $5 million less than he had sold it for a decade earlier.
If the home sells for an amount even remotely close to the current asking price of $22,900,000, Gretzky stands to make a huge profit — for the second time. To lock in that goal, he hired Arvin Haddad with The Agency to help him sell the property.
Wayne Gretzky’s house in California. Image credit: Jeremy Blair/The Luxury Level
Nicknamed “The Great One”, Wayne Gretzky has often been hailed as the greatest hockey player ever by many sportswriters, players, and the NHL itself. He played 20 seasons in the National Hockey League for four teams from 1979 to 1999.
After retiring from the NHL, Wayne Gretzky went on to coach and used the earnings from his highly prolific career to built a business empire.
He’s now said to be worth $250 million, and has invested in many sports teams over the years. Gretzky is also a partner with First Team Sports, a sports equipment manufacturer.
More beautiful celebrity homes
The Fabulous Homes of Your Favorite F1 Drivers Serena Williams’ House in Florida is Bold and Beautiful, Just Like HerThe Playboy Mansion: Hugh Hefner’s Party Home is Now Part of Modern HistoryWhere does LeBron James live?
A mortgage escrow account is an integral part of the financial picture for many homeowners. These accounts are typically used in two ways: to hold an earnest money deposit a buyer puts on a home after signing a contract with the seller (it’s released at the closing), and to pay a homeowner’s property taxes, mortgage insurance and homeowners insurance premiums.
When it comes to the latter, some homebuyers are required by their mortgage lender to have an escrow account; others may opt into one through their mortgage servicer. Here’s how mortgage escrow accounts work, and if you do have a choice, the pros and cons to consider.
How do mortgage escrow accounts work?
Once you become a homeowner, a mortgage escrow account is an account used to hold and ensure that some of the major, ongoing expenses associated with your home are paid on time. Typically these expenses include:
Mortgage insurance payments
Homeowners insurance premiums
Property taxes
Instead of paying insurance and taxes separately, from a personal account, the money to cover these bills — plus a little extra, known as a “cushion” — is included in your total monthly mortgage payment. The mortgage lender or servicer holds these funds in an escrow account and makes the payments on the homeowner’s behalf as they are due. Payments might be made monthly, quarterly or bi-annually.
The key difference between an escrow account and any other financial account you might have: You don’t manage an escrow account yourself. Escrow is facilitated by a third party — in this case, your lender or servicer.
Should you use an escrow account?
Depending on the type of loan and its specifics, you might not have the option to forgo an escrow account. If you’re obtaining a conventional mortgage — that is, one from a private bank or lender — an escrow account is often required with a down payment of less than the standard 20 percent, as is mortgage insurance. You often don’t have a choice if you’re getting a federally backed loan, either. FHA loans and USDA loans require escrow accounts, though VA loans do not.
Let’s assume you do have a choice. There are viable reasons to have an escrow account: It can be an easy, hassle-free way to make payments for your mortgage, homeowners and mortgage insurance and property taxes, and the cushion can help cover potential shortfalls. You don’t need to be diligent about setting aside the funds, including extra for any unforeseen increases in premiums or taxes, and then making sure you meet the due dates for payments. Of course, there are negatives as well — it increases your monthly mortgage payment, and you might prefer to handle your own finances yourself, without a third party involved.
Pros of a mortgage escrow account
It’s automatic
Having your mortgage lender or servicer hold your property tax and homeowners insurance payments in escrow ensures that those bills are paid on time, automatically. You don’t have to keep track of it, or even think about it, and you avoid penalties such as late fees or potential liens against your home.
You’re covered when there are shortfalls
Homeowners insurance premiums and property tax assessments can fluctuate over time. For example, if your escrow account happens to be short due to your property tax bill increasing, your servicer will typically cover the difference temporarily. To make up for it, they’ll eventually increase your monthly mortgage payment.
No surprises
The exact amount needed for escrow is added to your monthly mortgage payment for you, so you’ll know what to expect the majority of the time. If the escrow component of your monthly mortgage payment needs to increase, you’ll get a notice from your lender or servicer in writing. Plus, your lender or servicer is required to send you an annual escrow statement that shows the amounts you’ve paid (and the drawdowns) along with any overages or shortages.
“Escrow accounts make life a lot easier for the majority of homeowners that want to add predictability to their monthly expenses, rather than getting whacked twice a year with big insurance and property tax bills,” says Greg McBride, CFA, Bankrate’s chief financial analyst.
Potentially lower mortgage costs
Depending on your mortgage lender, you may be able to get a discount on your interest rate or closing costs just by having an escrow account.
Cons of a mortgage escrow account
It’s automatic
While it’s convenient to not have to think about making various payments on time, this pro can actually be a con for organized homeowners who prefer to have full control over their payments. Many mortgage lenders allow homeowners to make property tax payments directly to the county assessor and homeowners insurance payments to their insurer.
You might miss out on investment opportunities
In particular, the money that might end up as an overage in an escrow account could be used for short-term investments. Earning interest on such investments may make more financial sense for you, instead of allowing a bank or lender to reap the gains.
Digital tools and attractive CD rates can help you invest your money outside of escrow and earn a better return for the long term, notes Henry Yoshida, founder and CEO of Rocket Dollar, a platform based in Austin, Texas, that enables users to invest funds from tax-advantaged retirement accounts.
“With interest rates where they are, there is limited opportunity cost from forgoing interest earnings on money that is instead being escrowed by the loan servicer throughout the year,” McBride says.
A large upfront deposit
Often, setting up an escrow account requires a homebuyer to deposit an amount equal to two to three months’ worth of property taxes and insurance premiums. These are sometimes called “prepaids,” and they can significantly add to your mortgage closing costs.
Because you’ll be paying for insurance and taxes with your regular mortgage payment, you’ll have a higher payment each month. Of course, you have to pay for insurance and taxes anyway, so they aren’t an additional cost. But having them in your monthly payment could leave less room in your budget month-to-month, and prepaids can exacerbate that.
Can be a target for scammers
Large sums parked in an escrow account make it an attractive target for fraudsters. Common mortgage escrow fraud schemes include cyber-thieves setting up fake websites that look similar to the servicer you’re working with, or spoof email addresses to try to get your personal information. Some sophisticated scammers even set up fake phone lines in an attempt to build trust. Under these false pretenses, fraudsters might try to persuade you to wire them money.
Possibility of incorrect estimates
The amount that needs to be tucked away in your escrow account hinges on your insurance premiums and property taxes, which can vary year-to-year. Generally, the previous year’s bills are used to figure out how much you’ll need, but incorrect estimates can happen if, for example, the assessed value of your home has increased — or you appeal and get a reduction in your property taxes.
FAQs
No. Mortgage escrow accounts are typically only required with certain types of loans — if you’re not financing your home purchase with a mortgage loan, it’s not a requirement. You can pay your insurance and property taxes on your own if you choose, as you would any other types of bills, or you can set up an escrow account at your bank if you’d like the convenience of them doing it for you.
An escrow account for a home purchase is managed by a third party, such as a mortgage servicing company, escrow agent or escrow company. Its purpose is to pay for taxes and insurance — the funds are included in your total monthly mortgage payment, and the servicer or agent makes the payments automatically on your behalf. Many people find this convenient, but some would rather manage their finances themselves.
No, you cannot take money out of your escrow account. The money held in a mortgage escrow account is held by the lender or loan servicing company on your behalf, to serve a specific purpose, and it is not typically accessible to the homeowner.
Bottom line
With a mortgage escrow account, your mortgage lender or servicer is allowed to collect the amount of your homeowners insurance, mortgage insurance and property tax payments, sometimes plus a cushion, month in and month out. It’s a very common financial tool and helps to ensure your obligations as a homeowner are met without much effort on your part (aside from making your mortgage payment). However, if escrow isn’t required, you might want to explore alternative uses for those funds.
Tap on the profile icon to edit your financial details.
Just because you retire doesn’t mean you have to stop working. And when work is an option rather than a requirement, it’s possible to select a low-stress job that multiplies fulfillment without adding anxiety — but still provides a bit of much-appreciated income. There are, in fact, a variety of such low-stress, high-reward jobs well-suited to the needs of retirees.
A financial advisor can help you devise a plan that will give you the flexibility to make choices in retirement.
Working in Retirement
People may continue working after retirement for a variety of reasons, including the benefits of generating additional income, the satisfaction of making a contribution and the stimulation of staying engaged. If nothing else, work can get them out of the house and fill the hours formerly devoted to their careers.
Many jobs are, however, likely to be more trouble than they are worth to a typical retiree. If what you are after is fulfillment without stress, it doesn’t make much sense to apply for a position as, say, a law enforcement officer working undercover for a drug-smuggling ring. Fortunately, there are many jobs that offer lots of benefits without lots of stress.
Low-Stress Jobs for Retirees
The work you do in retirement can be an extension of your former career or head off in a diametrically opposed direction. Either way, here are 12 possibilities:
Tutoring
Decades of life experience can admirably equip retirees to work as part-time tutors to students at various levels of education. English as a Second Language, for example, is a subject area many retirees can assist students with, while maintaining flexible hours and keeping supervision and red tape to a minimum.
Pet Care
For people who like getting outside and spending time with animals, walking dogs is a way to get paid for enjoying themselves. Sitting, grooming and transporting dogs as well as cats and other pets can offer similar appeal.
Massage Therapist
Many massage therapists see clients at their own homes or in annexes on the property, meaning there’s no commute and little hassle or overhead. If you enjoy helping others through the healing properties of touch, this could be a retirement gig for you.
Personal Trainer
A dedicated runner, swimmer, biker or gym rat, can get paid for sharing their knowledge and passion for fitness with others who are chasing their own fitness goals. Tasks include selecting exercises, structuring workouts and developing training plans.
Consultant
If you had a lengthy career in nearly any knowledge-based field, you may be able to monetize that experience in retirement while also being able pick and choose your clients, working flexible hours and even earning a handsome income, all as a self-employed consultant to businesses.
Life Coach
If helping individuals as opposed to businesses is more your style, you can set yourself up as a life coach helping people reach fulfillment by attaining goals in their professional and personal lives.
Travel Agent
Many who love to travel find earning fees and commissions as travel agents to be a good job in retirement. The work involves recommending destinations, organizing itineraries and booking tickets for transportation, lodging, meals and events.
Library Worker
Bibliophiles can surround themselves with books and get paid for the privilege by working at the library. Many positions are part-time and tend, almost by definition, to be low in noise, hustle and bustle.
Tour Guide
Museums, historical sites, nature centers, monuments and other attractions commonly employ guides to provide visitors with information and assistance as they tour the facility. The positions are well-suited to retirees who want to make some extra money and interact with a variety of people in a relaxed environment.
Personal Shopper
Retirees can shop until they drop without having to spend a dime of their own money – and even earn a few bucks – by working as personal shoppers. This job involves serving people who need help choosing clothing and accessories that fit their personal styles.
Landscape Artist
Cultivating b eautiful landscapes is a passion for many retirees. A peaceful day tilling the soil can also be a source of income with a job as a gardener or landscaper.
Event Coordinator
If you possess robust organization skills and are detail-oriented, there is always a demand for people who can plan and coordinate weddings, parties, conferences and other events.
Bottom Line
Although there probably are as many reasons for continuing to work after retiring as there are working retirees, it’s a safe bet that few if any are showing up for work in search of added stress. Fortunately, there are plenty of jobs open to retirees that pair high levels of fulfillment with low levels of stress.
Retirement Planning Tips
Generating sufficient income in retirement can be a challenge without the help of an experienced and qualified financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Whether you are retired and working mostly for non-financial means or still in the workforce and focused on earning income, SmartAsset’s paycheck calculator will tell you how much your employer will withhold from your check for federal, state and local taxes.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
Debt is a financial obligation that can weigh down your personal
balance sheet. It can also be expensive if you carry a balance and have to pay
interest. If you find yourself carrying too much debt, Leung recommends that
you set up a repayment plan. This can help you get your finances back into
positive territory as soon as possible.
Spend meaningfully
“This movement is not about cutting your own hair and
clipping coupons,” Leung says. Instead, he says that people pursuing FIRE
should spend their money on what they truly value without guilt. They should
divert money away from things that don’t matter to them.
Allen agrees with this principle of the FIRE retirement plan. For example, she says that if you value treating yourself to dinner at nice restaurants, then you can avoid spending money on fast food. Instead, you can prepare inexpensive meals at home during the week. You can then use your extra cash to enjoy a special meal out over the weekend. (There are even ways you can save money eating out at your favorite restaurants.)
Leung and Shen decided that the thousands of dollars they
spent each year on travel was worth it to them. However, having a nice car in a
city like Toronto that has excellent public transit was not.
Learn how to invest in the stock market
Investing wisely is critical for anyone on a FIRE retirement plan, Shen says. “If you learn to invest and build
a portfolio instead of putting everything into a house, for example, then that
portfolio will spin off passive income—not just in capital gains, but in the
form of dividends and interest,” she says.
That recurring dividend income from a substantial investment portfolio must
eventually be large enough to support your living expenses, Leung adds.
To reach that goal of sustained, passive investment income, Allen
recommends “investing early and often. And as much as you can, for as long as you
can.” That’s because the earlier you invest, the sooner you can benefit from
the power of compounding.
Of course, you should always consider your unique financial situation
and goals before making an investment decision.
Get a side hustle
In the FIRE community, retiring early doesn’t necessarily mean that you
aren’t making some extra cash to support your lifestyle. In fact, building a
side hustle is often encouraged as part of a FIRE retirement plan.
“For us, it’s writing,” Leung says. “We run a blog, and we also wrote a
bestselling book.”
There are many reasons you need a side hustle. Leung notes that after “retiring,” a side hustle—even one that generates $5,000 to $10,000 a year—can dramatically enhance your financial position. The extra cash flow can help you limit the amount you need to withdraw from your investments, allowing your nest egg to continue to compound over the years.
If writing isn’t your thing, there are plenty of opportunities to earn
extra money in today’s economy, Allen says. Selling arts and crafts on an
online marketplace or driving for a ride-share company are great ways to boost
the longevity of your financial independence.
Reduce your cost of living
One of the most
effective ways to expedite your FIRE
retirement plan is to keep your living costs down, Shen and Leung say.
That way, you’re able to funnel even more savings into the market, where your
nest egg can grow.
If you’re interested in the retire early movement, you’ll be interested in these two ways to manage your living costs:
Travel can actually keep a lid on costs
Shen and Leung have
always had the travel bug, and they’ve found that traveling has actually helped
them reduce their living expenses in early retirement.
Shen notes that
when they were living in Toronto, they were spending between $40,000 and
$50,000 a year on living expenses.
“But when we
started traveling the world,” Shen says, “we spent $40,000 a year and it hasn’t
gone above that amount for the past five years.”
Leung says that they
no longer pay rent like they did when they were saving for early retirement.
Instead, they typically live out of their backpacks and pay for low-cost
accommodations as they travel the world.
“We’ve found that
not only is travel worth it, it’s actually helped us mitigate our risks in our
portfolio because we were able to control our costs,” Shen says.
Geoarbitrage can improve the gap between income and expenses
Shen admits that globe-trotting isn’t for everyone. For people who
would rather stay in one place as they pursue FIRE, she recommends geographic
arbitrage. It’s also known as “geoarbitrage” for short in the FIRE community.
It’s a simple idea: Live and work in a city with a competitive job
market and command a high salary. Then move to a lower-cost city or
neighborhood while continuing to make the same salary.
You might be able to score a new gig in a lower-cost location without facing
a salary adjustment, or you could commute from a lower-cost area if you’re not
able to change your headquarters. Remote work might also be a possibility.
“One outcome of the pandemic was that more and more people were able to
work from home,” Shen says, which opened up the possibility of remote work and
geoarbitrage to even more people pursuing the retire early movement.
Can a recession alter someone’s FIRE savings plan?
Saving, investing and traveling your way to
financial independence sounds nice in theory. However, a recession can throw a
wrench into your FIRE savings plan.
“If you retire into a down market, you can deplete your portfolio very quickly,” Shen says. Keeping costs down can help, but there are other strategies that can help protect you from a market downturn.
Allen thinks the best approach is to have a healthy store of cash saved up in case a recession hits while in early retirement. She is still working toward her goal of saving $50,000 in an emergency savings account—in addition to her investments—before she’ll feel ready to quit her day job.
Allen notes that many
people in the FIRE community don’t like to hold a lot of cash. This is because
it could be growing faster if it were invested in the stock market.
“I’m a little bit
different on that,” she says. “You never know when the market is going to crash,
so you want to have that financial buffer to be sure that you’re safe.”
Is FIRE right for you?
Achieving financial independence early in life
clearly has its benefits. You no longer have to work a job if you don’t enjoy
it, and you can spend more time doing what you’re passionate about. For Shen and
Leung, that’s traveling, and for Allen, it’s writing. For you, it could be
anything.
But FIRE can have its drawbacks, and sometimes
the benefits of the retire early movement can be achieved in other ways.
The FIRE retirement plan can give you major FOMO
Kali Roberge, now creative director at Beyond Your Hammock, a financial planning firm, found the retire early movement in her early 20s as she struggled to find a promising career path. Roberge graduated into the Great Recession and—like many recent grads at that time—was frustrated by the lack of prospects.
She found FIRE to be a way to sidestep the
traditional rat race. “I felt like if I couldn’t figure out how to make it in
the corporate world with a high-earning job, I needed to make just enough to
get out completely.”
Roberge believes
that achieving financial independence is a worthwhile goal. However, she found
that her intense focus on the
early retirement portion of FIRE resulted in missed experiences and
opportunities. She’d regularly skip movies and other events with friends
to save for the goal of retiring
in her early 30s.
“I really missed a
lot of time that I could have been spending with other people because I
was literally sitting at home to avoid spending money,” she says.
Roberge feels that her commitment to FIRE blinded her to paths that would have enriched her life. “I eventually realized that I could have more freedom and power by exploring ways to earn more rather than just scrimping as much as possible,” she says.
While Roberge realized
that retiring in her 30s wasn’t for her, she now has her sights set on retiring
at the age of 45.
You can be financially independent without retiring early
Shen and Leung have been able to use the FIRE
retirement plan to quit their jobs and follow their passions. But they
emphasize that the “FI” part of FIRE (financial independence) can serve anyone
who wants to take more control over their life.
“You don’t actually have to do the retire
early part,” Leung says. “If you love your job, you can stay there. But
financial independence is all about getting more power back for yourself. Not
being beholden to your boss, not being beholden to debt, not being beholden to
your mortgage.”
Allen echoes this sentiment. “I feel like FIRE should be for everyone,” she says. She also notes that even if you love your job now, that might not always be the case. She believes learning budgeting basics, how to budget your money and investing best practices can help anyone get their financial life in order, while the ethos of following your passions instead of doing what’s expected of you is important for living a fulfilled life.
Whatever you decide, do it with intention,
Roberge recommends. “Make sure you’re committing to this because it’s the right
move for you and your life,” she says. “Money is a valuable resource, but so is
time. We need to make sure we’re leveraging both wisely.”
If retiring early is your goal, consider the money moves you need to make to get there, starting with why you need to make a retirement budget before you actually retire.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
Last weekend my wife and I browsed a local farmers market. At one stall, Kris found a necklace that she loved. “Will you buy this for my birthday?” she asked. When I learned that the necklace in question had been hand-made by a 14-year-old girl, and that this was how she was raising money for college, the deal was sealed.
This young woman is making money from her hobby. She’s also helping her parents to know whether they should provide financial support for college. (My guess: seeing how industrious this girl is, they’ll be happy to help with what they can.)
I am a sucker for kids selling things. It’s not just that I think it’s cute — I also like to reinforce positive behavior. Developing the courage to sell cookies or lemonade or magazine subscriptions or jewelry is an excellent thing. It’s one of the best ways to teach children the nature of money (and valuable social skills).
The latest issue of Kiplinger’s Personal Finance suggests sending kids to money camp:
Connie Proulx, of Lafayette, Colo., sent her 13-year-old daughter, Elaine, to Money $ense, a day camp operated by the nonprofit Young Americans Center for Financial Education (www.yacenter.org), in Denver. Elaine also attended the center’s Be Your Own Boss camp and now runs a small jewelry-making business. She has put some of her money into a certificate of deposit and contributes a portion of her business profits to charity. “All my friends talk about how they’ll work for her one day,” says Connie.
The center has two five-day finance camps: Money $ense, starting in late July, is for kids who’ve finished sixth or seventh grade and covers budgeting, investing, credit and taxes. Junior Money Matters, in late June and early July, is for youngsters just out of second or third grade. The younger children learn the history of money and play games, such as banking bingo. Everyone spends time running the center’s mock town. Each camp costs $175 per child, and sessions are held at facilities in Denver and Lakewood, Colo.
For teens 15 and older, there’s Finance Challenge Camp at Westminster College, in Salt Lake City. The one-week session, which runs from July 9 to July 15, costs $600 — or close to $1,000 including airfare. Find more finance camps at www.mysummercamps.com and www.campchannel.com.
Why is it so important to instill good money sense in kids? Take a look at Scott Burns’ simple recipe to become a millionaire:
Work four summers, starting at age 16.
Save the income in a Roth IRA account.
Invest in a simple, low-cost equity portfolio.
Simmer slowly for 47 years.
Serve ungarnished (and untaxed) at age 67.
I love this advice. It demonstrates again how compound returns favor the young. If you are in high school — or college — resist the urge to party with your peers. If you can exercise the mental fortitude to save money for just a few years, you can practically guarantee comfort in your retirement. A short burst of dedication in your youth can prevent an adulthood of struggle. (A Kiplinger article outlines six steps to becoming your own boss, a sort of how-to guide for young entrepreneurs.)
Get Rich Slowly hasn’t covered entrepreneurship much yet, but it’s an important aspect of personal finance, one I plan to write about more in the future. It has been demonstrated repeatedly that going into business for yourself is one of the best ways to provide for your future. There are many books available on this subject (The Millionaire Maker is a recent popular example). Ramit Sethi’s I Will Teach You to Be Rich frequently covers entrepreneurship.
We all know that the secret to getting insanely rich is to accumulate assets and avoid liabilities. The tricky part is knowing in advance which asset gets us there faster.
Before the technology boom, some may have picked San Francisco Real Estate and gone all-in, enabling them now to do a Cash-Out Refinance.
Others may have picked a relatively new asset like Bitcoin before the meteoric rise.
There are several success stories involving real estate, collectibles, and other assets that are not liquid or do not have a large trading market. Most of them involve a one-time buying decision and then a long holding period.
It is rare to consistently beat the market by trading over a long period, predominantly liquid markets such as stocks or commodities.
What if you could invest in a fund that had compounded annually at the rate of 63.3% over the last 30 years?
Welcome to the secretive world of Renaissance Technologies and the Medallion fund.
Who Owns Renaissance Technologies?
Jim Simons founded Renaissance Technologies, a former Cold war code breaker and a famous mathematician. He is known in the scientific community for co-developing the Chern–Simons theory. Simons also received the Oswald Veblen Prize of the American Mathematical Society, which is geometry’s highest honor.
In 1988, the firm established the Flagship Medallion Fund.
What Is the Medallion Fund?
Simons and algebraist James Ax started a hedge fund and named it Medallion in honor of the math awards that they had won. The Medallion fund used mathematical models to explore correlations from which they could profit.
In 1988, Simons had decided to base the company’s trades entirely on the models. However, by April 1989, peak-to-trough losses had amounted to about 30%.
Simons turned to Elwyn Berlekamp, a mathematics professor from UC Berkeley, to overhaul the trading system. Berlekamp was instrumental in evolving trading to shorter-dated, pure systems driven decision-making. Initially, the focus was on bonds, commodities, and currencies.
In 1993, Simons hired Bob Mercer and Peter Brown, who were working on speech recognition and machine translation at IBM research. This partnership proved highly successful as they cracked the equities market. For the fund to grow, many more assets were required. Equities had proven difficult for the Renaissance team to break. The addition of equities allowed the Medallion fund to scale to thousands of assets.
Performance of Medallion Fund
The performance of the Medallion fund has astounded everyone. If you had invested $1,000 in the Medallion Fund, after 30 years, you would now have $20 million (after fees). To put these numbers into perspective, a similar amount invested in the S&P 500 would be $20,000. And if you invested in Berkshire Hathaway, it would have grown to only $100,000.
No one in the investment world comes close to Jim Simons and his flagship Medallion fund. Warren Buffett, George Soros, Peter Lynch, Steve Cohen, and Ray Dalio all fall short.
Bradford Cornell analyzed the Medallion Fund and published a brief paper in the Journal Of Portfolio Management. He considered the Medallion fund as the ultimate challenge to the efficient market hypothesis.
“The performance of Renaissance Technologies’ Medallion fund is like I saw a T. Rex in my backyard. I just don’t get it.” -Bradford Cornell, Professor Emeritus UCLA
Furthermore, during the entire 31-year period, Medallion never had a negative return despite the dotcom crash and the financial crisis. Despite this remarkable performance, the fund’s market beta and factor loadings were all negative. So the Medallion Fund performance cannot be interpreted as a premium for risk-bearing.
To date, there is no adequate rational market explanation for this performance.
How Does Medallion Fund Work?
The Medallion fund embodies the “will robots take my job” sentiment prevalent on Wall Street.
Data
Since the early days, Renaissance has been collecting and curating vast data archives of everything. From economic metrics to the weather to trading sentiment and a million other variables. The interaction between these data sets and the direction of the security movement forms the base of their secret sauce.
Strategy
Medallion’s strategy involves holding thousands of short-term positions, both long and short, at any given time. The fund makes high-frequency trades but has also held positions for up to one or two weeks.
Algorithmic Trading
The Medallion Fund has employed mathematical models to analyze and execute trades, many of them automated. The firm uses computer-based models to predict price changes. These models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions.
Leverage
The trades are made using a lot of leverage, which amplifies the gains. The only challenge with using leverage in trading is to manage risks appropriately. I believe Real Estate is still the best way to obtain a leveraged return without margin calls, as long as you know how to evaluate real estate deals.
Position Sizing
Depending on the conditions spewed out by the model, the size of the trade varies. That is an essential factor to note because I have personally made many bad investments. Keeping the position size of my trades as a fraction of my Net worth; ensured that my four worst investments did not ruin me.
Combining Several Small Wins
Robert Mercer, the former co-chief executive of Renaissance Technologies, allegedly told a friend that Medallion was right 50.75 percent of the time when it came to its millions of trades. “You can make billions that way, doing potentially hundreds of thousands or millions of trades. Even a small amount of profitability per trade turns out to be a big amount.”
That is similar to how a Casino makes profits. The house has a slight edge, and over some time, the volume of money adds up.
How Big Is Medallion Fund?
The Medallion fund manages roughly $10 billion in assets. The secret to their outperformance also lies in the fund size. They have never let the fund get too big. Whatever profit they make is paid out. That enables the firm to stay small and nimble.
How Do I Invest in the Medallion Fund?
If you are wondering how to invest in the Medallion Fund, the bad news is that you can’t.
The Medallion fund has been closed to outside investors since 1993. It is available only to current and past employees of Renaissance Technologies and their families.
Working at Renaissance Technologies only for the ability to invest in the Medallion Fund; is the ultimate example of improving human capital to accelerate Financial Freedom. The firm bought out the last investor in the Medallion fund in 2005, and the investor community has not seen its returns since then.
By 2012 Renaissance was granted a special exemption by the United States Labor Department, allowing employees to invest their retirement money in Medallion Fund, arguing that Medallion had consistently outperformed their old 401(k) plan. Imagine the tax free growth of all the pre-tax contributions!
Renaissance Technologies has strict rules that bar former employees from using their intellectual property at rival firms.
Simons told a New York conference last month that the company has almost no turnover among its 300 or so employees, many of whom are based on a 50-acre campus near Stony Brook University on Long Island, where Simons formerly headed the mathematics department.
We don’t have any turnover. We’re cautious. -Jim Simons, Renaissance Technologies
Performance of Other Renaissance Technologies Funds
While the pandemic caught everyone by surprise and even humbled Warren Buffet into selling his airline stocks at a loss, the Medallion Fund continued its outperformance. It gained 10% in March and 39% (before fees) through mid-April.
However, the other Renaissance Technology funds open to the public have not fared as well.
The Medallion fund employs a short-term, quantitative trading strategy across many asset classes. These include global equities, futures, commodities, and currencies. It also tends to have high turnover and significant leverage.
The Renaissance Institutional Equities (RIEF) Fund only trades in stock. The fund holds stocks for long periods.
The Renaissance Institutional Diversified Alpha (RIDA) Fund trades equities, derivatives, and various instruments in the global futures and forwards markets. Like RIEF, the RIDA fund holds significant individual positions, usually for long periods.
The Renaissance Institutional Diversified Global Equities (RIDGE) Fund trades equities and derivatives. It seeks to be market neutral by maintaining low levels of beta, or exposure to the broader market.
The lackluster performance of other Renaissance Technology funds could be due to the different strategies.
Final Thoughts on Medallion Fund
It is possible to beat index investing even over the long term. But it is such a rare occurrence that research papers and entire books are written about it.
Medallion Fund has had outsized performance, but would it continue is something no one knows.
Since the Medallion Fund is out of reach, I have decided to embark on Moonshot Investing. That is an asymmetric risk strategy where a portion of my Net Worth is invested in companies that, I believe, will outperform the broader markets over time. Instead of going all in, I dollar cost average to reduce my price entry and risk.
Dollar-cost averaging executes purchases weekly or more frequently as desired. I also exit positions once particular securities have an outsized gain in a short period.
John came from a third world country to the US with only $1,000, not knowing anyone, guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown -https://financialfreedomcountdown.com/ to help everyone think differently about their financial challenges and live their best lives. He resides in the San Francisco Bay Area, enjoying nature trails and weight training.
Investing in real estate is always considered one of the best ways to build wealth.
Unfortunately, there are some drawbacks that make traditional real estate investments (like owning rental properties) challenging and prevent most people from trying.
The most significant challenges to owning properties are:
Capital – Many people who are interested in real investing don’t have the money needed for a down payment on a rental property.
Time requirements – Owning and managing rental properties can be a major commitment.
There are some ways to invest in real estate, however, that can produce passive income without the need to manage properties or deal with tenants.
In recent years, the growth of real estate crowdfunding has opened up many new opportunities for the average investor who wants to branch out into real estate.
Real Estate Crowdfunding: A Quick Overview
Real estate crowdfunding makes it possible for smaller investors to benefit from real estate without the need to deal with property management or many of the other issues that come along with being a landlord.
Real estate crowdfunding began with the JOBS Act of 2012, and in the past several years, more than 100 different websites/platforms have entered the industry.
Although many different companies fall under the classification of real estate crowdfunding, there are several different approaches and some major differences that you need to be aware of if you are considering investing.
What all real estate crowdfunding platforms have in common is the fact that they allow individual investors to participate in larger real estate deals without the need to manage the property.
Some platforms allow you to invest in specific properties or projects, while others allow you to invest in a portfolio of properties. Some focus on commercial properties or apartment buildings, and others focus on smaller residential properties.
As an investor, there is a lot to like about the opportunities that are available. If you’re looking for an investment that has the capability to produce passive income, real estate crowdfunding is something that you should consider. Regardless of whether you are looking for an investment that can produce income during retirement or whether you want to reinvest to grow your wealth faster, there is a lot to like.
For a much more detailed look, see Kevin’s article Ultimate Guide to Real Estate Crowdfunding: What it is and Where Can I Invest?
Aren’t Rental Properties Sources of Passive Income?
With all of the talk about passive income, you may be wondering why crowdfunding would be preferable over directly owning rental properties. After all, owning rental properties is often listed as a great way to earn passive income.
While owning rental properties is a proven and time-tested way to build wealth, it can take a significant commitment in terms of your time and attention.
As a landlord, you may not always need to put in a lot of time, but you’ll have very little control over when you are needed.
If a tenant has a plumbing leak on a holiday weekend, you’re probably the first person they will call. You’re responsible for everything that needs to be done with the property, and that can be a big responsibility.
On top of maintenance and repairs, you may also have to deal with tenants who pay late, or not at all. Chasing down late payments or working through an eviction process can take a lot of your time.
Yes, it’s possible to hire a property manager to handle a lot of the details, but that will cut into your profit and it won’t totally remove the responsibility from yourself.
On the other hand, crowdfunding offers a truly passive way for you to invest in real estate.
Andrew Herrig owns multiple rental properties and also invests through real estate crowdfunding platforms (he also blogs at Wealthy Nickel). On the subject of passive income from real estate, Andrew dispels the notion of the truly passive rental property.
“As a real estate investor who owns a portfolio of rental properties, I also put some of my money into real estate crowdfunding. While many people talk about rentals as being a passive investment, that has not been my experience. Even if you have a property manager, you still have to manage the manager and get involved in making decisions on placing tenants or paying for repairs or upgrades. Real estate crowdfunding provides truly passive income (aside from the due diligence you need to do on the deal sponsor). I am constantly evaluating my real estate portfolio to see where it makes sense to convert an active rental property investment into a passive crowdfunding investment. If in a particular scenario I can get similar returns from crowdfunding, it’s a no-brainer to invest there instead.”
Generating Passive Income from Crowdfunding
If you’re intrigued by the possibilities, you may be wondering how to get started.
Here is a look at the steps you can take to start generating passive income through real estate crowdfunding.
Are You An Accredited Investor?
The first thing you need to know is, are you an accredited investor?
To qualify as an accredited investor you will need to have a net worth of at least $1 million (excluding your primary residence), or you’ll need an income of at least $200,000 (for single filers) or $300,000 (for joint filers) for the past two years.
If you don’t meet those qualifications, don’t worry. Some real estate crowdfunding platforms are only available to accredited investors, but others are available to all investors. Some have options for accredited investors and non-accredited investors alike.
Accredited investors will definitely have more options (see our table below), but there are plenty of good options that are accessible to anyone. But it’s important to know if you qualify as an accredited investor, because it will determine what options are available to you.
Options For Non-Accredited Investors
For those who are not accredited, some of the best options include:
Fundrise
Invest in a portfolio of properties through Fundrise. You can choose their Starter Portfolio, or one of their three Core Plans: Supplemental Income, Balanced Investing, or Long-Term Growth. The Core Plans allow you to choose an approach that fits well with your own situation and needs. Read our full Fundrise review here.
DiversyFund
DiversyFund provides investors with the ability to diversify some of their holdings into commercial real estate, while the $500 minimum investment for non-accredited investors is a definite plus.
DiversyFund is different from most other real estate crowdfunding platforms in that their REIT actually owns the properties held in the trust. They buy, manage – and when necessary – sell properties in the trust.
You can expect a 7% preferred return before DiversyFund receives any profit split. Then investors earn 65% of the cash flow profits above the 7%. Once investors have made 12% per year, any remaining profits are split 50/50 between investors and DiversyFund.
Read our full DiversyFund review here.
Modiv
Modiv currently offers two different REITs that are open to all investors. Read our full Modiv review here.
Groundfloor
Groundfloor is one of the few crowdfunding platforms that is open to non-accredited investors and facilitates investment in specific properties. The investments through Groundfloor are short-term (usually 6-12 months) and return 5% – 25% interest. The investments are used by flippers and you’ll be able to pick the exact projects that you want to invest in.
How Do You Want To Invest?
Do you want to invest in a portfolio of properties, or do you prefer to invest in individual properties that you handpick?
By investing in a portfolio of properties you can get started very quickly without the need to vet or research the individual properties or projects. You can create an account, fund it, and start investing right away. It’s a low-maintenance, long-term investment that is ideal for generating passive income. An example would be investing in any of the options offered by Fundrise (their Starter Portfolio or any of their Core Plans).
The other option is to choose the specific properties and projects that you want to invest in. If you are not an accredited investor, Groundfloor is basically your only option for picking individual properties, and they focus only on flips of residential properties. If you’re an accredited investor, you’ll have far more options here. For example, you could use PeerStreet to invest in individual loans or use EquityMultiple to invest in large commercial or residential properties. You can use FarmTogether to invest in tracts of farmland, a surprisingly good investment over the past 50 years.
Once you know if you are an accredited investor and you know the type of investment you want to make, you can quickly narrow down the possibilities and find the best investment for you.
How Much Are You Willing/Able To Invest?
Each platform will have specific requirements related to minimum investments. In some cases, the minimum can vary based on the specific investment that you choose.
Most of the platforms that allow investments from non-accredited investors have lower minimums in order to make the investments realistic for more people. But many of the platforms that are open only to accredited investors will have minimum investments in the $1,000 – $10,000 range.
If you see high minimum investments at a few platforms, don’t be discouraged. Here are the minimums at some of the top platforms:
Do You Want To Reinvest Dividends?
Although we’re talking about passive income, you could choose to reinvest. If you don’t currently need the money, reinvesting will allow your investment to grow much faster and larger.
This is especially easy if you are using the portfolio approach. For example, Fundrise investors have a setting in the dashboard that allows you to easily control whether your dividends are paid out to you as cash or reinvested. You can set it to reinvest and then easily change it in the future whenever you want.
If you are investing in individual properties or projects, you probably won’t have the option to reinvest automatically. Instead, you’ll need to choose new investments to invest in.
Recommendations For Getting Started
If you’re new to crowdfunding or real estate investing in general, the portfolio approach is definitely the easiest way to get started (it’s also the option that is most accessible to non-accredited investors).
You’ll need to choose the crowdfunding platform that you want to invest with, make sure you can meet the minimum investment, create your account, and fund it.
This is a long-term type of investment and you need to be aware that your investment is unlikely to be liquid. Be sure to check the details related to liquidity before you invest, but in general, this is not an appropriate investment if you might need the money within the next few years.
Invest In A Portfolio Of Properties
A few recommendations if you want to take the portfolio approach:
Fundrise – Fundrise is a great entry point to the world of real estate crowdfunding. It’s open to all investors, has a relatively low minimum investment of $500 (for the Starter Portfolio – the Core Plans have a minimum investment of $1,000), and doesn’t require you to vet any specific properties or projects.
RealtyMogul – RealtyMogul offers a few different types of investments. Accredited investors are able to invest in individual properties, but they also offer public, non-traded REITs that are open to non-accredited investors.
Modiv – Modiv also offers anyone the opportunity to invest in REITs, making it a quick and easy way to start.
Invest In Individual Properties
If you prefer to invest in individual properties, here are a few excellent options:
Groundfloor – As was mentioned earlier, Groundfloor is pretty much the only platform that allows non-accredited investors the option to invest in individual properties.
PeerStreet – PeerStreet is a marketplace where accredited investors can invest in private real estate loans. You can create an account and view the available investments.
FarmTogether – is a crowdfunding platform that invests exclusively in farmland. Farmland has been one of the best and most reliable investments over the past 50 years. They shoot for an annualized investment return of between 8% and 15%.
Other Ways to Invest in Real Estate Passively
Although crowdfunding offers a great way to generate passive income from real estate, there are a few other options that offer many of the same benefits without the need to manage the property yourself.
Public REITs
Public REITs can either be traded or non-traded. Publically traded REITs are probably the most liquid of all real estate investments since they can be bought or sold at any time, however, the returns tend to be lower.
Public non-traded REITs meet the requirements of the SEC, but they are not traded on an exchange, which means they tend to be illiquid.
Some of the crowdfunding platforms that were mentioned in this article offer REITs, but you can also invest in REITs in many other ways. If you have an existing account with Vanguard or Fidelity, you can very easily start investing in REITs.
Mutual Funds and ETFs
While REITs invest in real estate, REIT ETFs invest in multiple REITs. There are also many mutual funds that focus on real estate. Like other mutual funds and ETFs, these investments offer liquidity, so you’re not looked into a long-term investment.
Crowdfunding Site
Fees
Account Minimum
Accredited Investor
Review
* Groundfloor
None
$10
No
Review
* DiversyFund
None
$500
No
Review
* Fundrise
1%/year
$500
No
Review
* RealtyMogul
0.30% – 0.50%/year
$5,000
No
Review
* stREITwise
3% up front fee, 2% annual management fee.
$1,000
No
Review
* FarmTogether
Intake fee of between 0.5% and 1.0%. 1% annual management fee.
$10,000
Yes
Review
CrowdStreet
None
$10,000
Yes
Review
Yieldstreet
1-4%/year
$2500
No
Equity Multiple
0.5% service charge + 10% of all profits
$5,000
Yes
Review
PeerStreet
0.25% – 1.0% setup fee
$1,000
Yes
Review
Sharestates
0-2% setup fee
$1,000
Yes
Patch of Land
0-3% of loan total
$1,000
Yes
Modiv
None
$1000
Yes
Review
RealCrowd
None
$5,000
Yes
Cadre
Intake fee of between 1-3%. 1.5-2% annual management fee.
Many people approach budgeting in this fashion: Pay bills, spend a little, and any money that’s left goes in savings.
But those leftover crumbs aren’t often enough. Not prioritizing saving may be the reason nearly a quarter (23%) of Americans don’t have any money in savings, according to a recent financial literacy survey conducted by The Penny Hoarder. Of those surveyed, about 40% reported having less than $1,000 saved up.
One way to save more for the future is to prioritize saving over everything else when creating your budget. Some refer to this approach as reverse budgeting, while others call it the “pay yourself first” budgeting strategy. However you think of it, focusing on saving first can pull you from the rut of not saving at all and reset your approach to personal finance
What Does It Mean to Pay Yourself First?
Paying yourself first isn’t really a budget. It’s a way to reset how you handle monthly income to make savings goals a priority. Setting aside “pay yourself first” money for savings accounts can shift your mindset and help align financial goals with how you want to spend money.
Mark Charnet, founder and CEO of American Prosperity Group in Pompton Plains, New Jersey, suggests saving about 10% of your net income — the money you receive after taxes, health care premiums and 401(k) contributions are taken out — each time you get paid.
If you can’t afford to put away 10%, start smaller. The bills never stop, and it’s not like you can tell your credit card company you can’t pay this month because you’re working on your emergency fund. We get it.
Thinking of starting an emergency fund for the unexpected expenses life throws at you? Start here with our guide on building a buffer for financial emergencies.
Why You Should Use the Pay-Yourself-First Method
How you divvy up your savings depends on your individual needs, but here are a few things you should focus on when using the pay-yourself-first budget.
Setting Up an Emergency Fund
Will you have enough money the next time your car breaks down to cover repairs? Or how about when you have to move for your next job opportunity? Emergency funds are designed to take care of big-ticket variable costs that live outside of your monthly expenses.
Increasing Your Retirement Contributions
If you checked the balance in your retirement account recently and gasped, you’re not alone. A 2022 Bankrate survey indicates 55% of Americans reported being behind or significantly behind in retirement contributions. Paying yourself first can be a good way to get back on track.
Paying High-Interest Debt or Loan Payments
If you’ve dug a deep hole of credit card debt and are struggling to get out, paying yourself first can help. Putting 10% or more of each paycheck toward paying down your high-interest debt or loan payments can help you shrink that balance fast.
Pro Tip
Get ahead of rate increases quickly with a sinking fund that lets you save a large amount of money fast ahead of a big event or deadline.
Preparing Your Savings Account or Checking Account for a Big Purchase
Speaking of big events, if you need to buy a car in the near future, divert a larger amount of cash toward that goal. Saving up for a home or sending a kid to college? Simply increase your savings contributions for “pay yourself first” each pay period. Just be sure you have enough to cover living expenses.
How to Pay Yourself First in 4 Easy Steps
Identify Your Financial Priorities
If you’re unsure of the best way to save money for the future, Charnet recommends talking to a financial adviser like a certified financial planner.
“(Those just starting to save) should not feel embarrassed or make the assumption that (they’re) too small of a fish for a financial adviser,” he said. “That is absolutely not true.”
Set a Reasonable Savings Goal
While paying yourself first is a good strategy for building a savings vehicle that can deliver a brighter financial future, take care not to be too ambitious upfront. Set a reasonable goal that won’t leave you taking on debt or dipping into savings to take care of everyday expenses like utility bills.
Transfer Money Automatically
Automating saving can help you set aside money without having to think about it. Adjust your direct deposit at work so a percentage of your check automatically goes to savings. Or schedule automatic transfers from your checking account right after you’re paid.
Keep an Eye on Your Bank Account
After your savings are deducted from your income, you can focus your budget on bills, necessary expenses and discretionary spending.
You may find you have less money for extras — like entertainment or eating out — but if you pay yourself first, you’ll be in a better financial situation to face the future, instead of scrambling to come up with money when you truly need it.
Combine Pay Yourself First with Other Budgeting Methods
While paying yourself first can get your financial priorities straight and change your spending habits, it’s also not a budget. Check out some of the most popular budgeting methods to learn more about which methods complement a pay-yourself-first or reverse budget strategy.
Not sure which budgeting method will work best for you? Take our budgeting quiz to get personalized recommendations.
Kaz Weida is a senior writer at The Penny Hoarder. Nicole Dow is a former senior writer at The Penny Hoarder.
Hello! Today, I have a great debt payoff story from Sarah. Sarah is a Southern California mom of 3. She blogs over at Let’s Talk Mom Business about the budgeting and frugal living strategies she and her husband used to crush $100,000 in debt while living on one income.
Shortly after having our second child 6 years ago, my husband and I decided that we wanted to get serious about paying off our debt.
We had been making our monthly payments, but we weren’t really making any progress. Some months we were even adding to our total debt by paying for unanticipated expenses on our credit card.
I am a stay-at-home mom so we were living on one income, and we knew that carrying such a large amount of debt was dangerous, especially without much of a savings.
We outlined a strategy to budget by paycheck using a zero-based budget, and I created a budget binder to help us track our finances.
This strategy helped us pay off $100,000 in 4 years on a single income while growing our family (and we’re NOT rich!).
Other debt free stories to read:
Where Did Our Debt Come From?
When my husband and I got married, I was completely debt free thanks to my parents’ help with college and a car. My husband’s debt wasn’t over the top, but he did have around $35,000 in school loans.
The rest of the debt was accumulated in the first several years of our marriage. My husband needed to have $20,000 worth of dental work done over a 3 year period.
We also moved quite frequently for my husband’s job, and we sold a home after only owning it for a short period of time. We took a fairly substantial loss on the home after all of the real estate fees.
And we can’t forget credit cards and car loans on two new cars. We had essentially been living slightly above our means month after month causing us to rack up around $12,000 in credit card debt.
In total, we had just slightly above $100,000 in total debt.
How to Create a Plan that Works for Your Family
I truly believe that there is no one size fits all approach to budgeting, because every family has different priorities and resources. There’s no set amount you should spend in a specific category or save as an emergency fund. Those things are very different from family to family.
The very first thing we did was to sit down and talk about our goals and priorities along with what we were willing to give up.
Like most couples, my husband and I are different in the way we view finances and how we prioritize things, so we needed to compromise on things like eating out, clothing purchases, leisure activities and vacations.
This conversation helped us outline spending categories and set realistic goals around how long it would take us to pay off our debt. You may decide to be more or less aggressive on your debt payoff time table than us based on your own goals.
Our main priority was that I continue to stay home with our kids, so we had to outline our budget in a way that allowed us to pay off debt but also add to savings to protect ourselves from things like unexpected job loss or large emergency expenses.
Next, we printed out 3-6 months worth of financial statements to include checking account, savings accounts, credit cards, and loans. We wanted a realistic picture of what we were actually spending each month in our budget categories. For example, we thought that we were spending $800 per month on groceries, but we found out we were actually spending around $1400.
I find that a lot of people, ourselves included, believe they spend far less than they actually do in many areas of their lives. Looking at our spending history over several months gave us a more accurate picture of our spending habits.
The Budgeting Method We Chose
We are paycheck budgeters who use a zero-based budget to track our finances. I am the one in charge of our family’s finances, and I have been a pen and paper person over budgeting apps since the beginning. We could never figure out an app that both of us could stay consistent with.
Budgeting by paycheck means that you create a mini budget for each individual paycheck. When you receive a paycheck, you essentially write out all of the bills that fall within that given paycheck. You then take the amount that’s left over and assign that to your variable expenses like groceries, entertainment, dining out, and so on. You can adjust how much you spend in these variable categories to open up income to allocate towards debt and savings.
You assign every single dollar of that paycheck a job until you have zero dollars left to plan for, which is a zero-based budget.
Who does Paycheck Budgeting Work Best For?
I honestly think that we will always be paycheck budgeters, even if we have a lot leftover at the end of the month some day in the future. I believe in assigning a job to every single dollar and being intentional with finances.
That being said, paycheck budgeting is amazing for people living paycheck to paycheck like us. I really struggled with a monthly budget, because if you give me $800 to spend on groceries for a month, I’ll spend $600 of it in the 10 days leaving nothing leftover at the end of the month.
With paycheck budgeting, you’re setting goals for a shorter period of time, which I find much easier to track and stick to.
The System We Set Up for Our Finances
When we first started budgeting by paycheck, I had a sticky note on my desk that listed the paycheck amount along with all of the bills that needed to be paid with that paycheck.
When it came to our variable expenses, savings, and debt, I was kind of flying by the seat of my pants tracking everything and tallying totals. I decided to create my own budget binder to track all of our personal finances in one place. I ended up with a 25 page budget binder that I use to track and manage all of our money.
I follow the same steps every month to track and document our progress towards various financial goals.
How We Track Our Finances Step-by-Step
Step 1: Print Out a Blank Monthly Calendar
Each month we print out a blank monthly calendar and write down which days we receive paychecks along with due dates and amounts for our fixed bills. This helps me see which bills I will need to pay within a specific pay period.
I also write down any special events where we may need to spend money outside of our normal budget. This could be things like holidays, birthdays, scheduled date nights, kids’ extracurriculars, scheduled car maintenance, or pretty much anything that’s anticipated but not typical to every single month.
This gives me a really good picture of what to expect for that month so I minimize surprises.
Step 2: Outline a Monthly Budget
I know I said that we budget by paycheck, but I still outline a monthly budget at the beginning of every single month. Seeing the bigger picture of a month helps me set up more realistic spending goals in our variable categories.
I use the monthly calendar that I created to account for any unusual expenses and adjust our budget accordingly for the month.
A monthly budget is also really helpful if your rent or mortgage is a very large portion of your budget. We have been in positions over the years where our housing expense has been 40-50% of our monthly income. That means a mortgage or rental payment will take up most or all of an entire paycheck. A monthly budget helps plan for how much you need to roll over from a previous paycheck to cover all of your expenses.
Step 3: Break Your Month Into Pay Periods by Paycheck
Once I have a good picture of our monthly income versus expenses, I can budget by paycheck. We receive paychecks every other week (bi-monthly), so I set up two mini budgets within each month.
For each paycheck, I write down the amount of income received and list all fixed expenses such as utility bills with their amounts. I then calculate how much we have leftover after fixed expenses to allocate to our variable expenses including: groceries, dining out, entertainment, and miscellaneous.
Once I’ve assigned a budget to our variable expenses, I calculate how much we have leftover in that paycheck to assign to debt payments and savings. After I’ve accounted for these, we should have zero dollars leftover in our calculation.
Step 4: Set Up Systems to Follow-Through
Of course it’s amazing to have our budget outlined and ready to go, but it’s only a bunch of numbers on some paper without a plan to actually stick to it.
The first thing we did was to automatically withdraw our savings from each paycheck. This went towards a retirement account and an emergency savings. The amounts were taken out of each paycheck automatically so that we weren’t tempted to spend that money. We basically adjusted to a new paycheck amount.
As soon as the paycheck hit our checking account, I immediately made our debt payments. We found that if we waited until the end of a pay period, we overspent on variable expenses and weren’t able to pay off as much as we wanted.
Once our savings was transferred and our debt payment was made, we were left with the money that would go towards fixed expenses and variable expenses.
The Simple Method We Use to Track Our Spending
When we were in the midst of our debt journey, things were really tight. We set up a realistic plan that we felt we could both stick to, and we knew that if we swayed from that plan we would be living outside of our means.
Cash envelopes were (and still are) all the rage at the time, but I did not like the idea of carrying a large sum of cash around me with me. I was scared I would lose an envelope and our entire grocery budget would just vanish.
I also didn’t want to have a several different check accounts with their own debit card linked to it to create a digital version of cash envelopes. It just felt too complicated.
To track our variable spending each pay period, I created my own cashless envelope system. I created three envelopes to track our spending:
One was marked food and covered our grocery spending and dining out as a family.
The second was considered miscellaneous and covered any family entertainment, random purchases at the store, or anything that didn’t fit within a category.
The third was my husband’s lunch and coffee budget for work. He liked to go out occasionally, so this gave him the freedom to do that.
I put the ‘food’ and ‘miscellaneous’ envelopes in my minivan. I’m the one doing the bulk of the shopping, and we’re typically all together as a family in that vehicle on the weekends. I used these envelopes to collect receipts and track spending on the outside of the envelope. This made it easier to transfer everything over to my budget binder.
How to Communicate as a Couple
Before jumping into our debt journey, my husband and I hardly ever discussed our finances unless something major was happening. About every 2-3 months we would take a look at our accounts and wonder why our debt was adding up so quickly when we didn’t feel like we were overspending.
The way we worked to improve our communication was to start weekly money meetings. These weekly money meetings became a part of our budget binder and walked us through our progress and any challenges each week.
We were able to identify areas we were overspending sooner so that we could make adjustments before it got out of hand. It also reduced arguments since there were never any surprises.
Each of us has an area where we struggle to reign in our spending, so it helps us hold each other accountable. Also, seeing all of the numbers on paper regularly really helps to keep our motivation levels up.
Related content: Family Budget Meetings – Yes, You Need To Have Them
What About When Debt is Paid Off?
After 4 years we were finally able to say that we were debt-free! It would be so easy at that point to loosen up, but we set our sights on new goals. We don’t have debt anymore, but we are still living on tighter margins where we have to be really intentional about saving money.
Our goals have shifted to more specific savings goals, and we are using the same paycheck budgeting method to do that. This method really helps us avoid lifestyle inflation and falling back into the debt trap.
Related content: What To Do After You Pay Off Debt
Final Thoughts
Paying off a large amount of debt often feels like a huge mountain you’ll never be able to overcome. I can still remember feeling slightly hopeless that our financial situation could actually change just a few years ago.
You can create a budget that is easy to track and allows you to live a little. Long periods of feeling deprived make it hard to stick with it. Prioritize your goals and find a system that works for your family.
It is so worth it on the other side when you’re able to plan for the future rather than paying for what happened in the past.
Do you have debt? What are you doing to eliminate it?
Last Updated: April 14, 2021 BY Michelle Schroeder-Gardner – 7 Comments
Disclosure: This post may contain affiliate links, meaning I get a commission if you decide to make a purchase through my links, at no cost to you. Please read my disclosure for more info.
The following postis sponsored by TIAA.
There are five things that I never want to run out of. These include:
Travel and adventure – I always want to be able to RV, sail, hike, and ride bikes. I love being able to explore, do new things, and see what this amazing planet has.
Delicious food – Who doesn’t love food?
Dogs to pet – This one is another no-brainer.
Time with family and friends – This sparks joy, of course!
Retirement income
And, today, I want to talk more about retirement. This is a personal finance blog after all!
Retirement is so important.
For me, I am all about saving for retirement, and my husband and I save a significant percentage of our income each month due to this.
Retirement to me means that I never have to run out of travel and adventure, or any of the other wonderful areas of my life from my list above!
Saving for retirement now is important for many reasons.
However, according to a survey done by GoBankingRates, 42% of Americans have less than $10,000 in savings and included in that 42%,14% have nothing saved for retirement.
But, the survey found this is changing, and I think you can start saving for retirement too.
One way to prepare for retirement is with products that can provide guaranteed annuity income for life.
According to TIAA’s 2019 Lifetime Income Survey, 69% of working Americans say that having an income during retirement that is guaranteed to be paid for as long as they live as the most important goal for their retirement plan.
AND, 88% of people who own an annuity with guaranteed lifetime income say it positively impacts their confidence about being financially secure.
I know that many of us worry about running out of retirement savings, and the future can be a weird thing to think about (it’s so far away, right?!).
I’m sure that we can all relate to the experience of running out of gas, having our cell phones die, running out of toilet paper, and the list goes on, but with products that can provide guaranteed income for life you can be sure that you won’t run out of income in retirement.
Due to this, you may want to think about making guaranteed income part of your retirement plan.
TIAA provides products that provide guaranteed lifetime retirement income. To find out if you are eligible and learn more, visit TIAA.org/NeverRunOut. If eligible, you can use the Personal Pension Calculator to estimate your monthly lifetime income.
Who is TIAA?
TIAA is a leading financial services provider for those in the nonprofit, academic, research, medical, and governmental fields, with over 15,000 institutions and 5 million individuals served.
They are a different kind of financial services company, helping people in these fields meet their financial goals through their global and diversified financial services. TIAA continues the legacy built by Andrew Carnegie, who helped create TIAA in 1918 to ensure teachers could actually retire.
What does it mean to you to not run out of money for retirement?
Annuities issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.
Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability.