Category: Credit Cards

Four Personal Finance Rules We Ignored (And Maybe You Should Too)

This is the first in a series about how we’ve disregarded the advice of popular personal finance personalities to forge our own path to debt freedom and financial independence. 

Personal finance is just that:  Personal.  Your interests, values and dreams may be different than mine, and that’s how it should be.  In How Our Home Is Helping Us Achieve Financial Success, I talk about how we’ve chosen to “live little” in order to prioritize spending on things more important to us, like travel and sampling every bottomless Bloody Mary brunch in the greater metropolitan area.  But if you prefer mimosas at home in your McMansion, there is nothing wrong with that!  So when it comes to charting your course for financial success, it’s important you customize a plan that aligns with your individual goals and timelines, as well as how you personally manage money.

Here are just a few ways we tailored (or ignored completely!) the advice administered by today’s most well known personal finance experts, and took a road less traveled:

1.  Plastic is fantastic

There are popular personal finance personalities who will tell you to cancel your credit cards and only carry cash.  This is fabulous advice if you struggle with charging things you can’t afford.  But, that’s. not. everyone.  Since our written budget is what holds us accountable, we use credit cards as a tool, utilizing the consumer protection that comes with using plastic and leveraging them for free travel (right now we’re working toward the coveted Companion Pass thanks to our Southwest-branded Chase card).  We pay off any balance weekly to hold ourselves accountable and avoid paying interest.

2.  We’re all special snowflakes

The most popular strategy for paying off debt is the snowball method.  This philosophy recommends you pay off your debts in the order of the amount owed.  Continue to make the minimum payments, except on the debt with the lowest balance.  Once you’ve paid off that first debt, you move to the next debt with the lowest balance.  This method assumes you’ll find it easier to stay motivated when you’re rewarded more quickly with the elimination of individual debts.

In lieu of snowballing our debts, we choose the avalanche method, saving us time and money.  Instead of listing debts by amount owed, this philosophy had us prioritizing debts by interest rate, starting from highest to lowest.  You will end up paying less interest and eliminating your debt-load more quickly by tackling your debts by interest rate, so long as you can remain committed without the psychological boost the snowball method offers.

3.  Not all debt is equal

The same personal finance gurus often recommend stopping any retirement savings while you’re getting out of debt.  Sure, if you’re buried in high-interest credit card debt, stopping your contributions may be a smart idea.  But, if you receive a tax benefit from your interest payments (including interest paid on a qualifying student loan or mortgage), or your debts are no-interest or low-interest (like your Prius payment or the mid-century modern living room set you just bought on a store charge card), you may come out ahead in the long run to keep contributing while still paying off debt.

4.  Capitalize on compound interest

Compound interest is when an original deposit or investment earns interest which is then added to the principal amount and reinvested, earning more and more each period as the account balance grows larger from interest earned.  Compound interest means the balance of an account will continue to grow because of interest earned, even if the account owner doesn’t make another deposit.

Even though we were committed to becoming debt free, instead of stopping our retirement contributions while aggressively paying off our $85,000 in student loans, we kept saving.  We understood that the greatest financial advantage we have at this point in our lives is time.  Traditional retirement age is more than thirty years away, meaning anything we contribute now has decades to double.  We also knew most accounts have a minimum annual contribution limit, so in the future we wouldn’t be able to contribute more than the max to make-up for lost years.

Before we dedicated every spare dime in our budget to settle-up with Sallie Mae, we contributed the minimum to get the match in our respective employer-sponsored retirement accounts.  In addition to taking advantage of free money from our employers, we also made sure to fully fund our individual ROTH IRAs.  The distinction of a ROTH is that it maximizes the principle of compound interest by offering tax free growth, meaning that since income tax has already been paid on those dollars before they’re deposited, at the time of withdrawal, those monies will be tax free.

There are hundreds of television and radio shows, books and blogs that dictate a detailed plan for getting out of debt.  It’s great to learn from a variety of sources and smart perspectives, but it’s important for you to discern which parts and pieces will help you achieve YOUR definition of financial success.

Next in the Series:  Our Shocking (Yet Successful) Investment Strategy… Individual Stocks!

We’re Not In Kansas Anymore

Last month my girlfriends got together for brunch and pedicures.  As much as I enjoy a professional polish, it’s a budget breaker I reserve for special occasions.  In between stories of kids (theirs) and careers (mine), I thought back to the last time I had a salon pedicure:

Hawaii was at the top of my mom’s bucket list, so in celebration of her 60th birthday, I promised her we’d go.  Newly married and just starting out on our journey to becoming debt free by paying off a combined $85,000 in student loans, I didn’t want to ask my husband for family funds to pay for a girl’s trip.  So, I hit the internet in search of savings.

I learned about credit card sign-up bonuses on the BoardingArea blogs.  A sign-up bonus from the United branded Chase card was a start, but only netted a round trip flight for one of us.  So, I discovered Opinion Miles Club, and for months spent the first thirty minutes of each day taking surveys and giving my opinion in exchange for hundreds and eventually thousands of Mileage Plus miles.

Christmas 2013, I gifted my mother a wrapped pineapple and our flight confirmations.

After the holidays, I applied for the Marriott branded card, and earned enough points for four nights at the JW Marriott on Oahu.  But we had more days to fill, so I took more surveys, discovered online shopping portals and dining programs, and may or may not have joined a wine club to earn more miles for two intra-island flights between Oahu and Maui.

Short on time and out of points, I used Rocketmiles to book hotels for the rest of our trip.  With Rocketmiles, even though I was paying out of pocket for paradise, at least I was earning miles for future flights.

After more than a week of Haleakala sunrises (her), sleeping in (me) and lots of mother-daughter snorkeling, we ended my mom’s trip of a lifetime with a pedicure in the hotel spa before heading back to the Heartland.  Before our plane even touched down at the Kansas City International Airport, I was already planning my next big adventure using points and miles.

Since Hawaii, Ryan and I have continued to travel hack our way around the world.  The following year, we signed up for a Southwest branded Chase card and focused our spending, survey taking and portal shopping to earn the coveted Companion Pass.  We also strategized our way to several free flights across the pond.

Travel offers opportunities to see, taste and do things most Americans only see on TV.  It pushes your boundaries.  It leaves you amazed by the beauty of people and our planet.

Enrich your life and find yourself in travel.  You don’t have to be rich to travel, but when you travel, you are rich.