All posts tagged financial independence

Living like a Lightweight.

By Brad Beckstrom

You still hear it occasionally. “That guy’s a lightweight.” When I was a kid, it may have meant you couldn’t hold your own on the playground. In college, this term was often used to describe someone who was a sloppy drunk or couldn’t hold their liquor. In business or politics, lightweight may be used to describe someone who can’t take a little heat, or bails out when the going gets tough. Today the word lightweight implies something very different. If you’re a lightweight who can compete or dominate above your weight class, then you have something. If you’re talking about a boxer like Roberto Duran, a legend like Bruce Lee, or the UFC fighter Conor McGregor then lightweight can take on a whole new meeting.

Look at any sport in the racing world, “lightweight” is the hottest thing going. Carbon fiber tubing is used to make incredibly fast racing boats to compete in the America’s Cup, and superlight racing bikes that weigh as little as 13 pounds. In a competitive world, lightweight can have great advantages.

If you’re not a professional athlete, or in the market for a $9,000 bicycle, you can still live like a lightweight. Let’s apply this term in three areas: Health, Life, and Work.

Health, Physical and Mental.

There’s a memorable scene from the documentary Fat, Sick and Nearly Dead. The movie is about Joe Cross who lost 100 pounds juicing. You hear stories all the time about people losing tremendous amounts of weight. What Joe did differently is he that he visually demonstrated how much weight he’d lost by carrying around six professional bowling balls to represent the weight. This really clicked with people and helped him kick start the green juice trend. Most of us could not imagine carrying around even one or two bowling balls all the time.

The bowling balls Joe carried around are a great metaphor. Think of all the excess stuff we carry around, garages and closets full of stuff we don’t use, those extra pounds, guilt and regret about things that happened in the past, huge SUVs to haul all this around, while sitting in traffic. It’s time to start looking at the benefits of becoming a lightweight. Read more…

Tax-Free Investing. The True Secret Behind Health Savings Accounts.

By Brad Beckstrom

Why would I waste a perfectly good Thursday morning writing about health insurance and health savings accounts? Well, politics has made paying for healthcare a national obsession.

There’s been a lot in the news recently about the spiraling costs of healthcare and Republican promises to cut the costs of health insurance for individuals and families. While no formal plan has been presented, one key component mentioned by both Republicans and Democrats is the Health Savings Account or HSA. The fact is, tax-advantaged HSAs have been around for years. In many ways they are also one of the best ways to save for retirement. I’ll explain why.

What is an HSA?

An HSA used in conjunction with a high deductible health insurance policy allows users to save and spend money tax-free to use for medical expenses. Contributions to an HSA can be made pre-tax directly from your paycheck or you can make contributions on your own that are 100% tax-deductible, up to $3300 for individuals and $6550 for families and, if you’re over 55, you can contribute $7550 per year. For example, a family in the 25% marginal tax bracket could save you over $1600 a year in taxes.

How does it work?

Once you have money in your account, you can then use it to pay for all types of medical expenses, including things like new glasses, prescription drugs, medical and dental visits, and any medical expenses not covered by your high deductible health plan. To be eligible, you need to have a health plan that qualifies as a high deductible plan. (Example a minimum deductible of $1300 for singles or $2600 for families). A high deductible plan means you will pay more out of pocket before meeting your deductible. The advantage is that the premiums on these plans are lower. Due to the high cost of health care, many employers are now offering only high deductible plans, or versions of it, as an option.  For entrepreneurs, these plans are also available through healthcare.gov and labeled as HSA or through most health insurance brokers at comparable rates. Read more…

Make Banks Work for You.

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How I locked in a historically low mortgage rate without getting lost in research, voicemails, and paperwork.

By Brad Beckstrom

I’ve been putting it off. Mortgage rates are at historic lows and, on paper, it made a lot of sense to refinance my current mortgage to a 10 year mortgage available at a lower fixed rate. It’s just that even thinking about my past experiences with refinancing both my home and some rental properties gave me gas. I knew I needed to get it done, especially since I’m always telling people to cut their largest expenses first. Our mortgage is our largest expense.

I’d made some mistakes in the past, like listening to some TV ad and then going to a website like Lendingtree. They say they’re going to find you the lowest rate but in fact they are getting all of your information and giving it to banks, selling your name as a lead. Immediately your phone starts to ring off the hook from banks you’ve never heard of. Luckily I gave them a Google voice number that sends all these folks directly to a digital voicemail graveyard. The messages are transcribed for me in a Gmail account and I quickly delete them in bulk. But, the calls kept coming for months. So, the lesson here is don’t give your loan or refinance information to any consolidator site, claiming to “find the best rate” or “do the work for you.” In fact, take this one step further: don’t share any of your personal information, email, phone number, address, income etc. with any mortgage site, including companies like Quicken Loans. Or any other big banks that bombard you with national TV ads. There’s a reason they can afford to advertise on the Super Bowl.

When it comes to finding a great mortgage rate, you’ll actually save time by doing it yourself, and you won’t have to share any personal information. Here’s a few steps I recently used to lock in a fixed 2.37% rate on a 10 year mortgage. With rates this low there’s really no benefit in getting an adjustable rate loan. Read more…

The Secret to Running The Business of You.

haveasmallnut

By Brad Beckstrom

“Have a small nut; that’s the key to life.”

Graham Parker.

What’s an aging rock ‘n roller to do, the once big recording contracts, the limos, seven-figure tour revenue all start to trickle away? Graham Parker, a British punk rock pioneer, knows exactly what to do: enjoy life, have a great time, and keep making music. Graham’s quote “Have a small nut; that’s the key to life” sums up one of the core principles of financial independence. The small nut he’s referring to is not assets, but monthly expenses. Rock stars, athletes, entrepreneurs, everyday folks all hit the same wall. We hear these stories all the time, from the extreme, like Mike Tyson blowing through $400 million and ending up homeless, to the highflying salesperson that overextended themselves, justifying their current expenses on future income fantasies, only to be chop blocked at the knees by a corporate reorg or downsizing.

Professional athletes know this story all too well. The average career in the NFL is about four years. In major league baseball, it’s a little over five years. Knowing this, it seems crazy when you see young athletes, blowing their entire signing bonus, borrowing against it before they even get a check. The secret is to do the opposite, save the entire bonus along with any windfalls, and keep your monthly expenses to a minimum. Read more…

A Short Guide to Lean Investing.

taking-the-simple-path-to-wealth

By Brad Beckstrom

Have things gotten too complex?

Today we have more savings and investment options than ever before. Online tools and investment options that give us access to over 10,000 mutual funds and exchange traded funds, with another 40,000+ publicly traded stocks worldwide. Most of these investments are accessible without setting foot in a brokerage firm or bank. Online banking, trading, and mutual fund supermarkets give us access to sophisticated investment tools available only to professionals just a decade ago.

Yet, despite so many options, the US personal savings rate is hovering between 5% and 6% and has been in steady decline since the 50s. The retirement savings picture is even worse, one in three American adults has zero saved for retirement and 62% have less than $1000 saved. Many Americans like to blame the government for this predicament but in fact many countries with significantly higher taxes have savings rates that are 2 to 3 times ours.  On top of our tax advantages, we have a wide selection of pre-tax and post-tax savings options many other countries don’t have, including 401(k)s, IRAs, SEPs, Roth IRAs, Health Savings Accounts, 529 college savings plans, and about 10 more with various combinations of numbers and acronyms in the name. All of them are underutilized by any standard of measurement.

Part of the problem is complexity. We’ve made it easier to go out and get a loan for a new SUV or a 5,000 square foot house than to start saving or put that money away for retirement.  We’ve been incentivizing people to take out student loan debt instead of starting college savings accounts.

To solve the complexity problem we need to make it easier to save and invest. We need to create a simpler path to wealth through regular and efficient investing. I like to call this Lean Investing. Read more…