Thursday, September 30, 2021

The Power of Wiggle Room

Since Memorial Day weekend, I've been in the middle of a real estate transaction.  Like everything else, living in New York City seems to add an additional difficulty factor, and everything is just that much more complicated and takes just that much more time.  Four months later, and we're just now about to sign papers for closing.

We're purchasing a unit in a co-op building, and for those not familiar with what that entails, it is very similar to a condo in that it typically consists of multiple units housed within the same building.   When you buy a condo, you own your unit within the building.  A co-op operates a bit differently.  In a co-op, you are buying shares of the building, much like you buy shares of stock.  So, basically, you become a stockholder of sorts within the business entity that owns the building itself.  In turn, you also get the lease for your unit.  Because of the manner in which ownership is held, co-op boards tend to take a lot of care in screening potential buyers.  This process involves putting together an extensive "board package" which gets submitted to the board to review.  The board package includes letters of recommendation and a plethora of financial information.  Once it's been reviewed, buyers go through an interview process.  This is all in addition to the process required of the lender.  

So, we had finally made it through all of these hoops and were scheduled to close when hurricane Ida came through New York.  As a result, two days before we were scheduled to close, FEMA required all of the banks in 4 of the 5 boroughs to pause their closings and get new appraisals to assess for potential damage.  Now, our new place is on a hill on the 20th floor of a building.  So, no damage at all!  But, we were required to wait nonetheless.  The new closing date was scheduled a full 19 days after the original one.  That's a significant difference when it comes to planning!

When we started trying to mentally plan for this move, we were tempted to try and have as little overlap as possible in terms of having both our rental and the co-op.  We could have given notice at the first of the month so as to minimize the overlap and our need to pay for not one, but two places to live.  At the time, this seemed like the wisest financial move to make.  But then we got to thinking about how nice it would be to not feel rushed, to have enough overlap to allow the process to simply happen rather than racing to the finish line.  So, we didn't give notice.  Thank goodness we didn't.  Had we given notice, we'd be in a mad dash to get our things moved on time.  Quite frankly because of all the coordination required in moving into a co-op, there's very little shot we would have made our self-imposed deadline.

Sometimes where our finances are concerned, we get so focused on every single penny that we forget the value of building in some wiggle room!  There's a value trade-off to consider.  The extra time (and breathing room) was tremendously valuable in our situation and worth the possibility of being doubled up for a month.  Thank goodness we build in that buffer.  This is also worth considering when working on your budget.  I am a huge advocate for a tight budget, but also feel that failing to leave a little bit of room to breath is critical.  This also applies to an emergency savings; having 3-6 months of a "ramen only budget" is a great start, but I'd prefer a little more padding than that.  What about retirement planning?  I can survive off of this lesser amount, but what amount will really allow me to thrive?

On the journey toward financial independence, we find ourselves rushing toward a goal, and why not?  I mean, that's our freedom!  Of course, we're in a hurry!  But perhaps it's worth slowing down just a little and considering whether you'd be happier building in a little more wiggle room whether that be regarding your timeline, savings goal, or something else.  

Friday, September 24, 2021

A Conduit for Abundance

One of my dearest friends flew into town for a convention this weekend.  Since the convention was to start bright and early Sunday morning, he planned to arrive Saturday afternoon giving us plenty of time to catch up before his obligations kicked in.  

Normally, on a Saturday afternoon, I would be doing some work or otherwise trying to "accomplish" something, but this day was different.  I got up in the morning and took my compost to the farmer's market.  From there I went on a two-mile hike through the wooded area of Inwood Hill Park. When I returned home, I did a little bit of writing, a lengthy meditation, and jammed out to some feel-good music while I was getting ready.  Rather than steal away a few hours for myself, I opted to allot myself most of the day...  I really needed that...

My partner and I met our friend downtown at a trendy little bar for cocktails and appetizers, which we followed up with dinner at a cozy little Persian restaurant.  The truth is that we dropped a fair amount of money that night.  Nothing outlandish, but we certainly weren't watching it.  That was a moment of recognition for both of us.  We realized that we're doing so well and that our habits are so solid that neither of us was even thinking about the money.  Sometimes, it's nice to have those moments...  

Not so long ago, I wrote a piece about planning for the reopening (of everything, really) by addressing your budget so that you don't suddenly find that you've gone backward out of excitement that the world is open again.  While the experience this weekend was absolutely aligned with that idea (because we have been planning for more social activities), it also highlighted another very important lesson on abundance: being a conduit.

According to Oxford, a conduit is "a channel for conveying water or other fluid."  If you really think about it, don't you want to be a conduit for abundance?  We oftentimes believe that we want abundance to flow to us, but perhaps we might reframe that; what we really need is for abundance to flow through us. To illustrate the concept, let's consider a pipe with water flowing through it.  As long as the water is permitted to exit the tube at the far end, there will continue to be room for more water to flow into the tube.  Now, should you do something to stop it up at the far end, eventually no more water can enter the tube; the tube becomes full, cannot take any more, and the water begins to spew out everywhere but the intended place.  Our money works much the same way.  We must loosen the tightness of the grip we have on our money in order to make space for more to flow in.  Now, can we be incredibly deliberate at the pace of which we allow money to flow outward?  Certainly.  However, if you don't allow money to flow on from you, you will create a backup that disrupts the flow of money including that which was intended to be entering your experience.  

So, how can we be deliberate conduits of abundance?  Each end every time we vote with our dollar to spend at a store we appreciate, or pay down a little more debt, or visit the restaurant you haven't been to in ages, you turn on the flow of abundance in their direction.  In turn, you make more space for that very same abundance to flow to you.  Attracting abundance into our experience isn't about white-knuckling our finances, it's about allowing the deliberate flow of money through our experience.  As it flows in, we have the precious opportunity to utilize it to meet our wants and needs while simultaneously allowing it to move on.  In this way, we open ourselves to receive more.

For Further Reading:

Reopening and Your Budget

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    Sunday, September 19, 2021

    Preparing for Freedom

    Sometimes life feels to be a bit of a maze with twists and turns; we run down one corridor only to find a wall standing between us and our intended destination. So we turn around and run in another direction; perhaps, even faster than before.  Mostly, we're running toward one universal target: Freedom.  

    Do you often find yourself in places you don't want to be?  Wake up on Monday morning, flood your body with caffeination to replace the motivation that simply isn't there?  If this is your Monday ritual, you may be experiencing a form of resistance.  If you close your eyes and picture your life without barriers, what does it look like?  Where are you?  What are you doing?  More importantly, what barriers are standing between you and actually living this life?

    There's a plague it seems, a plague where people spend their time doing things they don't want to be doing to support a life they aren't convinced they really chose but rather stepped into like a pair of coveralls. Beneath the coveralls lies the real you.  It takes bravery to peel off the coveralls and step into the truth of who you really are, but your happiness lies there and you must believe that you're worth it.  The Universal Law of Self Worth confirms that you can only attract that which you feel worthy of having, therefore the first step is a mental one, it's to give yourself permission to admit that you actually want that life you see when you close your eyes.  This is a part of the expansion of who you are and it might come with growing pains, as we've all become accustomed to simply adopting the life that's been laid out before us.

    In order to pull the string a little further on analyzing the resistance that we experience when slammed up against the barrier between where we are and where we want to be, it might be of value to consider wisdom found within the Universal Law of Dissonance.  It states that you will experience mental discomfort when you hold two conflicting beliefs or your actions are in conflict with what you believe.  In this state, the only resolution is to change the action to align with the belief or change the belief to align with the action.  In the second case, this can either result in the rationalization of behavior or a genuine realization that the belief that's been being held onto isn't actually authentic to the person.  If the belief is "work should be fulfilling," and the action is to go to a job that brings you no satisfaction day in and day out, this is a conflict and you're experiencing a state of resistance.  The good news is that this resistance highlight that which you do want, but it also requires that you investigate whether the action or belief needs to change in order to return you to optimal alignment.  Obviously, these examples provided have been within the theme of work because that's an area of dissatisfaction that impacts so many, but it's important to recognize that this holds true with many other aspects of life.    

    While it's a wonderful psychological exercise to tell ourselves that in fact we deserve the level of freedom that we see when we close our eyes, and we've come to recognize that our actions are disharmonious with our beliefs, how do we prepare our financial lives to support us in stepping out of the coveralls and into a life with the freedom we desire.

    Step 1: Stabilize Income Needs

    There are a few components to this first step really, but the gist of it boils down to one key idea: the less we're on the hook for each month the less money needs to be generated.  Now, I'm not suggesting that you stop getting haircuts or cancel your weekly family pizza nights, but I am suggesting that you look at your spending plan and consider what is essential.  If there's any debt on the table, you will probably want to eliminate that because every single dollar that you spend on debt is a dollar that you are spending paying for your past rather than living in your now or preparing for your future (which is actually the next step).  Once you mentally take your debt off the table, take a look at your other spending.  If it meant you could obtain the ultimate freedom would it be worth driving a less expensive car?  Getting fewer haircuts?  A cheaper cell phone bill? Getting a roommate?  The answer should only be yes on items that inspire you but realize this.  Every day you are trading your freedom for dollars.  Chose wisely.  Make sure that anything getting those dollars is worth it.  

    While you may not eliminate some luxuries from your life (hey, I get it, I got a massage yesterday), it is imperative that you walk away from this step knowing how much your life costs you now, how much it would cost you without debt, and how much you really need to have coming in.  You'd be surprised how few people actually know the answer to this.

    Step 2:  Secure the Future

    People tether themselves to a misguided notion of stability due to a lack of understanding about what they will need to finance their future.  To be specific, retirement is a key concern.  Few people are prepared for it, and living under the limiting belief that they must continue to slave away at something they do not love in order to be certain that "everything will be okay" when that date comes.  Wouldn't it feel better to simply take care of the future, by securing your traditional retirement, and then moving on?  Surely you can't enjoy the idea of spending the next 20 years worrying about it.  By knowing what your income needs are (and projecting what they will be), you can determine what you need your nest egg to grow to in order to have those needs met in retirement.  For example, if I grow my nest egg to a million dollars, and withdraw 4% annually, it will generate $40,000 of income.  Does that satisfy my projected future income need?  If so, I know my target... But a million dollars is a lot of money, right? Remember, you aren't trying to save a million dollars, you're trying to grow your nest egg to a million dollars. Let's back out of this.  The Rule of 72 tells me that if my money is making 10% annually on average (similar to the S&P 500), it would take my money 7 years to double.  If I'm 40 years old, I could theoretically get my money to double 3 or more times before achieving a traditional retirement age.  Say, I look up what is currently in my retirement accounts and see that I have $150,000 invested.  If it doubles 3 times, that becomes $1,200,000.  Once it grows to that amount, if I withdraw 4% every year, that's actually $48,000 per year.  FYI, 4% is considered a "safe withdrawal rate," meaning you should be able to take this amount without actually disrupting your nest egg.  Using this math, you should be able to figure out what you actually need to put into your retirement account and by what age in order to allow the power of compounding to do the rest of the work for you.  Once you've done this you have achieved, CoastFI, which is a level of financial independence where you can simply coast until retirement because you've put in enough to allow compounding to do the rest.  This also means that you can turn your attention to bridge investing, investing in non-retirement accounts to help you replace portions of your income prior to your traditional retirement age.

    Step 3:  Replace Your Paycheck

    If you've stabilized your income needs, and secured your traditional retirement, you've already eliminated some of the barriers between you and your ultimate freedom.  The next step is to begin working on replacing your paycheck.  This could be done in so many ways.  You could do it through bridge investing, rental property, starting a business doing something that aligns more with the life you are trying to design for yourself...  The sky is the limit.  I personally am combining these strategies, which works for me.  Some people choose to primarily do this via bridge investing, but for me, the simplest and most effective question is simple: How can I replace my income either passively or by doing something that aligns with me?

    Step 4: Live Your Life

    Once you've navigated the three above steps, you've basically achieved your freedom.  While there might be little things here and there to add in, it doesn't have to be overly complicated. You can live a life where your daily activities align with your value system regardless of what that looks like.  You deserve it, and you can achieve it.  

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      Tuesday, September 7, 2021

      Retirement Savings: Choosing a Path

      I've recently returned to the city from a month away.  Immediately, I hit the trails of Inwood Hill Park, a natural oasis that is virtually in my back yard, and rarely gets the praise it deserves.  It contains the largest remaining old-growth forest in Manhattan with hiking trails that easily allow you to forget the busy city that surrounds you.  In fact, the trails seem to contain a bubble that very nearly shuts out the city entirely.

      When I'm in town, these trails have become a critical part of the composition of any day that doesn't require me to commute to work.  They contain a certain energy that allows for a somewhat meditative rebalancing.  I've noticed that the most beautiful things in the trails require ascending rugged staircases or dirt pathways. You see, without the ascension, there is no arrival; no overlook with a grand view; no fruit to be spotted on the beautiful Osage Orange tree.   These arrival points are the ones we like to boast; post bragging pictures on social media, photos that highlight the majestic accomplishment of that one moment in time.  What we see pictured less often is the journey up: the moment we got a bit lost or had to stop and catch our breath... but without these moments of resistance, the destination somehow loses a bit of its beauty...  But just how often do we miss the overlook out of a desire to avoid the discomfort of a journey that appears to be largely uphill?  

      In order to master finding my way to the overlook, and collect that brilliant payoff, I had to learn the trails, face the climb, pace myself, pause when needed, and ultimately choose to keep going.  I also had to realize that there was something up there worthy of my energy.  Planning for the financial future feels much the same way. It starts with a vision of that which we desire.  Then, we begin to educate ourselves on the strategies that are available to us.  Most likely, this new education helps us to become inspired and find the inspired action, or path we'd like to try out.  Perhaps we bounce between trails a bit, but that's okay because we've come to understand that there is more than one way to get to that beautiful overlook.  We pace ourselves, pause when needed, and most importantly we come to realize that we love not only the destination but also the journey.    

      What would you like your financial future to look like?  Do you want to retire early?  At a traditional age?  Do you long to live nomadically?  Travel the world?  During this Retirement Savings series, we've studied so many pathways to obtaining the retirement of our dreams.  We've studied each individual trail and compared it to the one next to it.  We've come to understand the advantages (and disadvantages) of these various trails.  At a certain point, it becomes time to choose a trail and begin the hike.  Otherwise, we're left on the sidelines and miss the overlook entirely...  So friends, where are we going?  Perhaps we should start now.  

      A friend on the trails reminded me of the value of starting right away and pacing myself.  My friend happens to be a gorgeous, grey squirrel.  You see, today it was 82 degrees and sunny.  Not even the slightest hint of Autumn in the air.  Meanwhile, I look over and see the most brilliant, grey squirrel scurrying along with a rather large nut in its mouth.  Now, I watch these amazing creatures all summer long and notice that while they are clearly enjoying their time, they are also constantly setting aside for later.  It's as if they inherently sense that this is something they need to be doing, and then as if by magic, several months later, it's all just there waiting for them.

      Many of us are in the most abundant season of our lives.  Like the squirrel, we can set a bit of that abundance aside for the future while still enjoying much of the bounty now.  So, let's start traveling along that trail we've chosen, deliberately making our way toward the future of our dreams, setting a bit automatically aside from our abundance, and enjoying some along the way.  Also, don't be afraid to start on one trail and then switch to another one.  It's okay to change strategies along the way!

      I realize this post is a bit more metaphorical than the remainder of this series. So, let me ground a bit of this in a concrete example.  I have a fairly vivid image of where I'm going.  I would like to achieve Coast-FI in the next couple of years.  For those that don't know, Coast-FI is a term for people that have invested enough to secure a traditional retirement without adding any more money to their nest egg (basically the power of compounding will allow it to grow to the desired number by retirement).  Once someone has achieved this, they only really have to worry about their monthly expenses.  They can just "coast," hence the term.  Anyhow, I'm on a trail leading me to that point.  In fact, I've taken a few interconnected trails.  What pathways am I using?  I have woven together a combination of pension, rental real estate, Roth 401(k), and Roth IRA.  Since I'm likely to max out my Roth 401(k) this year and have access to a Roth 457, I am considering weaving that into my plan.  I also have my own business, and could take advantage of a SEP or Solo 401(k), but am currently holding off on that.  Since I have access to a 457 through my employer as well (and the investment options are pretty good), I am most likely going to take advantage of that for the time being.

      So, I urge you too to consider: Where are you going?  In other words, what would you like your life to look like?  What are the various trails you can take to get there?  Consider re-reading the other posts in this series as a launchpad for your research.  Then, most importantly, get started!  Enroll in a plan and set it up to be automatic so that you can be simply enjoying your life while setting aside from the current abundance toward the future of your dreams!

      For Further Reading:

      Retirement Savings: SEP vs. Solo 401(k)

      Retirement Savings: Traditional IRA vs. Roth IRA

      Retirement Savings: Roth IRA vs. Roth 401(k)

      Retirement Savings: 401(k) vs. 457

      My 3 Bucket Approach to Retirement Savings

      A Roth vs. Traditional IRA (This one is from 2017, so some of the info is old but the chart in this piece is pretty useful still)

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