featured image for podcast episodeFinding Your Locus of Control | Stereo Live Q&A

Finding Your Locus of Control | Stereo Live Q&A
Episode 305

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Episode Guide

Interactive Q&A enhances the community's experience focused on financial independence, with discussions about routine changes, health, and lifestyle improvements. The hosts, Jonathan Mendonsa and Brad Barrett, examine the significance of minor adjustments, like reviewing recurring charges and encouraging healthy habits. They advocate for a vigilant approach to expenses, including subscriptions and lifestyle choices, while addressing listener questions about investment strategies and financial measures to achieve independence. A quarterly health strategy shapes their ideas, emphasizing the importance of maintaining quality of life now and in the future. The episode encourages listeners to think critically about financial decisions, live healthily, and pursue financial literacy actively.

Episode Timestamps

ChooseFI Episode Show Notes

Episode Title: Exploring Financial Independence Strategies

Hosts: Brad Barrett and Jonathan Mendonsa

Episode Summary

Listeners gain insights into actionable financial strategies, focusing on managing recurring expenses, impulsive subscriptions, and the importance of savings rates. The hosts discuss the advantages of travel rewards over traditional spending, dive into 401(k) loans as a financing option, and emphasize the role of informed decision-making in avoiding unnecessary debt. The episode also addresses the psychological aspects of debt management and encourages listeners to reflect on their long-term financial motivations.

Key Takeaways

  • Recurring Expenses: Regularly audit your credit card bills for recurring charges to identify and eliminate unnecessary expenses.
  • Savings Rate: Aim for a savings rate of 30% or more to maximize your financial freedom and enhance your chances of achieving financial independence.
  • Debt Management: Consider the implications of taking loans against your 401(k) carefully, as penalties can significantly diminish your retirement savings.
  • Psychological Factors: Understand the influence of psychology on financial decisions, which can help in developing better debt management habits.

Timestamps and Discussion Points

  • Podcast Intro
  • Personal Updates and Community Engagement
    • Brad shares his daughters returning to in-person school and a family workout session.
  • Recap on Recurring Charges
    • Analyze recurring charges on credit statements.
  • Listener Questions
    • Exploration of defining financial independence and addressing concerns about savings rates.
  • Discussion on Financial Psychology
    • Discussing the role of mindset in financial decision-making.
  • The Importance of Saving Rate
    • Aiming for a high savings rate as foundational to financial independence.
  • 401(k) Loans Discussion
    • Pros and cons of borrowing against retirement funds.
  • Final thoughts on debt management.
  • Podcast Outro

Actionable Takeaways

  • Review and cancel recurring charges that do not add value to your life.
  • Set a financial target for your savings rate, aiming for 30% or more.
  • Consult with a financial advisor before making significant withdrawals from your retirement accounts.

Discussion Questions

  • What current strategies do you use for managing recurring expenses and subscriptions?
  • How do you define financial independence for yourself?
  • What importance do you place on the savings rate in reaching your financial goals?
  • How do psychological factors influence your approach to debt and investing?
  • What alternatives do you consider before tapping into your 401(k) for investments?

Podcast Information

  • Podcast Intro: Podcast Intro
  • Podcast Extro: Podcast Extro

These show notes encapsulate the essence of this episode, providing listeners with valuable insights and actionable steps toward financial independence.

Unlocking Financial Independence: Actionable Strategies from ChooseFI

Financial independence is a journey that requires strategic planning, mindful spending, and continuous learning. In a recent episode of ChooseFI, hosts Brad Barrett and Jonathan Mendonsa explored critical financial concepts and actionable strategies that can pave the way to financial success. Let's delve into these recommendations that you can start implementing today.

Audit Your Recurring Expenses

Regularly auditing your monthly expenses is essential for identifying unnecessary recurring charges that may be impacting your budget. It’s easy to forget about subscriptions or services you rarely use. By carefully reviewing your credit statements, you can spot these charges and decide whether they still serve a purpose in your financial plan.

  1. Set a Schedule: Make it a habit to review your expenses twice a year.
  2. Identify Unused Services: Cancel subscriptions that you no longer need or use.
  3. Redirect Savings: Use the money saved from these eliminations to bolster your savings or investments.

Master the Art of Saving

Achieving financial independence starts with a strong savings rate. Understanding how to save effectively can significantly affect your financial journey.

  1. Aim High: Strive for a savings rate of 30% or more. This requires discipline but can provide a solid foundation for building wealth.
  2. Track Your Progress: Use budgeting apps or spreadsheets to monitor your income and savings effectively.
  3. Make Adjustments: If you’re falling short of your savings goals, reassess your expenses and create a plan to reduce discretionary spending.

The Psychological Aspects of Debt Management

Managing debt effectively requires both knowledge and self-awareness. The psychological factors associated with debt can influence your financial decisions.

  1. Understand High-Interest Debt: Prioritize paying off high-interest debts first, as they can significantly hinder your ability to save.
  2. Empower Yourself: Educate yourself on the principles of debt management and make informed decisions.
  3. Adopt a Positive Mindset: Focus on strategies that not only alleviate your debt but also prevent you from accruing additional debt in the future.

Leveraging Travel Rewards

Travel rewards are a powerful tool for financial savvy individuals who want to save on travel expenses.

  1. Research Credit Cards: Look for credit cards that offer lucrative travel rewards with minimal fees.
  2. Take Advantage of Loyalty Programs: Sign up for airline and hotel loyalty programs to earn points on your travels.
  3. Plan Trips Accordingly: Utilize your rewards to offset travel costs, turning vacations into affordable experiences.

Understanding 401(k) Loans

Using loans from your 401(k) can be tempting as a source of quick capital, particularly for investments. However, there are potential risks associated with this strategy.

  1. Consider the Consequences: Loans from your 401(k) can incur penalties and significantly impact your retirement savings if not managed correctly.
  2. Explore Alternatives: Always seek other funding options before considering a 401(k) loan.
  3. Consult a Professional: If considering a loan, consult a financial advisor to understand the terms and implications.

The Importance of Financial Education

Investing in your financial literacy is one of the most beneficial actions you can take on your path to financial independence.

  1. Commit to Continuous Learning: Regularly read books, listen to podcasts, or take courses on personal finance and investing.
  2. Diversify Your Knowledge: Explore various topics such as saving strategies, investment options, and debt management practices.
  3. Share with Others: Engage in discussions with peers about financial topics to gain new insights and perspectives.

Alternative Strategies for Investment

When it comes to investing, diversification and a clear strategy are key to balancing risk and reward.

  1. Index Funds and ETFs: Consider investing in low-cost, broad-based index funds or ETFs that track market performance as a way to build wealth over time.
  2. Understand Your Risk Tolerance: Align your investments with your personal risk tolerance to prevent making emotional decisions during market fluctuations.
  3. Regular Contributions: Consistently add to your investment accounts to capitalize on dollar-cost averaging and take advantage of compounding interest.

Final Thoughts

Building a path to financial independence is a multifaceted endeavor that involves careful planning and conscious living. Whether it's through better managing your current expenses, enhancing your savings habits, or strategically investing your money, the steps you take today will lead to a more financially secure future.

By implementing these actionable strategies discussed in ChooseFI, you can not only improve your financial situation but also empower yourself to achieve the freedom and lifestyle you desire. Start today, and remember that every small step counts on the journey to financial independence.

Watch

Clip: Long Term Investing Advice to a 7-year-old

https://youtu.be/wGvPPnMquVs

The Full Episode

https://youtu.be/tNYAynOUMyM

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What You'll Get Out Of Today's Show

  • It's the third edition of ChooseFI's live and interactive show via Stereo. You can submit a question, feedback, or comment, and find out how to join us for the live event by visiting ChooseFI.com/live.
  • Brad and Jonathan are getting high on life. Not only have Brad's daughters started back at in-person school, but he and Laura were also able to attend a Crossfit class together. Meanwhile, Jonathan is successfully combating fatigue by getting the right amount of sleep, cutting out caffeine, and maintaining high hydration levels with juices.
  • In an ongoing effort to get 1% better, Brad recently reviewed his credit card bills. He found a $50 recurring charge for his daughter's saxophone rental and decided to buy it for $500 rather than continue incurring the rental fee. He suggests doing this twice a year and asking if those recurring charges are continuing to serve you.
  • Jonathan recently canceled his Netflix subscription and wonders if there is a way to the effort of it and streamline our finances.
  • In a hypothetical example of a $2,000 car loan with a 2-3% interest rate, Jonathan asks if Brad would just pay the balance off versus keeping a monthly payment. At that low of an interest rate, Brad would not, but because of the intersection between math and psychology, there are others so debt adverse that they would pay it off.
  • For higher interest debt or 8-12% or more, Brad believes that is more of a hair-on-fire scenario in which paying the debt off as quickly as possible would be best.
  • Regardless of which side of the scenario you fall on, there is nuance and stigma. Rather than allow others to tell you what you can and can't do, it's important to know yourself and why you make the choice you do.
  • Understanding the why behind the car payment is a better thought exercise. If it's because it gives you the cash flow to finance even more stuff, it can grow to become a difficult position is dig yourself out of. Financing allows you to trade your most precious non-renewable resource, time, for more stuff.
  • With every dollar you are saving, are you using it to invest, or are you buying more stuff? If you are continuing to buy more stuff, then you are still in the trap and aren't looking at money as a tool.
  • Because Jonathan is a spender, he wants to keep things simple and doesn't like having structural payments. In the hypothetical scenario, he would feel the need to pay off even a low-interest rate car loan.
  • The first listener voicemail wants to know how much in retirement is enough to adequately cover long-term care. His original goal was $10 million at age 65. According to the 4% rule, that would give the listener $400,000 a year to live off of, which is a big number.
  • It comes down to what does your life cost? Traditional retirement calculators all start from the point of "what do you earn today", rather than "what does your life cost". Your income is irrelevant. In retirement, you need to cover what your life will cost.
  • Health care insurance is based on actuarial tables put into place to ensure the provider doesn't, in aggregate, lose money on you. The same is true for long-term care insurance. It's priced so that providers don't lose money on you. What is the effort to reach a $10 million balance to cover the cost of long-term care costing you in terms of time and health now? You can focus on putting systems into place now that give you the best chance to reclaim decades of quality life.
  • Rob Phelan, fromThe Simple StartUp, called in with a question about being open to new technologies and investments.
  • Brad isn't a first-mover on anything. However, he has a diverse set of interests and prides himself on knowing when the tipping point is to jump in earlier than the average person. He's done some reading on non-fungible tokens (NFTs) and believes they could be transformative 10-20 years from now.
  • Jonathan's process is curation and synthesis. When he reads, he skims everything and sees the point when something new becomes real. He'll do a deep five if it fits into one of the buckets he's interested in. He's been doing that deep dive into crypto and blockchain, but not NFTs.
  • While neither Brad nor Jonathan can get behind spending $2.5 million for Jack Dorsey's first Tweet, they do agree digital ownership is interesting because of all the unique ways the concept could be implemented.
  • Next up is a seven-year-old who says they want to learn about investing. It starts with saving. What Brad tells his own kids is that life gets so much easier if you can save money. If you spend every cent you earn, it takes away a lot of choices in life and gives them fewer options. The higher you can make your savings rate, the more freedom you'll have.
  • As for investing, think long-term, like many decades of investing. With a long investing horizon, the best chance at being really wealthy is with low-cost broad-based index funds or ETFs.
  • When Jonathan's kids are older, he thinks he will try and attach a real company to the discussion and carve out a portion to invest in it. It would be one they know and has products they get excited about to help make the feeling of ownership real.
  • Natalie called in to say that she just opened an M1 Finance account for her traditional IRA contributions as well as a savings account so she can earn 1% on it. However, she's never done a portfolio rebalance.
  • Rebalancing can be scary and easy to avoid. It comes back to having a plan and an investor policy statement and not letting your brain get in the way. M1 can do this automatically and there may be some tax consequences if it is done in a taxable account.
  • Rebalance in your portfolio totality, not within individual accounts. If you don't have a plan, go and figure out what your goals are and have the plan match them. Rebalancing can also be done by making weighted contributions.
  • James, who is in Jonathan's podcasting course, asks about speeding up his path to FI by purchasing multi-family real estate by withdrawing from a 401K and obtaining a HELOC.
  • While there are likely both success and horror stories of others who have gone that route, Jonathan would look for ways to avoid 401K withdrawals or taking a line of credit against your home.
  • Brad would only go into his 401K as a last resort. 401K withdrawals are subject to a 10% penalty and would be taxed as ordinary income.
  • Rather than a 401K withdrawal, Jonathan says that if the deal is good enough, the money will come. Bringing on additional investors may be an alternative. Network, be creative, and try to cap the downside.

Resources Mentioned In Today's Conversation

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