This is episode # 9, which is the second and final installment of our series about taking charge of your finances. Last time, we talked about the Five Stages of Financial Freedom, and helped you assess where you are, right now. We talked about some strategies to navigate the lower stages of financial freedom… how to move from feeling like you’re drowning, to treading water, to doggy paddling around the pool.
We looked at the Three Levers you can pull on (income, debt, & spending habits) to increase your financial freedom, with an emphasis on what Ramit Sethi refers to as your Money Dials: The areas of your life where you want to crank your spending way down… or way up… so that you get the most from your money.
So if you missed Part 1, go back and listen to that, first. Today, we’ll be looking at the upper stages of financial freedom, and how to move through those. I’ve got lots of tools and books to recommend here, too. And I’m going to make the case that, even if you’re married or have a long-term, live-in partner… consider keeping your finances separate.
As always, if you have questions or stories to share, send them to podcast@getyourselftogetherchica.com. And you can visit the show notes for links to any of the resources I mention in this episode at www.getyourselftogetherchica.com/podcast.
But first, I want to share what’s bringing me joy right now. At the time of this recording, we are halfway through our Fall 2023 sessions, in my Get Yourself Together Chica live program. And it’s been such a delight to see these two groups of women, both the virtual and the face-to-face programs, have breakthroughs and insights. I’m watching as they figure out what’s been holding them back… and as they surprise themselves, with what they’re capable of. I don’t know what the future of that program holds, or what it’s going to look like, a year from now… but I do know now that I am meant to do this, or something a lot like this, because what’s happening with the women in this program is just so powerful. It’s a joy to host it.
Let’s jump in and do a quick recap on the Five Stages of Financial Freedom.
Stage 0 is drowning. For obvious reasons, nobody stays in Stage 0 for very long. That’s when there is always (always, not sometimes) more money going out of your life, than coming into it. You’ve tapped out all your resources. Including your family and friends. There’s nothing left. And no one is coming to save you, anymore. There’s no freedom to be found at this stage, so that’s why it’s number zero.
Stage 1 is treading water. That’s when it feels like you’re putting in a ton of effort, just to stay afloat each month. (There’s also a version of stage 1 where you’re dependent upon regular infusions of cash from your family, to stay afloat. In that case, think of Stage 1 as “wearing arm floaties”.)
Stage 2 is doggy paddling around the pool. That’s when you can handle some of the emergencies that life throws your way, and you have space for some little luxuries like a modest vacation… but you probably can’t handle if those both have to happen at the same time. You’re getting a taste of financial freedom, but you’re also getting the reminder, every so often, that you’re not there yet.
We covered these lower stages of financial freedom, back in part 1. Today we’ll pick up where we left off, and focus on the three upper stages.
Stage 3 is swimming and learning different strokes. That’s when you can manage most of life’s emergencies, and you can enjoy many of life’s little luxuries, and you’ve got some money stashed away for a rainy day. You’d still be anxious if you lost your job, but as long as you didn’t go too long between gigs, you’d be alright.
Stage 4 is freestyling with confidence. That’s when you are one badass swimmer. You’ve got plenty of money saved and invested for the future, and you’ve got a good handle on both your income and your expenses. If your job became toxic, you could walk away without a second thought, even if it took a while to find the next one. By Stage 4, there isn’t much that feels like a major financial setback for you anymore.
Stage 5 is diving off the boat, into open water, and doing what you want. That’s when you’ve got enough saved up and invested, that you’re no longer concerned about your future. You probably couldn’t stop working forever, but if you never invested another dollar into your retirement funds, they’d grow big enough over time to support you. Or you’ve got enough skills or assets that you know, you won’t be eating cat food when you’re 80. From what I’ve seen, by the time you get there, you’ve already reached about the peak of financial freedom. You’ve basically solved the money problem. The beautiful challenge that you’ll face at that stage is… figuring out what to do next.
Okay. So let’s say you’re like many women I meet, and you’re pretty solidly in Stage 3, swimming and learning different strokes. You probably live in a pretty nice place. You buy the food that you like, not just what you can afford. You can manage most of life’s emergencies. If you want to treat yourself, you can. If you have debt, you can afford to pay at least a little extra toward it. You’ve got some money stashed away for a rainy day. You’re saving at least a little bit for retirement, or at least, you could. And while you’d rather not lose your job, as long as you could find a new one reasonably soon, you’d be alright.
This is the stage where, when couples have combined finances, there tends to be a lot of disagreement about what to prioritize and where to cut back. Or, to use the money dials analogy, which dials to crank way up, and which ones to turn way the heck down.
I remember listening to two younger, married women at work, talking about the lengths they went to, to conceal from their husbands, how much money they spent on their hair. And I was like, “Hold up. What now?”
They shared that they’d get ten or twenty bucks cash back from the grocery store every week, and pay part in cash… or they’d pay all in cash… because otherwise, it was just a constant fight, with him saying it cost too much.
Now, these women had only been married for a year or two. They both earned decent money. They weren’t treading water, or even doggy paddling around the pool anymore. They had definitely reached what I call Stage 3: Swimming & Learning New Strokes.
So from my perspective, if they were going to keep a shared budget, well. There should have been a one time conversation that went like this: “Did I have ugly hair, when you met me?” 🙂
Now, granted, it took me almost 30 years to find someone who could cut my hair and not completely butcher it. I have very curly hair, beautiful hair, actually. But up until I found Steven, who is the master of curls… I had never once had a haircut that didn’t leave me in tears. That man saved me from a lifetime of ponytails. When I was young, sure, I got lots of little old ladies talking about how I looked just like Shirley Temple.
But by the time I entered my teen years, when my hair color got darker and the texture became more difficult to work with… the closest thing I ever got to a compliment, after that, was, “Wow. Your hair sure is curly.” Yet when Steven started doing my hair, almost every day, at least one stranger approaches me and tells me what great hair I have!
So, yeah. I might be a little sensitive about men who know nothing about womens’ grooming needs, telling us that we spend too much. And there are probably things that I’d be just as clueless and ignorant about the value of, to someone else, regardless of their gender.
Really, friends. It is a lot easier, just to look after your own money. In fact, I would argue that it’s hard to even get to, and remain in, the stage 3 of swimming and learning new strokes, if you aren’t involved in the day-to-day decision-making about your money.
And here again, I want to tell you that YOU CAN DO THIS. A lot of men talk a big game, when it comes to investing. They act like it’s super complicated, like you can’t understand it, like they have some super-secret, magic portfolio that will outperform everyone else’s.
I remember being a bit intimidated by some of those kinds of guys, in the years that I participated in a chat room dedicated to personal finance, at a former employer.
Then one day, people started sharing enough details for me to get a sense of their net worth, and of how much their portfolios were earning on average, and how much they were paying in fees.
And guess what? I was outperforming them all, on every measure!
It turns out, women’s investments usually outperform men’s, because we don’t flipping tinker with it, all the time. We’re not over-confident, convinced we know something other people don’t, and that stops us from trying to time the market. Because as Warren Buffet wisely observed, time in the market will always beat timing the market.
When I realized that my portfolio was doing better, consistently, than these super noisy, seemingly super knowledgeable men… I was suddenly reminded of how, way back in my college days, I had a male friend who was always tutoring me in one of our computer science classes. He was so confident, where I was really struggling, all the time. And then when the course ended, guess what I discovered? I had been getting better marks than him, the entire semester!
So, look. There are lots of different ways that couples manage shared expenses without combining all of their money. I trust that you can search online, and find some different methods to try out, if you’re open to that.
But now, let’s talk tools. I already mentioned the app, YNAB (You Need A Budget). That’s a must-have, for me. It’s a zero-based budgeting system, which is completely different from the typical ways people budget. The way YNAB works is that you give a job to every dollar that’s in your possession. And you don’t give jobs to money that you haven’t received yet.
This is really powerful for me, because it allows me to make more intentional decisions. If I spend everything that I set aside in the category labeled My Clothing, and there’s something else that I need or want to wear, then I look at my other categories and decide what’s lower priority for me right now. Do I really want to borrow from the money I’ve set aside to pay my Quarterly Income Taxes? Or from the money I’ve designated for that weekend getaway at the end of the month? That’s the power of YNAB.
Another thing I found very helpful at this stage is to remember that the people around us shape our expectations.
So if you’re spending lots of time with people who are preoccupied with consumerism, you’re probably going to feel at least some sense of lack, if your life doesn’t keep pace with theirs.
In other words, if two of your friends are doing home renovations, you’re going to suddenly notice how outdated your kitchen seems.
If some of your friends start getting Botox, you’re suddenly going to become more aware of those wisdom lines on your own forehead.
If your friends start telling you how they’re funding their kids’ super expensive educations, or boarding school, or them living on campus… you’re suddenly going to wonder if you should be doing those things too. And it won’t matter that they’re probably funding that by borrowing money against their homes, or taking loans from their retirement. You’ll still feel sort of vaguely inadequate, as a parent.
Or on the flip side, if your friends or family believe that they’ll never get ahead, it becomes hard for you to believe that a better life is possible for you, too.
So pay attention to who you share your dreams with, and who you spend your time with. Try to cultivate relationships with people who you can learn from, people who motivate you, people who inspire you.
You can also turn toward books and blogs, for inspiration. Curate those carefully, but there are a few divergent thinkers that I really like.
The first, which I also mentioned in Part 1, is Ramit Sethi. His book I Will Teach You To Be Rich really resonated with me. Despite the title, which admittedly, feels a little gimmicky. His website has lots of good resources and food for thought, too.
Another book I love is the oldie but goodie, The Millionaire Next Door, because it helps you tell the difference between people who have a lot of money… and people who spend a lot of money.
I also really loved the book, Your Money Or Your Life, by Vicki Robin & Joe Dominguez. It’s kind of the OG of financial independence books, with content that goes all the way back to the 80s and 90s. But Vicki updated it in 2018, and I still think it’s really valuable.
Two of the most interesting exercises in Your Money or Your Life are calculating (1) how much money you’ve already earned in your lifetime, and (2) what your true hourly wage is.
I also loved the book, Quit Like a Millionaire by Kristy Shen & Bruce Leung. They always make me laugh, and make me think.
Okay, so put in the effort to manage your money dials, and crank up that income lever, and tamp down the debt lever… and it won’t be long before you arrive at Stage 4, where you’re freestyling with confidence.
Remember, this is when you’ve got plenty of money saved and invested for the future, and you’ve got a good handle on both your income and your expenses. If your job started to suck, big time, you could walk away without a second thought, even if it took you a while to find the next one. By Stage 4, you can handle almost anything life throws your way.
I have one insight to share with you, as you start freestyling with confidence. Saving up and investing that first $100,000… is a beast. And… everything gets easier after you’ve invested your first $100,000. Your money really starts making money, for you, all by itself. So push yourself, hard, to stockpile that much, before you inflate your lifestyle a whole lot. Believe me, I know how unattainable that number might sound. You can do it.
If you’ve listened to part 1, you’ve probably figured out that getting there was not easy for me, either. But here’s something to get you excited. It took me 15 years to get from stage 0 to stage 3. Most people get there a lot faster.
And yet, those skills I learned over those 15 years? It took me less than five more years to go from stage 3 to stage 5. It’s going to sound like a paradox, but the things that make the earliest stages of this journey harder for you, than for other people… ultimately, the strength and skill that builds inside you… can be what makes the later stages easier for you than for other people.
Because just like everybody else, you’re going to have moments in your life when you get lucky. When something unexpectedly goes your way. A surprise connection with someone who can get your foot in the door somewhere. A high-risk, high-reward job offer. That first freelance project. A chance to buy a piece of property well below market value, or the house that in retrospect, you bought at just the right moment. A well-timed windfall of cash. Things like that happen to people, all the time. And most of the time, we blow it! So how prepared you are, and how intentional, determines what you do in those lucky moments, and that… often dictates whether you’ll propel yourself forward, or stay where you are.
Now, standard disclaimer. Keep in mind, everything I’m telling you in this episode… it shouldn’t be perceived as financial advice. These are just my own life lessons and observations. I’m in no way qualified to tell you how to invest your money.
I, myself, started out with age-indexed funds. The type that every brokerage for every 401k program, ever, recommends. Yes, they have higher fees than some other ways of investing. But it’s more important to start investing, and put your money into something reasonably safe, than it is to spend weeks trying to learn all about the stock market. As your money starts growing, you’ll naturally probably get more motivated to learn more about how to take care of it.
My next move was to move to one of what are often called the simple, lazy portfolio approaches. There are lots of variations on these, and they’re popular for a reason. It’s easy to manage, easy to understand, performs at a fairly predictable pace, and doesn’t cost much in fees. I still manage most of my portfolio like that, and it works just fine for me and my financial goals. I’ll post a link to examples in the Show Notes.
You might also consider picking up a copy of JL Collins’ book about money, which he wrote for his own daughter. It’s called The Simple Path to Wealth and it’s really well done.
If any or all of that still seems overwhelming, then start very very basic, with stuff that’s impossible to screw up. Your employer probably keeps your 401k with some responsible brokerage firm, like Vanguard or Fidelity or Empower. When you start setting up, they almost always offer you a basic questionnaire and then recommend an investment for you. You can always change it later, when you know more. For now, just set it up, start auto-filling it up from your paychecks, and don’t look at the balance. Let it grow. Trust yourself to figure out the details, when you’re ready.
I use the Empower Personal Dashboard (what used to be called Personal Capital) to track my overall financial picture and ensure that my plans are on track. It’s a free app, although they do offer some paid services, which I do not use. If you use the referral link I put in the Show Notes to sign up, you can earn a $20 sign-up bonus, or sometimes other perks, depending on what they’re offering at the moment. I’ve used this app for 5 years, and it’s so helpful, whether you want to model different scenarios about when you can retire, or just see how your net worth is changing over time.
Something interesting I’ve noticed is that after you’re in Stage 4 for a bit, most people start to wonder: Is this it? Is this all there is to life?
There’s a strange sense of what the French call ennui (on-wee). It’s this feeling of listlessness and dissatisfaction that starts to rise up, within you, because you don’t have many struggles anymore, but you also might not have a driving sense of purpose.
Among the FIRE movement (that’s the folks who are aiming for financial independence / early retirement), this is the time that some people refer to as “the boring middle” between when you initially start aiming for this wild goal of financial independence, and when the excitement has worn off, but the goal is still many years away, too.
But there’s another term for “the boring middle.” And that is: This is your life. Don’t wish it away. Put your finances and your investing on auto-pilot, as much as you can. Just set it and forget it. And then figure out how to make the most of your life!
One exercise that can be really helpful here comes from Bill Perkin’s thought-provoking book, Die With Zero. Bill suggests that, rather than have a bucket list, you think about “time buckets”. Basically, divide your life into decades, your 20s, your 30s, your 40s, and so on. Think about the different experiences you want to have, before you die, such as backpacking through Europe or writing a book. And then put those experiences into the optimal “time bucket” to have that experience. Which decade is the best fit?
For most people, your 30s, 40s, and 50s will get most of the experiences, because you’ll have the best combination of enough money, good enough health, and enough time. So that means, there’s a good case to be made for living and spending deliberately, rather than hoarding every dollar for some golden retirement years, far off.
If you’re in your 20s, and you want to backpack through Europe, even if it’s a financial reach… that’s probably the best time, because you’re not likely going to want to sleep in a youth hostel, or travel overnight on trains in cattle class, when you’re 40 or 50. And you have plenty of time to make up for any mistakes. So even if you have to quit a great job to make a dream happen, in your 20s? You have lots of time and opportunities to go get another job.
It’s during Stage 4 and 5, that if you want to reap the benefits of all of your hard work… you have to actually exercise the freedom you’ve been creating for yourself. You’ve been trading your life energy to be financially free. Now, money isn’t holding you back. If you’re unhappy, and you’re staying in that spot, it’s because you’re afraid. Freedom takes courage, to exercise.
Remember, Stage 5 is diving off the boat, into open water, and doing what you want. When you’ve got enough saved up and invested, you don’t have to be concerned about your future. But that’s also a choice. Because no matter how much money you amass, you’re capable of finding new things to worry about. No amount of money can insulate you from every possible calamity.
You’re in stage 5 when, although you probably couldn’t stop working forever, if you never invested another dollar into your retirement funds, they’d grow big enough over time to support you. Or you’re in Stage 5 when you’ve got enough skills or assets that you know, you won’t be desolate when you’re 80. Don’t fool yourself into thinking that there is a magic, bigger number beyond that point, where you’ll feel much more secure than that. You’re already at the peak of financial freedom. But only you can make the choice to dive off the boat, out into open water, and swim in the direction that your soul wants to swim in.
It’s easy to just keep working, in the same job, as if nothing has changed. One more year. Then another year. Then another. And if you love your job, and it brings you joy, then that’s probably what you should do.
But if you’re not happy, and you’re already in stage 5… it’s not actually ever going to get much easier to move on, than it is right now.
There are three blogs and one book that I found helpful, in making the decision to exercise my own freedom, when I moved into stage 4 and then stage 5. The first is the book, The Psychology of Money by Morgan Housel. It shows you that doing well with money isn’t necessarily about what you know. It’s about how you behave. And your life experiences shape your behavior.
The first blog I love is Root of Good, which shows you how a couple who combined earned anywhere from $100,000 to $130,000 per year, working very normal jobs, managed to retire in their 30s.
The second is A Purple Life, which is by a single Black woman, in her 30s, who had more than enough of Corporate America and forged her own path. And I don’t know about you, but from what I’ve seen of the crap that Black women in particular have to deal with, every day, even in the best of jobs? I am so inspired by A Purple Life’s choice to live her own life, her own way.
And the last blog I’ve found helpful is called Flamingo FIRE. It’s full of interesting ideas and calculators for how you can benefit more from all your hard work and savings, long before you can 100% forever retire. This blog in particular made a big impact on my thinking.
Well, it’s time to share what I’ve been cooking up in the kitchen this week. I was in the mood for a little treat, so I’ve been experimenting with Rip Esselstyn’s oatmeal raisin chocolate chip cookie recipe. First, I made them just as written, which were delicious. Then I added a pinch of salt, took away the chocolate chips, doubled the raisins, used peanut butter instead of almond butter, and added some cinnamon… also super yummy. And then I made some with coconut and chopped apricots and ginger and cashew butter, which disappeared very fast, too. The recipe is made with just oats, nut butter, maple syrup, and other simple, reasonably healthful ingredients, so, you know. They’re practically a salad, right? 🙂 I’ll drop a link in the Show Notes.
