Having been pretty #InTheWeeds with our finances throughout the year as the member of our household who fills out our Wealth Planner every month (and, you know, what I do for a living), I was mildly skeptical that going through the motions of presenting this information to someone else would dredge up any interesting insights. 

But as Nick Saban will remind you…trust the process. 

Here’s the executive summary:

• Our net worth grew by 50%. 

• Our most over-budget category grew nearly 3x this year (as in, we spent roughly three times what we had planned).

• We’re going to be financially independent in three years! Maybe!

The difference a bull market makes

One of the major findings right away came from pulling a slide from last year’s report: In 2022, for every dollar we contributed to our assets, our net worth grew by just 67 cents. This made it feel as though every dollar we dumped into the pile promptly caught fire and lost 33% of its value.

This is, of course, because the whole of our assets were getting incinerated in the worst bear market since 2008, and our new additions weren’t enough to compensate. In 2022, our new contributions made up about a quarter of the total value of our entire net worth. 

Not exactly an encouraging environment for saving, but we stayed the course and pulled through—and this year, we were rewarded. 

In 2023—a year in which the S&P 500 has returned an astonishing 24% (as of this post’s publishing)—our overall assets grew by 51%. This amounted to three times the growth we saw in 2022. 66% of the asset growth was thanks to our contributions, and the other 33% was purely the market going up. 

Seeing back-to-back years with wildly different outcomes is a little disorienting, but a word of feedback to the animal spirits: I much prefer 2023’s vibe, thanks!

Takeaway: Sticking to your investment plan—regardless of whether you’re seeing red or green in the markets—has always* paid off. 

When you tweak your budget to perfection, sometimes your bad behavior just goes underground

Ah, just when you thought the entire reflection was about to be a KGT Victory Lap…think again!

No, when it comes to the things I actually had control over (read: my spending), the grade was decidedly less glowing. We spent a total of $157,190 in 2023. I know! I already know what you’re thinking. What?! $150 big ones? But hear me out. Your honor, in my defense, I was having a good time.

And by having a good time, I mean…

• Moving our entire life 1,000 miles west to California. 

• Paying for multiple surgeries and procedures for a dog with bone cancer.

• Going to see Taylor Swift…and the Taylor Swift movie…and then seeing the movie again…(I better have my own slide on her financial annual review.) 

• Oh, yeah, and buying a Porsche Macan—understandably, the biggest item. 

We also traveled to…

• Vail, Colorado

• Dallas, Texas

• London, England, and Edinburgh, Scotland

• Los Angeles, San Francisco, and Sacramento, California

• New York City (five times for work, though the Brew paid for this—I’m still including for travel street cred)

…and, I’m sure, approximately six other places I can’t remember right now. Point is, we were living, baby!

Despite all the above hoopla, the majority of our spending plans actually went…well, according to plan. As in, we intended to spend that much (okay, not quite that much, but it wasn’t an order of magnitude above our goal). 

It’s funny—as the year progressed and I lived the spending, Travel was the category that I expected would be heinously over-budget. But it was only 8% over. Not bad.

On another note, I’ve mentioned it no less than six times this year, but we were really focused on wrangling our food spending in 2023. And we did! I learned to cook, and our food budget and health are happier for it. We ended up 7% under our planned spend for that category.

Where things really went off the rails was the lawless wasteland of the Miscellaneous budget, which encapsulates our respective “Guilt-Free” categories and Gifts. Turns out, we both need to feel a little more guilt. 

*Insert drop of Thomas going, “Wait, why are we spending so much money?” here.*

This category represented 16% of our total spent for the year—we spent more than double (closer to three times) what we had intended (see also: Taylor Swift, moving cross-country, buying a car, etc.). 

This, of course, presents a pickle for me, because unlike a food or gas budget gone awry, “Guilt-Free Spending” requires a little bit of deeper digging. It’s a category that, when you really get down to it, can only be shrunk by having a little more self-control. To quote that twenty-something in a TikTok I shared recently… “I need to (re)learn how to tell myself ‘no.’”

Takeaway: The best types of budget breakthroughs are the kind that leave you staring at yourself in the mirror, going, “It’s time to find some cheaper hobbies.” 

*Crosses “Porsche collector” off list….for now.*

Now, for some (more) good news: Despite our shortfalls, we still beat our savings contributions goal by 13%

Not because we were miraculously under-budget elsewhere (we weren’t), but because we ended up earning more this year than we had anticipated—and for that, I would like to thank the kind folks with wonderful taste at Penguin Random House. 

Our current net worth could support a retirement lifestyle that costs $72,000 per year. Not bad! (But…well, too bad, because *checks notes* that’s less than half of what we’re spending right now.)

When I revealed this #FunFact to Thomas, he goes, “Wait, you’re telling me we could quit work forever if we just spent less than $72,000 per year? Wow, that’s tempting…” I reminded him that would mean moving somewhere cheaper, traveling a lot less, and living a life without a dog or children, and he reconsidered his enthusiasm.

It does make me chuckle that my financial bad behavior seems to be playing a game of Whack-A-Mole: I manage to cut it out with my food spending, but what do you know? There’s a lot of other fun stuff you can spend money on that you don’t eat. Check and mate, Katie. At least my vices are legal (for now).

Still, the most exciting learning from our breakdown was that we’re expected to become financially independent (should the animal spirits receive and honor my suggestion box entry) in approximately three years, which means—if history repeats itself—I have 36 months to promptly triple our spending again and go, “Oops! Just kidding!” Maybe this is my subconscious sabotaging me because I know my life would be less fun without work. 

Takeaway: There’s more than one way to brush a cat (we don’t condone feline violence on this site, per Sam Cat). 

Looking ahead, we’re *ahem* making some changes

The first major change is I’m going to stop spending my “guilt-free” money like a dinosaur who sees the asteroid in the distance. I will not be buying a luxury vehicle in 2024, and I’m also going to reinstate my old fire-and-brimstone approach to budgeting to get it back on track (e.g., if you’ve already spent your allotted amount, you’re waiting until next month).

The second (and more fun) change is the addition of my “Development” category. I haven’t quite decided on the allotment—partially because I’m hoping some of it can be a business expense— but this will be inclusive of things like an editor/writing coach, potentially an executive or business coach, an online membership to The Class, and other things that’ll #enrich me as a human. Hell, maybe I’ll throw piano lessons or a Spanish tutor in for good measure.

I keep insisting to myself that 2024 is a year of “leveling up,” which means continuing the good habits I began in 2023 and refining them further by investing in my professional and personal growth. Because, as I recently learned, there are two ways to reach a savings goal…and it turns out one is a little more fun than the other.

If you enjoyed this year’s financial reflection, don’t miss last year’s distinctly more emo one about realizing that pursuing financial independence was a sign of a quarter-life crisis (albeit of a more productive variety than the kind that causes you to cheat on your wife and buy a Camaro). 

At the end of that piece, I suggested I was going to try to care less about money and enjoy life more in 2023. Well, Katie, good news: mission accomplished. And for the record, the last-minute T. Swift tickets? Totally worth it. 

—

*Past performance is not indicative of future returns, but you knew that already.

Basing your financial decisions on your friends would be a little bit like going to your high school reunion and soliciting people for skincare advice—sure, you have something in common with these people (namely, experiencing your zitty awkward phase together), and there may be a dermatologist present…but the selection criteria (high school) has nothing to do with the topic at hand.

Unfortunately, this is how many of us judge our own financial decisions, by craning our neck around to look at the seven people we hang out with regularly and asking, “Well, what are they doing?”

And you know what? You shouldn’t choose your friends based on how they interact with money (despite what all the hardo Twitter thinkboiz will tell you about “the types of friends you should have in your thirties”). If you like Paula as a friend because she’s the first one to take her top off and hop on the mechanical bull, that’s a good enough reason for me (also, is she free this Friday?).

But unless “financially savvy” is a primary criterion on which you select your friendships, whether or not your friends are “good with money” is a statistical crapshoot.

As humans, we tend to apply a tribal mentality to our decision-making: We compare ourselves to the people around us to gauge how we’re doing.

In practice, it feels reasonable enough, but in objective reality, it’s silly.

If I make $50,000 per year and I have three friends who make $35,000, I might feel pretty high and mighty (because with respect to the three people I’m comparing myself to, I’m doing great). 

But those three people were randomly selected by me for completely different, unrelated reasons, and they don’t represent—with any level of accuracy—an actual comparison standard for the type of income I could be striving for.

After all, if I’m a software developer making $50,000 and the current median salary is $110,000, I should be comparing myself to other developers—and likely many more than three of them—to determine if my salary is fair and if I’m doing well for myself.

Your friends are an arbitrary comparison standard when it comes to money, but it’s the default standard most of us subconsciously use.

How this comparison mindset can negatively impact your spending habits

The salary example is a rather innocuous one. Where things can become real dicey, real fast is when we start judging our investing and spending decisions based on what our social circle is doing.

Roughly half of Americans who register as having “higher financial literacy” still spend more than they earn, which means the sheer probability that you’re friends with someone who has right ‘n tight financial habits is low—just by nature of the fact that there aren’t many people who are excellent at personal finance in general (let this be your motivation to be the friend who’s good at money!).

Let’s use a super common example: If all of your friends live in nice apartments and pay $2,400 to $2,600 in rent, what’s your assumption about a “normal” rent payment? Probably about $2,500. 

But your income and goals might be better suited by the $2,000 range (even if you make as much as they do!). Because of human psychology, though, you’ll likely anchor to the figure that feels familiar. 

Based on the friends you’ve surveyed, $2,500 is more or less “average”—even though it might not be right for you (and may not be right for them, either).

The same goes for cars, going out, and shopping, because it’s natural to behave the way your larger social circle behaves, perceiving their behavior as “normal” and “acceptable” because it’s common in your frame of reference. On a broader scale, this is how society as a whole works— it’s human nature.

How this comparison mindset can negatively impact your saving and investing habits

As a natural extension of spending more, you’ll be saving less—but the #danger comes into play when nobody you’re friends with discusses investing with any sort of regularity. I feel like a broken Suze Orman VHS tape, but it’s true: The way most people hear about the places, things, and habits they engage in? Their social circle.

I repeat: I am not advocating for finding new friends who work in wealth management and make 7-figure salaries. I’m merely making a case for resisting the urge to use your pals as a proxy for judging your financial decisions, and instead taking your #MoneyMatters into your own hands.

Because none of my friends were investing a few years ago, the fact that I wasn’t didn’t feel out of line—and unfortunately, this bleeds into (questionable) investment advice, too. A recent Bloomberg piece pointed out that there’s some evidence that “crypto newbies” who ended up as the biggest losers were influenced by their friends and family to get into the game.

When it feels like everyone you know is minting millions overnight using little more than a black and green app and some newfangled shitcoin you’ve never heard of, the pull to join the parade of new money can be strong (and you won’t know how strong it is until it’s your friend chiding you not to “have fun staying poor”).

And if you are lucky enough to have a whiz of a finance aficionado in your social circle, by all means, take notes! But even if you don’t, you can create one by hiring an hourly, fee-only financial planner. 

Friends, FOMO, and finances

Because here’s the other tough truth about money and friendship that’s clearer to me now than it was in 2021: Our social circle is usually the primary source of FOMO in our lives.

When we talk about keeping up with the Joneses, we’re not talking about some family you don’t know who have a cooler Buick than you. It’s easy to conjure an image of James and Lisa down the street, whom you barely know, and think, “Eh, I don’t care what they do with their money! I’m not susceptible to ‘keeping up with the Joneses syndrome.”

But “the Joneses” aren’t James and Lisa. “The Joneses” are the couple you get dinner with occasionally who just spent two weeks in St. Barts. Prior to dinner, you may have felt great about your lifestyle, work, and financial progress, but suddenly, you might feel like a failure. (“They’re always going on these lavish vacations! How are they doing that? Should we be going on fancy vacations? I don’t think I can afford to take time off right now…”) 

A good way to go from “perfectly content” to “existential tailspin” in about two hours flat is to sit down for dinner with two people your age who appear to be living a (superficially) cooler life than you are.

“The Joneses” is your pal Bridget who just got a fat pay bump. You might have felt thrilled with your salary, but learning Bridget earns twice as much as you do would probably send a cubicle-sized grenade through your formerly wind-puffed sails. 

“The Joneses” might be the family who just invited you to their housewarming party. Beforehand, you may have felt awesome about your new little rental spot, but after sipping Veuve in Kelly and Brad’s new 4-bedroom home with a fully renovated kitchen stocked with rose gold drawer pulls and a stainless steel touchscreen fridge, you’ll probably spend the ride home scrolling through the West Elm wormhole feeling like your house sucks by comparison and you know what, these throw pillows are on sale!

Of course, you probably also feel happy for your friends—but when you’re subconsciously using them as a measuring stick to decide how you’re doing, these emotions can get complicated. 

It’s not as trite as claiming “comparison is the thief of joy,” because it’s more insidious than that—just like we shouldn’t discern how “normal” our spending is by comparing it to what our friends are doing, we also can’t make statistically valid comparisons about lifestyle choices, either. 

It’s not just bad for your emotional state—it’s rationally invalid.

How you can be positively influenced without finding a new group of nerdy spreadsheet friends

Howdy, I’ll be your finance friend! Just like friends can influence poor decisions, your internet “money friends” can influence good ones.

That is to say: Sometimes, your financial barometer can be a more intentionally curated collection of personal finance content and knowledge.

But other times—like when it comes to comparison—it can really only be you.

Your comparison gauge simply won’t function properly unless the person you’re using as a yardstick is yourself (unless there’s another person you know who had the exact same upbringing, resources, opportunities, unlucky breaks, and brain—then compare away).

Here are some questions to use as a journal prompt when you find yourself sucked into Kelly and Brad’s vortex of an awesome time and awesome shooters and awesome music:

1. What (and how) was I doing this time five years ago? How has my life changed since then? How has my financial progress evolved?

2. What would 5-years-ago-me say if they could see me now?

3. What concrete steps am I taking right now to make myself proud five years from now?

While it’s definitely hard (and maybe even unnatural) to extricate your own progress (or life) from someone else’s, doing so packs a dual benefit: You’ll feel better about you when you tunnel-vision your focus to your own life (and you’ll have an easier time feeling genuinely happy for your friends, too).

First, let’s do a quick refresher on how tax credits work.

Y’all know how I frequently get hot ‘n bothered about the tax deductions one can claim from making a pre-tax contribution to a 401(k)?  Well, a tax credit is like a tax deduction on speed.

While a deduction allows you to “eliminate” income in the eyes of our Boiz at the IRS, a credit is a direct refund of the tax you owe. 

For example: A $10,000 deduction would theoretically save someone in the 24% tax bracket about $2,400. A $10,000 tax credit would save someone $10,000, regardless of their bracket.

In short: Tax credits are bae, because they directly lower your tax bill (while a deduction indirectly lowers it).

So what’s the deal with child tax credits?

Here’s the deal, my dudes: I spent three hours reading articles on IRS.gov, TurboTax, and more, and I still had a hard time understanding exactly how the rules work (since each source seemed to have slightly different numbers, including discrepancies even within IRS documentation). Go figure.

I assume the different articles were referencing different tax years, but all that to say, I’ll link my sources where applicable. 

Here’s the overall breakdown:

For 2025, you can get a tax credit worth up to $2,200 per child, with the money distributed as a single end-of-year tax credit (basically, it’ll reduce your tax bill by $2,200 per kid).

• Children must be aged 17 or younger.

• The upper income limit is $400,000 if you’re married and filing a joint return and $200,000 for all other filers.

• I also found this handy-dandy tool for finding out if your child/dependent qualifies, which took a hilariously long time to fill out and felt like a personality test.

How do child tax credits affect the Traditional vs. Roth calculation?

Well, in short, my entire thesis around the general superiority of Traditional for most (and especially high earners) revolves around the upfront tax savings—in other words, if you’re in the 32% marginal tax bracket and you contribute $20,500 to a Traditional 401(k), you’re lowering your tax bill by ($20,500 * 32%) $6,560. 

Two married people in the 32% bracket who both contribute the maximum? They lower their tax bill by a whopping $13,120—all because they’ve contributed $20,500 each to their respective Traditional 401(k) plans.

The quick ‘n dirty way to assess whether or not the child tax credit impacts your Traditional vs. Roth analysis will likely hinge on (a) how much of the tax credit you qualify for based on how many chicken nuggets you’ve got running around your house and (b) your marginal tax bracket.

Because your marginal tax bracket tells you approximately how much you can expect to save on your taxes from making a Traditional 401(k) contribution, I went ahead and threw together the tax savings associated with the popular marginal rates.

• 12% bracket = $2,820 per $23,500 contribution

• 22% bracket = $5,170 per $23,500 contribution

• 24% bracket = $5,640 per $23,500 contribution

• 32% bracket = $7,520 per $23,500 contribution

(I’m not going to bother doing the next few, because after that point, the “tax credit” thing is moot.)

Those numbers above can also be reframed as their equal and opposite: Yes, they’re the savings you earn by contributing to a Traditional 401(k), but they also represent the tax cost of contributing to a Roth 401(k). 

In other words, if you’re in the 22% bracket, your tax bill on a $23,500 Roth contribution is $5,170. (To be clear, it’s no different from just taking the money as income—you aren’t taxed more or penalized in any way for contributing to a Roth account, you’re just not saving on your taxes upfront.)

The tax bracket where your tax credits would cover the “costs” of your Roth 401(k) contributions

If you’re a single or married earner in the 12% tax bracket with two young children, the chances are pretty good that you’re going to get a $2,200 tax credit per kid ($4,400 total).

At that rate, both earners in the 12% household could contribute $23,500 to Roth 401(k)s, generating a “tax bill” of $2,820 each (or $5,640 total) that’s almost entirely “paid” by the $4,400 child tax credit they received. 

Since a tax credit offsets taxes owed, it can make contributing to a Roth account “cheaper.” 

Moreover, my original Traditional vs. Roth analysis hinges on creating more investable income by contributing to a Traditional 401(k)—that by contributing to a pre-tax account, you’re creating a deduction that lowers your taxable income, keeps more money in your pocket, and allows you to invest even more. 

When we introduce things like tax credits to the picture, that effect is amplified—as our original reader noted, his tax liability (as someone with three children) is much lower now than it will be when the kids are grown because he’s receiving (I assume) $6,600 in tax credits every year. 

That’s an additional $6,600 that can stay in this individual’s pocket and be invested as well.

All things considered…

It seems to me that most people with multiple children who are in the 12% bracket would likely be best-served by contributing to Roth accounts during the years they receive child tax credits, both because they’re already in a “cheap” enough marginal tax bracket and the tax credits they’ll receive will likely offset most (or all) of the “tax bill” for contributing to a Roth account.

The 22% tax bracket could go either way, depending on other factors, and I think my original “Traditional is better” analysis stands for those in the 24% or above, since at that point, they’re already in the phaseout for child tax credits anyway. 

To quote the original email:

“I know with personal finance one can’t take every factor into account.”

At the end of the day, these types of sweeping best practices are intended to be considerations and starting points for your personal analysis. Have a pension? Planning on inheriting $10 million? Retiring at 80 years old? Myriad other factors can impact which choice is best for you, and that’s why the tax diversification play is the most fool-proof move—a little Traditional, a little Roth, a little taxable, and a lot of money waiting for you at the end of the retirement rainbow.

Every time I post one of my monthly budget breakdowns, I inevitably get the same question:

Is this just for you, or for you and your husband?

Then, the follow-up:

How come you two haven’t combined finances yet?

And while I wish I had a juicier, more sinister answer for you, the truth is: Inertia.

My husband and I are 28 and 26, respectively, and we’ve both been managing our own money for several years. He had a system that worked for him, and I had a system that worked for me.

It didn’t help that we had lived together for about a year before getting married: We had the “roommates splitting expenses” thing down, making it even easier to carry on with the status quo post-nuptials.

Why we decided to combine our finances

We went back and forth for a while (pre-marriage) about what type of system would make the most sense for us: Initially, we thought a “yours, mine, and ours” play might work, wherein we’d both contribute some money to the metaphoric pot for joint expenses but then hang onto the rest of our income individually.

That sounded good in theory pre-marriage, but after legally binding ourselves together until death, we felt that – for us – it just felt like a more complicated version of the “roommates who split everything” plan we were currently enacting. What’s the point of adding an intermediary step where we both put money in the same account if we’re just putting in our respective halves of the costs we’re already splitting?

After we legally tied ourselves together, the idea of trying to keep things separate just didn’t seem as important. (That’s not a recommendation, so please don’t take it as such. It just reflects the reality of how we both felt after saying, “I do.”)

Before long, the inertia that kept us splitting things and maintaining separate systems started to cause more annoyance than seamlessness.

(And by “long,” I mean about 5 months.)

Keeping track of who paid for what and sending Venmo requests back and forth felt like we were just shuffling the same money back and forth in an obnoxious game of Monopoly, because – we both acknowledged – we consider our assets shared now.

In other words: If everything I own is now his and vice versa, then who cares who paid for groceries and who paid the electric bill? It’s all “ours” anyway.

The frustration of having to maintain creative accounting for seemingly no reason is what pushed us to make the decision: Are we financially aligned, or not?

Fortunately, we had a lot of conversations well before we were engaged about our goals.

Our goals? Retire from traditional work as millionaires in our early 30s and figure it out (when we set that goal, we had no idea how we were going to do it yet, but we knew that’s what we wanted).

Neither one of us has a spending issue, neither one of us has any debt, and we both came into the marriage with (coincidentally) near-equal assets.

It was a relatively easy conversation, then, when we were determining whether or not we should combine.

Questions to ask yourself when deciding whether to combine finances

I’d say these are the general questions you want to consider:

1. Is either partner coming in with significantly more wealth or significantly more debt? If so, is that information fully known between you? How do you each feel about that? Some couples are cool with helping one another pay off debt; others would prefer not to commingle finances in that situation.

2. Do you want the same things? If one of you plans to stop working at 30 to start a peach stand on the side of the road and the other wants to be a corporate attorney until they’re 65, it’s probably good to share that information upfront. If one or both people have plans to stop working at some point, it’s worth discussing that upfront – the obvious question being, “Are you cool with your income supporting us if I stop working, or should I plan to build up savings of my own to live on during that time?”

3. Do you approach money the same way? You don’t have to have identical money philosophies, but it’s helpful to be aware of where the differences lie. As hard as it may be to believe, my spouse is more frugal than I am. He loves getting things cheaply (or for free) and – as financially conscious as I’d consider myself – I’m far more willing to pay for convenience than he is. Though, importantly, he’s open to those types of conversations (for example, he agreed to the cleaning professionals and chef service, despite having little to no interest in it himself).

All right, back to my situation: once we had decided to combine, then what?

How we started the (tactical) process of combining finances

I can’t remember if we had ever explicitly discussed it when we were dating, but there was always a chance one of us would earn more than the other. My husband is an attorney with a higher earning potential because of his career path, but I gave myself an edge by working a corporate job and starting a business at the same time.

While some people are concerned about out-earning their partner, I have a feeling my spouse and I will trade off in the income department. Sometimes he’ll make more, and sometimes I’ll make more.

The respective incomes (in our case) didn’t really factor into the equation, mostly because (as stated above) we approach money the same way and have the same goal.

Put simply: Our interests are aligned.

It sounds cheesy, but I consider us a team striving for the same goal, and because of that, we determined the first step was opening a joint checking account.

Step #1: Open a joint checking account

Once we opened the joint checking account, the idea was that we’d both switch our W2 direct deposits to the new account, so all new income is flowing into one shared pot.

(Money with Katie’s business income would go into a separate business checking account and be handled separately.)

What about combining all the other funds?

Remember how I said we each maintained our own financial lives for years? That means we both own an array of investing accounts. Rather than trying to go through the cumbersome process of selling and transferring assets around, we decided to simply add each other as the beneficiaries on one another’s accounts, and then start anew together.

This means we retained control of our respective investments (he dabbles in cryptocurrency and I do not, for example) that we obtained prior to getting married (and, I suppose, for 5 months after).

If there were a seamless way to combine all of it, we would’ve – but when you’re talking about a dozen separate individual investing accounts, it would’ve been more trouble (and more of a tax bill) than it’s worth.

So there you have it: Opening our first real joint account and re-routing our W2 paychecks was step #1.

Step #2: Open a joint taxable brokerage account

We both have our respective retirement accounts (that can’t be joint, because they’re legally designed to be “individual”), but the majority of our investing each month happens in a taxable brokerage account (no contribution limits, baby!).

Rather than continuing to contribute to our respective individual brokerage accounts, we decided to open a new one. We had a conversation about asset allocation and basically settled on the equity strategy we were both comfortable with and set it up in the account.

For example, with Betterment, you can set your joint investing account that is based on your goals. Just tell them your goal type, provide a little information, and they will handle the rest! Any cash that’s contributed will be automatically distributed appropriately (here’s an article about how to set up joint accounts within Betterment and the ins and outs of joint accounts).

Every month, our money breaks down like this:

1. Expenses

2. Contribute the maximum to retirement accounts (his TSP, my 401(k), my Mega Backdoor Roth IRA)

3. Contribute any excess to the joint taxable brokerage account

That brings me to step #3…

Step #3: Set up the partner spending plan to align on expense goals

Ah, the most fun part (genuinely) – filling out a Wealth Planner together!

His boring black-and-white spreadsheet is replaced by a pink, graph-laden miracle of a Google Sheet. Isn’t he so lucky?

For a lot of our expenses, it was easy – rather than both allotting $1,500 to rent, we just allotted for $3,000.

For others, we had to discuss what we were comfortable spending. For example, we both had individual travel budgets, but now that we were combining, we had to be comfortable with the fact that sometimes one of us would be traveling without the other and would be using a joint budget to pay for it.

(To be honest, this is still something that makes me feel a little bit funny – even though intellectually I know we’re a team, the idea of my partner using our income to pay for a boys’ trip bugs me a little. This is why money is so interesting – you can decide intellectually that you’re comfortable with something, but your emotions in the moment might say something different.)

We decided to allot “individual” budgets into the joint budget. In other words, we each get $150–$200 per month of “no questions asked” money to spend on whatever we want. One of us wants to go out to eat but the other doesn’t want to spend our restaurant budget that night? Cool! Use your “no questions asked” money.

It’s something we decided to bake in so we wouldn’t have to consensually agree to every single purchase. If he wants to buy new boots, I don’t have to worry about where that money’s coming from. I would recommend baking in some monthly spending money for each individual that isn’t necessarily part of a “joint” budget.

And on that note…

Step #4: Retain some individual funds in personal checking or savings for the beginning

For us, we both had some cash on hand (about $9,000 in a savings account for me).

Rather than retroactively combining existing funds, we decided to just apply our new system to every dollar that came in moving forward.

This meant we each had some cash available to us in our individual accounts from our “old” system, which made me feel comfortable as a bit of a buffer. For example, the capsule wardrobe that set me back $1,100 in one day last month? I would’ve wanted to use my own personal funds for that.

Long-term, I’m not sure if that’s something we’ll just get more comfortable with. I can’t imagine being 20 years into marriage and still being like, “Ah, I gotta use my personal savings for this purchase!” Eventually, I think it probably all just starts to feel like joint money.

Growing up, my parents definitely discussed big purchases (and sometimes one ended up putting their foot down). My parents are still together and retired in their fifties (not that their financial approach is the reason why, but it worked for them).

In summary: We set up a new system of combined finances for moving forward, but didn’t retroactively combine accounts

The crucial thing to note here is that we’re still treating these accounts as joint property, even though the physical funds haven’t been literally combined under one digital roof.

This means that when we do our net worth checks, we’re now counting a joint net worth (composed of his original assets, my original assets, and our new joint assets) and considering the entire pot shared.

This is another thing that “feels” a little strange to me as an only child who was never good at sharing, but again, because we came in with nearly equal assets, it’s really like I’m doubling my money via marriage. Cool, right? Love that for me!

All that to say: I don’t blame you if you’re coming into a partnership with significantly more (or significantly less) and feeling weird about it. What’s important is expressing that you’re feeling weird to your partner in a sensitive way, and being transparent at each step in the process.

And who knows? Maybe after being married to me long enough, my husband will decide to be a personal finance blogger, too. A girl can dream.

I’ve said it once and I’ll say it again: While I’m thrilled this blog has a shot at helping others, I am – at heart – a selfish creature. Writing these articles mostly serves as a way for me to publish my own thought experiments and, consequently, force my own hand at figuring out how these types of major life decisions will impact my own financial independence calculations.

So while one could perceive that as a shortcoming of this blog, I invite you to see it as the opposite: I’m looking out for #1, and therefore really putting my back into the research and methodology here (since it directly impacts me).

Feel better? Great. Let’s get into it.

For the purposes of today’s post, we’re talking about:

A “typical” home-buying experience: Buying a house you can afford that’s already “livable,” so to speak, and not intended to function as a rental. In other words, you aren’t going to “force” appreciation by buying a fixer-upper, and you’re not using it to generate passive income via renters.

While you totally can (and should!) do those things, I don’t think that’s how most Americans buy homes, so I want to look at the “baseline” experience, if you will – from there, we can always build on later and look at how those two approaches outlined above could shift the narrative.

As I think through factoring a mortgage into a FI calculation, there are a few things that come to mind immediately:

1. Using a chunk of your net worth for the initial down payment, thereby lowering your net worth in the short-term

2. The opportunity cost of that chunk of your net worth (in other words, what your down payment would’ve turned into had it stayed invested)

3. The ongoing cost of your monthly payment over the next 15 or 30 years, depending on the length of your mortgage (but theoretically, afterward you’d be home-free – literally)

Two things jumped out at me immediately:

1. Because we know home ownership has a shit ton of other hidden costs associated with it that are typically proportional to the value of the home (property taxes, insurance, maintenance, repairs, renovations, building a skateboard ramp in the backyard for your snot-nosed kid), buying a home has the potential to really throw a wrench in your financial plan. After all, when we’re calculating our FI number, we’re using our annual spend to determine how much we need to invest to be #free. If property taxes in my town are 2%, the difference between a $300,000 house and a $600,000 house is $6,000 or $12,000 in property taxes – a $6,000 per year annual difference means my FI number has to be ($6,000 * 25) $150,000 more in order to for me to be work optional, since I’d need $150,000 invested to throw off that $6,000 difference each year in annual returns. The TL;DR: Spending as little as possible to be happy in your home is a baseline principle here. We ain’t swinging for the fences.

2. I feel like half my life on personal finance Instagram is #respectfully arguing with people in my DMs about why your primary residence isn’t an investment in the traditional sense. I’ve written about this ad nauseam. But we all need a place to live – and it’s worth noting throughout this exercise that, while your home is an asset that will hopefully, likely appreciate, it’s a bit of a phantom presence in your net worth. In order to actually realize any of the gain or value, you’d have to sell it and – that’s right – not live in it anymore. The TL;DR: It’s not liquid in the same way that your investment accounts are liquid, so treating your home equity like it’s money in the bank isn’t really accurate for the purposes of financial independence.

The last thing I’ll tack on here is closing costs. Closing costs can be thousands upon thousands of dollars, and they don’t go toward the value of the home – they’re just the cost of doing business. Buying a home you don’t intend to stay in very long can rack up more in closing costs than it’s worth.

Jumping into an example

I’ll be the first to admit that I basically paid engineering students to do my calculus homework for me in college because my brain doesn’t work well in the theoretical, mathematical realm. When it comes to personal finance, I can scrape by (because the stakes are so high!), but it helps me a lot to use hypothetical examples to make these types of scenarios more tangible.

Let’s apply some basic best practices to a hypothetical situation.

Best practice: Not spending more than 30% of your total net worth on the down payment

Frankly, I hate espousing “laws” of personal finance with no basis in anything other than, “Well, that’s just the rule of thumb!”, but to me, this is a starting point.

The idea here is that we don’t want more than a third of our net worth being tied up in our home equity, because (as we already noted) it’s illiquid.

Really, the key here is to use as little of our net worth as possible to hit the “20% down” mark and avoid PMI (that’s insurance a lender will charge you on top of regular insurance if you put down less than 20%; while I know there are certain groups that can avoid it like doctors and military members or first-time home buyers, for the purposes of today, we’re going to pretend PMI is a thing).

If our hypothetical couple has $350,000 between them, 30% of that net worth is $105,000.

The couple shouldn’t spend more than $105,000 on a down payment. $105,000 is 20% of $525,000, so $525,000 is theoretically the most they’d be able to “afford.”

But remember, we aren’t really trying to max out our budgets here. Let’s dial it back a little and shoot for, say, 20% of our total net worth as the down payment: $70,000, or a 20% down payment on a $350,000 home.

What happens next?

Well, a few things:

We’ve put $70,000 down, so our (liquid) net worth drops down from $350,000 to $280,000.

Of course, we’re building equity in a home.

Using national averages and a Zillow mortgage calculator, I’ve learned that my hypothetical couple’s monthly payment on this home would be $1,595, broken down like this:

• $1,180 toward mortgage principal & interest

• $292 in taxes

• $123 in insurance

But for all intents and purposes today, it doesn’t really matter how it breaks down: All that matters is that we have to spend about $1,600 per month on our housing, or $19,200 per year.

Quick tip: To see how something affects a financial independence number, just multiply the annual cost by 25. That’s how much needs to be invested to produce enough in investment returns to pay for it. $19,200 * 25 = $480,000, in this case.

Now, the kicker here is that it’s likely that couple would be paying at least $1,600 in rent anyway – this isn’t a new or novel cost, per se. It’s just money that would’ve been spent on rent that’s instead being spent on a mortgage and the associated costs, so it’s not like we’re adding $480,000 to an existing FI number.

It’s possible they were spending more or less on rent before, but remember: The house is going to introduce ownership costs that are new and novel, so even if their monthly payment is lower, it’s still worth budgeting in extra for repairs, etc.

So what does this tell us?

A “future value” calculator becomes our best friend here.

For the sake of simplicity (though you could plug in your own real numbers for an accurate depiction), let’s pretend our couple was spending $1,600 on rent anyway. In other words, their monthly costs didn’t change because they bought a home, they just lowered their net worth.

So let’s say this couple needed $480,000 in their FI number to produce their $1,600 per month in “income” for their housing, and maybe they spend another $3,000 on other stuff, bringing their monthly “spend” to $4,600 total.

That means their FI number is $4,600 * 12 * 25 = $1.38M.

This is where you’ll have to just go with the flow of the example

For the sake of fleshing this out, let’s pretend this couple can afford to invest an additional $60,000 per year.

In order for this to be accurate, that would mean they’d need to (combined) make about $115,000 after tax, since they’re spending $55,200 per year. That means their average salaries (between them) would probably be roughly $70,000 each, for level-setting.

In the example where they buy the house and drop from $350,000 to $280,000 in net worth

They could hit FI ($1.38M) in 10 years, assuming an average rate of return of 7%.

In the example where they don’t buy the house and just rent, but their net worth stays at $350,000

They could hit FI ($1.38M) in 9 years, assuming an average rate of return of 7%.

Record scratch: It’s just a year difference?

Let’s break this down. This couple only spent 20% of their total net worth on their home, thereby only shaving off a fifth of their invested assets to pour into the home. The other crucial thing here is that they bought a home with a monthly payment of around $1,600 total, and in our example, we assumed the couple that didn’t buy was renting for an identical amount (thereby giving the two scenarios the same “FI” number to strive for).

So you may look at that and think, “Well, shit, might as well buy the house, right?” I mean, that’s what I thought at first glance, too.

But here’s what I always come back to: When you flesh these two scenarios out to #completion, the not-super-realistic-but-still-ideal outcome is that you’d end up owning the house outright and living in financial independence with basically no housing payment, therefore cutting back on your monthly costs by a sizable chunk, where the couple who was renting would have to keep renting indefinitely. One couple would lower their housing costs significantly after 30 years, and the other wouldn’t.

In this example, the couple with the house would likely still need to pay their $282 in taxes and $123 in insurance every month indefinitely, but they’d recoup about $1,200 of their monthly payment after paying off their 30-year mortgage.

Do you see the writing on the wall here?

Most people don’t stay in the same house long enough to own it outright

And if I’m just buying homes and then selling them before I own them outright, I don’t see how it’s any different from renting – sure, I may make a little on the appreciation even after I pay the bank back (or a lot, if I time it correctly), but remember those phantom costs? It’s hard to quantify how much of that appreciation is truly profit after you consider all the money you have to sink into a home over the years. That’s not a knock on home ownership, it’s just reality.

Side note: We’re living through a truly unique time period right now with an extraordinarily hot market because of a housing shortage. While some will certainly get lucky selling their homes right now at inflated values, it’s not something you’d want to bank on down the line because it’s admittedly a bit of a fluke (and the obvious caveat to selling your house in a hot market is that you then have to buy in that same hot market since you, you know, need a place to live, which eats into your gains and locks you into another mortgage that’s inflated thanks to the aforementioned hot market).

The shitty thing is that it often doesn’t even make sense to pay off a mortgage any faster, because your interest rate is likely lower than the average stock market return and – as a result – your extra #fundz will go further in the stock market anyway.

Key takeaways

I suppose if I ever found myself in a position where I lived somewhere that I could buy a home I’d actually want to live in with numbers that worked out like the above, I’d be interested.

The hard thing is, I’ve never lived in a city where I could get anything remotely attractive for $350,000. The “Zestimate” for the home we’re renting in Colorado right now is $895,000. The ramshackle huts down the street from our apartment in Dallas were $500,000+.

To find something at $350,000, we’d have to move far away from the types of areas we like to live in at this point in our life, and that’s not necessarily a compromise I’m willing to make yet. That said, it’s also worth divulging (in transparency) that our rent right now is $3,000 per month; nearly double that of the example rent in this scenario. It’s certainly not the most “FI” choice.

(And to be clear, I’m not suggesting anyone compromise on housing if they don’t want to – I’ll be the first to admit that it’s $3,000 very well-spent for the quality of life it provides.)

I’ve always found that renting enables you to live in homes much nicer than those you could actually afford to purchase outright; the breakdown for the house we’re living in now would’ve been $178,000 down and a monthly payment of $3,700. Instead, we get to live in it with no money down, $3,000 per month flat, and no obligation to pay for the landscaping, a future broken hot water heater, roof repairs, or other [insert miscellaneous repair costs here].

This is why real estate is a hyper-regional choice. In cities where the cost of real estate is only 80% as high as the national average, you can get a palace for $350,000 and it may truly make sense (the counterpoint is that you could also probably rent extremely cheaply, too, but again – the headline here is that running the numbers is worth 20 minutes of your time).

The important thing: Buying a home you can truly afford won’t really slow your progress to FI, but it probably won’t end up helping it, either

I mean, come on: 9 years vs. 10 years? Who cares? Because our hypothetical couple chose a property that was technically worth the same as their total net worth, it didn’t really make a difference in their investing timeline (assuming their rent was the same or more than their monthly payment for the house, as in the example we saw today).

And if you’re in a rare circumstance where you intend to stay in a house for the next 30 years to the point that you own it outright and don’t have a housing payment anymore, you could find yourself in quite the sweet position. My parents lived in the home I grew up in for 26 years before they sold it, so they almost owned it outright – but it didn’t appreciate by very much in that time, so they mostly broke even.

But I suppose – in practice – I’ve always found renting a more realistic option with practically zero phantom costs or impact to your net worth. You can predict with perfect precision what your rental costs will be: Rent * 12. No roof repairs, broken garbage disposals, or broken pipes to speak of. That’s someone else’s problem.

(Although, your rent will likely go up every year, which is a fair complaint that people have – to that, I say, if you’re down to move, you can always find a cheaper place elsewhere. That’s where the “convenience” vs. “money” starts to come in, and you have to make choices that align with your income and goals. For the last five years, I’d move or negotiate any time they tried to raise rent and kept my housing costs about the same every year. This year, I decided I made enough money to justify the better place.)

If you’re always going to have a mortgage payment because you plan to buy but never plan to own a property outright, you’re really just renting your home from the bank

They own it, you make payments, and you hope that when you sell it, you make enough on the sale to recoup your initial down payment and then some. That has always felt risky to me, but I suppose I’ve never been truly incentivized to buy.

That’s the thing about the “appreciation” conversation I’ve never really understood:

Even if you make $100,000 on the sale of your home, you probably put $50,000 down (at least), and you have to go find somewhere else to live now. That money just shuffles to the next place. It feels like you’re just moving around the same pile of money from property to property, not actually pocketing the difference and benefiting from it. But what do I know? I’ve never owned a home.

Concluding with a reminder about opportunity cost

Man, when I set out to write this, I promised myself it wouldn’t become another Renter’s Manifesto. Another one bites the dust.

Oh, and the last piece to close us out: opportunity cost.

Our couple who didn’t buy? Their original $70,000 down payment, left in the stock market to compound over a few decades at a 7% average rate of return, would turn into $568,000 after that 30-year mortgage period is up. I think that appreciation is pretty hard to beat. *winks

This blog post is based on a few sections of Chapter 4 of Rich Girl Nation, “I Thee Wed (and Spend Thy Bread.” If you’re interested in the full deep dive on marital finances, pick up a copy.

The question of “how to combine finances” comes up frequently, so I figured now was as good a time as any to start fleshing out the options.

Key word? Options. Because there’s an infinite spectrum of personal situations out there, I won’t attempt to offer every single possible scenario – but what I will do is offer three courses of action that you could use as a starting point with your significant other.

In all three scenarios, the thing to keep at the forefront of your mind is what feels fair to you and your partner. An innate sense of fairness is a vestige of our animal brains, and when one person in a relationship feels that something isn’t fair, it creates resentment – which is a relationship killer, as anyone who’s ever dated someone to the point of not being able to stand them knows.

The total combination: “What’s Mine is Yours.”

This is probably the most “traditional” of the choices; combining everything both of you bring into the relationship into “one pot,” so to speak. Joint account city.

Historically speaking, this was the most popular (and sometimes only viable) option, because women couldn’t or didn’t work. The man’s salary had to support the entire family, so it was really the only way to go.

If you’re in a relationship wherein you don’t participate in the traditional workforce and earn an income, this is probably the only choice that makes sense (but even as I type that, I’m like, So how are you supporting yourself now if that’s the case? but anyway, I digress). Of course, plenty of couples with dual incomes set up their marital finances this way, too: Both incomes go into the same checking and savings accounts, and are used to pay the bills and fund the investment accounts.

The pros of this solution are that it’s about as simple as you can get: There’s no math involved. You merely dump everything into the same place, and it can create a real sense of teamwork: We’re working together to build this nest egg that we both benefit from.

The cons of this situation are a little complex: If one partner makes a lot more than the other, there can be resentment and control issues that affect how the spending happens (not always, of course; this is highly dependent upon individual personalities and the relationship itself), but if all your money is going into the same place, it might start to feel like every purchase decision has to consider the other person in the relationship: If I’m buying something that’s just for ME with OUR money, it makes sense that I should consult you first, right?

At the risk of sounding like a Holistic Psychologist meme, this arrangement probably requires the healthiest, most open communication in order to work, because expectations have to be crystal clear ahead of time.

If both partners in the relationship are raking it in and you’re both fairly frugal, it might not be an issue: $300,000 to split between two people who don’t spend very much probably won’t make waves. But if you’re collectively pulling in $80,000 and one partner is a spender and the other is a saver, you might find that the “one pot” solution is causing more headaches than the initial simplicity was worth.

The opposite end of the spectrum: “What’s Mine is Mine and What’s Yours is Yours.”

This is the opposite approach, and it involves both partners maintaining separate finances – this is probably akin to how things go when you’re dating before the relationship becomes legally official. Each partner is responsible for making and managing their own money, and things don’t get combined.

This option became more popular in the 21st century when people began getting married a lot later, and therefore supporting themselves for longer before partnering up and sharing the same HBO GO password. It’s not unusual for both people in a relationship to come into the union with six figures in assets (or six figures in debt) prior to coupling up.

It can make the idea of combining accounts scary, because the financial pictures may be pretty far along already. Sometimes it feels safer to just maintain separate financial lives within a relationship.

The pros of this scenario are obvious in that your money is fully yours, and your partner’s money is fully theirs. You can make completely independent decisions about how you save, spend, and invest. Most of the time, people who choose this path split common expenses down the middle.

The cons of this scenario are that it can make you feel as though you’re not truly a team – there can be psychological distance as a result of being completely separate in money, which can create some sense of separateness when it comes to how you’re spending. There’s something to be said for a common goal, financially.

The separation created is also a bit of an illusion, as married couples’ assets are considered “joint” regardless of whose name is on the account or title—which means if the marriage ends, you may be in for a surprise when it’s time to start divvying up assets and you’re the only one with savings to split.

It’s also possible that one person will substantially out-earn the other, which can create feelings of guilt if you’re splitting something 50/50 and the person who makes a fraction of what their partner makes is putting their entire paycheck toward rent. And guilt aside, the higher earner might want to do things that are more expensive (because they can afford it), and the partner who makes less might feel like they’re unable to save because they’re spending in a way that has to keep up with someone who makes twice as much as they do.

Broken record alert: The open communication comes into play here, too. Fortunately, most couples where this is the case adapt naturally. The high earner usually offers to pay or treat the other for the expensive stuff, because they (hopefully!) recognize that their champagne taste shouldn’t have to be subsidized by their partner’s beer budget.

The middle ground: “Yours, Mine, and Ours.”

Personally, I think this is the most attractive option, and there are two paths within this one: The Proportional Path and the Nominal Path (stick with me here – I’m literally naming this shit as I go).

Predictably, this path is a hybrid of the two extremes: Each person contributes a pre-determined amount to the “ours” bucket, but maintains separate individual accounts as well.

The “Proportional” path works really well for couples with a really extreme difference in income (due to the reasons we touched on above wherein the person who makes more might want to spend more than the person who makes less): In that scenario, the incomes will determine how much each person contributes to the joint account.

For example, if you determine that your joint expenses are:

• $2,000 rent

• $500 groceries

• $500 travel

• $500 dining out

• $250 pets

That’s $3,750 per month that you two deem your life together costs, separate from your own individual expenses that the other person may not be interested in paying for.

If one person makes $50,000 and the other makes $100,000, then your total income is $150,000, and one partner accounts for 33% of the total and the other accounts for 66% of the total. The person who makes more would contribute 66% of the joint money, and the person who makes less would contribute 33% of the joint money.

In this example, the person who makes more would pay 66% of $3,750 ($2,475) and the person who makes less would pay 33% ($1,238).

This levels the playing field a little bit so each person is only responsible for spending the same percentage of their income on joint expenses, rather than a 50/50 split (where each person, regardless of how much they’re making, would’ve contributed $1,875 in this example). It puts a little bit more of a burden on the higher earner, but guarantees that each person is able to save the same amount of their income proportionally.

The cons here are a little more nuanced; obviously, someone who wanted to take advantage of this situation could. The person who makes less is getting some of their life subsidized by the higher earner – but that’s the point of being a team, right? You carry the weight you’re able to carry. Ideally, you wouldn’t want to take advantage of your partner.

This scenario does, to some degree, solve for the situation where the person who makes more might want to spend more. The partner who earns less can still benefit from the nicer stuff, but is only on the hook to pay for a proportional percentage of it, which lessens the burden on the person who earns less while still enabling them to enjoy nice things.

How to choose what’s best for you

Of these options, what feels the most fair and feasible to both of you? What money conversations do you still need to have? A few things that might determine how you move forward:

• Attitudes toward money: A spender and a saver probably don’t want to do a full combination of finances, because the spender will stress out the saver and it’ll cause unnecessary, recurring friction.

• Assets and existing debt: If you both are coming into your relationship with comparable amounts of money or debt, it’s a little easier to combine everything or do a hybrid approach. If you’re not, it might create some tension, and a path that favors a more individual approach might be less stressful.

The great thing about relationships is that true love can transcend math. I’ve met couples in the past where one partner was a much higher earner and effectively paid the other person’s student loan debt for them so they could start saving more quickly, together. There was no resentment or control at play; it was merely “We’re a team, and I have the means to help get you to breakeven so we can start investing together.” In that case, it actually was more efficient for them (as a team) to work together. It would’ve taken the partner who earned less a LOT longer to pay down that debt.

That was a beautiful and healthy relationship, and we all interact with money differently. There’s a lot of emotion wrapped up in money. If both people feel like the solution is truly fair and makes sense, then it’ll work – regardless of which path you choose. But “fair” feels different to everyone, and money has a way of creating real issues in relationships. Between 29% and 41% of divorces happen because of a disagreement about money.

Hopefully one of these three options will serve as a starting point that you and your significant other can tweak to fit your needs and unique situation. The most important thing is that you sit down and talk about it – with an open mind and a beverage, preferably.

A far more robust version of this blog post lives in Chapter 3 of Rich Girl Nation, “Knowledge is Power.” Grab your copy now!

I’m just going to put this out there now: I don’t really understand why people are sometimes offended by the idea of early retirement. Every once in awhile, you’ll get someone who’s utterly aghast at the idea of retiring before you’re decrepit.

“But what are you going to do with all your time? Aren’t you going to be so bored?” I don’t know about you, but the last time I was “bored” was when I was 12 and my computer access was revoked for abusing my Club Penguin privileges.

I have a list longer than my 5’1” body of things I want to accomplish, books I want to read, places I want to visit, languages I want to learn, and skills I want to master. Hell, sometimes I’m worried that if I don’t start now, I might not do it all before I die.

Early retirement doesn’t mean hanging up the work laptop to watch Jeopardy all afternoon and count the wrinkles in your crow’s feet. It means that if you want to work, you can work on your terms, and if you want to f*** around for a few years, you can do that, too. My dream is to create stuff like this for the rest of my life and never have to worry about if it makes any money or not (because spoiler alert – it really doesn’t).

In short, it means total freedom.

And I get it – total freedom can be scary. “Freedom” for Saturday and Sunday is fun. Total freedom makes you face yourself in a whole new way. So I can understand why, to some extent, people cling to their employment as an identity-defining facet of their lives. I’d love to challenge you (and myself) to give yourself more credit than that. You are more than your job, and you have more to offer the world than you probably even realize.

What’s financial independence?

When we talk about financial independence, I don’t mean in the broad, touchy-feely way that we feel empowered by the ability to pay for our own stuff (although that’s valuable, too).

“Financial independence” in this context means you have so much money invested that the compound interest and returns on your investments make enough every year that you can keep using your money at a pre-defined pace and it’ll always replenish itself.

Sounds pretty dope, right? And lucky for us, there’s an easy way to calculate what your financial independence number is. In other words, it’s a very easy equation to determine how much money you need to have invested in order to live on the amount indefinitely.

I feel like the first time people hear about this concept (myself included), they’re incredulous – like it’s too good to be true.

The consumer culture we live in has a very specific script it prescribes for us. Ready for this? Get your Prozac handy, because it’s going to knock you on your ass.

Grow up, take out student loans to go to college, work an entry level job to pay them back, buy a car, buy a home, saddle yourself to hundreds of thousands of dollars in debt because that’s the “adult” thing to do, make yourself feel better and numb the madness through impulse purchases, alcohol, Netflixes binges, and sugar, then live your entire life chained to the treadmill of your 9-5 so you can afford the aforementioned debt minimum payments!!!! Then, when you’re 65+, you can have whatever measly contributions you made to your 401(k) to live out the rest of your days in some retirement community and call it a life.

Are you depressed? Because that just depressed the shit out of me.

Financial independence basically takes the script and rejects it outright: Instead of blindly taking your number at the deli of traditional life decisions, it says, “Actually, I’m going to keep my fixed expenses as low as humanly possible, work hard, get insanely creative with my income, invest like hell, and walk away from all that noise at 35 or 40 so I can spend the next 50 years doing whatever I want instead.”

There are plenty of critics of this idea, but you know what? I don’t think it hurts to strive for it, even if you don’t actually intend to retire early. What about just having the choice? Wouldn’t the option feel pretty good? I don’t know about you, but I do my best work and feel most fulfilled when I don’t feel utterly stuck.

A few really beneficial side effects of pursuing financial independence:

• It resets your reward system to be grateful for what you have. Because you’re turning down the consumer hamster wheel, you learn to appreciate the little things. You no longer need bigger, better, newer and fancier to keep your amygdala tickled.

• You’re constantly thinking critically and applying your skills in new ways to try to earn or save more, which can be fulfilling in and of itself.

• And, most importantly, it gives you something compelling to work toward. More on that below:

If the choice is, “Buy and have the shiny thing or refrain and don’t have the shiny thing,” you’re automatically set up for failure

It’s a binary that’s going to test your willpower every time. If it’s “have” or “don’t have,” what human being in their right mind would ever consistently be capable of choosing “don’t have”?

The secret isn’t having stronger self-control, it’s putting structures in place and creating a mindset that simply tests your self-control less often.

That’s why financial independence is so damn compelling. The choice is no longer “have the thing or don’t have the thing,” it’s, “have the thing now or get closer to my impending permanent freedom forever.”

Let’s talk about how to calculate your number

I’m not kidding when I say once I saw this, it lit a fire under my ass that blasted me into 2035.

When I first discovered financial independence in 2018, I spent about $2,600 per month, give or take a few hundred. It fluctuated a little (some months it may be as low as $2,300, others might see it float up closer to $3,000), but $2,600 was the average. In other words, I needed $2,600 each month to maintain my lifestyle.

Once you know how much you spend per month (a crucial component of this equation, and a byproduct of an effective budget), you know enough to determine your number – just multiply it by 12 to understand what your annual spend is, then multiply THAT by 25. (This is based on something called the 4% rule. To listen to an episode about the 4% rule, head here next.)

$2,600 per month * 12 months in a year = $31,200 per year

My life, as I lived it then, cost about $31,200 per year.

$31,200 * 25 = $780,000

In this example, once I have $780,000 invested, I can retire. Why? Because if we assume an average rate of return of 7%, I can use $31,200 of my money every single year, and the interest will always replenish that money used. (Again, in this mathematical vacuum – some years will be better, others will be worse.)

If you’re sitting there like, wait, hold on – so you could just live forever on $780,000? Theoretically!

For example, in year one, I could put myself on the Payroll of KGT for $2,600/month, and be left with the following:

$780,000 – $31,200 = $748,800

Assuming the market returns 7% that year, I’d finish with $801,216. Notice anything funny there? It’s more than I started with! That’s the law of large numbers. Of course, I wouldn’t be taking out $31,200 all at once; I’d withdraw $2,600 month over month, which means the balance would stay higher, longer. This example is conservative in the sense that it removes the big chunk all at once.

The idea is that this magic math problem can go on indefinitely.

The obvious down side is that you can’t really spend more than your allotted $31,200 (in this example) or the equation will break.

I’m not telling you to actually retire at 35 and live on $2,600/mo. for the rest of your life

What I’m telling you is to consider how a goal like that could change your perspective on temptation and reward.

For me personally, the temptation to spend $1,000 instead of invest it drops dramatically when I consider that I’m essentially using my money to build an elaborate escape route, should I ever want it.

Imagine turning 35, having $800,000, and deciding you want to take a year off to travel and try something new. Great. You can spend $2,600/mo. and still end the year with more money than you started, even if you don’t make another dime (again, assuming you get a 7% rate of return – never a guarantee).

A note about simplifying for the sake of clarity

There are certainly holes one could poke (or other scenarios, like multiplying by 33 instead of 25 if you’re really young), but I think it’s crucial to get clear on WHY you’re saving – the why will carry you through all the many temptations that will cross your path.

The Wealth Planner will take your numbers (monthly spending, income, etc.) and spit out your projected FI/RE timeline, and how your money would grow even after you begin withdrawing it (in other words, what your personalized version of “$780,000” is).

Month 4

(Months 2 and 3 were spent earning the sign-up bonus by chipping away at the spend thresholds. It goes without saying that spending a bunch of money you wouldn’t normally spend defeats the purpose of travel rewards, so… don’t do that.)

Now, in Month 4, we experience the #magic for the first time: Katie would refer Thomas to the Preferred card and Thomas would refer Katie to the Priority card (i.e., they’re referring one another to the cards they just got).

Now, Katie will earn 15,000 more points for referring Thomas, and he’ll earn 75,000 points for signing up, and Thomas will earn 20,000 more Rapid Rewards points for referring Katie to the Priority card, who will earn 50,000 points for signing up.

That nets them, as a couple:

165,000 Chase Ultimate Rewards points

120,000 Southwest Rapid Rewards points

Of course, these are spread across two accounts, but in some cases (Southwest, Marriott, etc.) you’re allowed to transfer your points to someone else. This means if you wanted to bank all your points for one particular co-branded card in one person’s account, you could just transfer them, making the other member of the couple the proxy line of credit.

If you’re married, or “members of the same household,” you can transfer Ultimate Rewards points, too.

So now, months 5 & 6 will be eaten up earning the next round of bonuses. We’ll check back in with them Month 7.

Month 7

With the Sapphire Preferred and Southwest cards out of the way, we’ll move on to hotels and premium cards.

This gets a little hairier with more personal preference, so strap in.

Katie will get the Marriott Bonvoy Boundless card for a welcome bonus of 125,000 bonus points and 1 free night, and Thomas will get the Platinum card for the welcome bonus of as high as 175,000 Membership Rewards points.

Months 8 and 9 will involve them hitting their individual spend thresholds, so you know the drill.

Month 10

Referral party, and you’re invited! Katie invites Thomas to the Bonvoy card and earns 40,000 bonus points. The Bonvoy welcome bonus for Thomas is the same; 125,000 bonus points and 1 free night.

Here’s where the personal preference comes in with the premium cards – some couples (especially those who really only travel together) don’t see the need in getting two premium cards with high annual fees like the Platinum, because a lot of the benefits of the Platinum card extend to cover the entire couple while traveling (e.g., elite status at hotels, airport lounge access, the Fine Hotels & Resorts Collection, etc.).

This is totally dependent upon your threshold for acceptable annual fees. Let’s say Thomas refers Katie to the American Express Platinum card.

Thomas earns 20,000 points for referring her, and she earns her welcome bonus of as high as 175,000 Membership Rewards points.

With this next set of cards, they’ve collectively netted:

370,000 American Express Membership Rewards points

290,000 Marriott Bonvoy points

Are you keeping track? That’s…

165,000 Chase Ultimate Rewards points ($2,475 in travel*)

*An Ultimate Rewards point is valued at approximately 1.5 cents per point.

120,000 Southwest Rapid Rewards points ($1,680 in travel*)

*A Rapid Rewards point is valued at approximately 1.4 cents per point.

370,000 American Express Membership Rewards points ($3,700 in travel*)

*A Membership Rewards point is valued at approximately 1 cent per point.

290,000 Marriott Bonvoy points ($2,320 in travel*)

*A Bonvoy point is valued at approximately 0.8 cents per point.

For a total of…

945,000 points to share between them worth approximately $10,175 in travel.

…and $2,468 in annual fees, or $1,234 per person.

Effectively, you share the benefits and split the cost. The beauty of this, though, is that all the cards recommended here have enough annual repeating benefits to more than offset the annual fees.

The tip of the loophole iceberg

The TL;DR version of this post is simply: You refer one another to cards so you can add referral bonuses to your acquisition bonuses, and traveling with one other person means you can reap the mutual benefits of each other’s points while only paying for your own.

But the biggest benefit to traveling as a couple is Southwest Companion Pass, and we haven’t even scratched the surface with Companion Pass yet. The Companion Pass strategy still works with the strategy above, but remember how I said the timing matters?

You’ll want to hit the spend threshold for the Southwest card early in the calendar year because the clock starts ticking on January 1 – you have one year to earn 125,000 points, and if you do, you can designate your partner as your Companion to fly free with you every time you do, paying only the taxes and fees ($5.60 each way). This is an incredibly lucrative benefit and the importance of getting it for your points strategy is hard to overstate since it effectively makes your points twice as valuable.

The referral bonuses count toward Companion Pass, so in the example above, Thomas would be the member of the couple who’s going for Companion Pass (funny, because in real life it’s the other way around and Thomas is the reluctant participant in my schemes) and he’d have 65,000 points from signing up and 10,000 points from referring Katie.

This is why going for Companion Pass when the sign-up bonus is high helps a lot – a 65,000-point sign-up bonus + 10,000 referral points gets you to 75,000 right off the bat, leaving only 50,000 to go. Unfortunately, transferring Rapid Rewards points to one another doesn’t count toward Companion Pass, otherwise we’d really be in business.

In the meantime… start firing off your first round of applications and rope your spouse into it.

#

Editorial Disclosure: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, hotel, airline, or other entity. This content has not been reviewed, approved or otherwise endorsed by any of the entities included within the post.