Mike and Maggie from Friends On FIRE join the show today in a bonus episode.
With this bonus, we are looking to help you find out more about personal finance. Although house hacking is a great way to get ahead financially, you may need to take the time to set up a strong financial base before taking the plunge. Mike and Maggie are personal finance experts that offer helpful guidance on how to build your financial foundation.
Live Like You Lost Your Job
Maggie has been preparing to lose her job for the last 20 years. In fact, Friends on FIRE recently released an episode entitled “Live Like You Lost Your Job.”
Although she has been preparing for years, she shares that it is never too late to start being more financially fit and responsible. With 40 million people unemployed in the United States, it might be the perfect time to start working on building a solid financial foundation. The goal is to get your expenses to a low enough level that it doesn’t matter if you are employed or not. Building this foundation will require discipline and a different approach to your lifestyle, but it can change your life for the better.
Here are Maggie and Mike’s top tips:
Start An Emergency Fund
An emergency fund is an important financial cushion that can shelter you from the impacts of a job loss or unexpected financial problem. If you have a job right now, focus all of your effort on building an emergency fund in case something affects your income.
If you don’t have the ability to build an emergency fund due to a reduced income, then consider slashing expenses to stretch out your funds. For example, let’s say you have $10,000 on hand and spend it within 3 months. With that, you’d have a 3-month emergency fund on hand. But if you were able to cut your expenses in half, then you’d have a 6-month emergency fund.
Through a combination of controlling your expenses and increasing your emergency fund, you can prepare for any situation life throws your way.
Track Your Expenses
The best way to reduce your expenses is to start tracking your expenses. After all, you cannot improve what you aren’t tracking. As you start to track expenses, you may naturally cut things out because you are more aware of the spending. Take the time to review your spending on a monthly basis and stay aware of the patterns of your expenses.
Mike and Maggie recommend using Excel to manually track and process your expenses. However, Maggie also uses Mint as a starting point for her monthly budget.
If you are interested in learning more about tracking your expenses, then check out Friends on FIRE’s full episode here.
Create An Open Dialogue With Your Partner
If you aren’t on the same page about your personal finance goals and spending patterns, then it can be more difficult to achieve your goals. In fact, it can create conflict and tension within a household if you aren’t on the same page about money. For example, if both parties aren’t willing to cut expenses, then it can easily lead to conflicts.
Once you have your goals in mind, then you need to talk to the people in our life that affecting the amount of money that you spend. Take the time to talk through your goals and make sure that they are on board. Although this may require open communication and some compromise, it is a critical part of your success moving forward.
If you are single, that doesn’t mean that you shouldn’t share your money goals. You can still talk to friends and family about your personal finances. It can be helpful to compare your financial situation to friends with similar lifestyles. The comparison can help you stay on the right track.
As you broach the topic of money with friends and family, you might run into some resistance. But building open communication is critical for successful relationships across the board.
Track Your Net Worth
Net worth is a useful way to track your progress. To calculate your net worth, you simply subtract the sum of your assets minus the sum of your liabilities. You can use your net worth to make strategic decisions to improve your life. Instead of focusing on cash in your pocket or the accessibility of the funds, you can focus on building your net worth to new heights.
Once you have the tracked net worth data, you can use it to start conversations with reluctant partners. With a tangible number, it is easier to convince them of the real consequences of their spending choices.
A fun way to track your net worth is to set up a monthly money date night to discuss progress towards shared goals. You might be surprised how the information changes the way you approach money as a couple.
Spend On What Makes You Happy
Maggie points out that the goal of slashing your expenses is not to make you unhappy. In fact, she recommends focusing on your priorities and spending money on them. You should ruthlessly slash your other expenses. Take action to cut out everything that doesn’t make you happy. Carefully evaluate your wants and needs. Take the opportunity to cut expenses that aren’t bringing any value or happiness to your life.
Saving And Investing
Once you start tracking your expenses and net worth, the goal is that you will have some money left over at the end of the month. After you have an emergency fund in place, you should not simply leave your cash in a savings account. You should take those funds and start to invest. You might choose to invest in real estate or the stock market, but the goal is to put your money to work.
Don’t be startled by the current volatility of the markets. If you choose to start investing, then you should expect some bumps along the way. However, it is likely that both the stock market and real estate market will continue to rise over time. If you aren’t trying to be greedy or beat the system, then investing will likely work out in your favor.
One investment opportunity is to fund your 401(k) to receive your company match. Another is to get into the market with ETFs. House hacking is another great investment opportunity. You’ll be able to slash your housing costs and build equity in a property at the same time.
More From Mike And Maggie
Take a minute to learn a little bit more about today’s guests.
Mike
Favorite personal finance blog, book, or podcast?
Your Money or Your Life by Vicki Robin
Favorite real estate related blog, book, or podcast?
Buy, Rehab, Rent, Refinance, Repeat by David Green
Favorite travel destination so far?
Thailand
Where would you jet off to after the COVID-19 crisis?
Mike hopes to travel to Maine at some point this summer.
What is the biggest bucket list item that you haven’t accomplished yet?
Mike and his wife would like to go to Everest basecamp.
Maggie
Favorite personal finance blog, book, or podcast?
Your New Relationship with Money by Micheal O’Leary
Favorite real estate related blog, book, or podcast?
Favorite travel destination so far?
Santorini or Ireland
Where would you jet off to after the COVID-19 crisis?
Paris
What is the biggest bucket list item that you haven’t accomplished yet?
Maggie hopes to live in a tiny house someday. She would also like to take a summer off to slow travel in Australia with her kids.
Books Mentioned in this Episode
How To Connect With Today’s Guest
You can learn more about Mike and Maggie through their podcast, Friends on FIRE.
Notable Mentions
Friends on FIRE – Live Like You Lost Your Job
Friends on FIRE – Expense Tracking Gone Wild
