Debt--the good, the bad, the ugly, the useful

I’m practiced in the art of using debt. Like most things, debt in moderation can be good—it opens doors to opportunity. Overuse ruins lives. The consequences of having borrowed money can slam those same doors shut. How do you walk this line? You’ve heard about good debt and bad debt. Rules of thumb like these are useful to make the world understandable and complex decisions easier. Let’s start with the rules of thumb, then personalize them to apply to your circumstances.

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Bad debt

Good debt

Credit cards
Auto loans
Personal loans
RV, boat and airplane loans
Second mortgages/home equity lines of credit
Mortgage (other than primary residence)
Payday and pawn shop loans

Mortgage (primary home)
Student loans (federal and private)


More bad than good

You noticed, right? Most types of borrowing show up, at least initially, on the right side of the chart. Point well taken—if we generalize, debt is not a good thing. What, then, might move a debt to the good side for you?

Let’s define some ground rules for good debt:

  1. The interest rate is low and fixed.

  2. Interest paid is tax deductible.

  3. After taking all expenses in to consideration, you are better off (financially and/or life experience-wise) for having taken on the debt.

If you have overspending issues, you should apply these ground rules strictly to improve your financial situation. When it comes to rule #3, a debt has to meet both tests—it will both improve your life and put you in better financial position. That’s a high bar!

What does bad debt look like?

  1. The interest rates are high and variable, making it difficult to whittle down balances.

  2. It is used to make discretionary purchases you can’t afford.

Some debt won’t fall neatly into either category. For these shades of gray, you’ll need to make a judgement call based on your own situation.

Making it personal

To categorize debt as good, bad, or somewhere in-between, carefully consider both the opportunity and the consequences. Let’s walk through the categories together:

Mortgage debt: Mortgages are the epitome of good debt—they meet all three criteria:

  1. Fixed mortgage interest rates are still close to historic lows. Just say no to an adjustable rate mortgage loan, even if the initial rate is lower than a fixed rate loan. Interest rates are more likely to rise than fall. When your adjustable rate goes up, you won’t be able to refinance at a fixed rate comparable to those offered today. Take the fixed rate mortgage and sleep easy knowing that your mortgage payment amount isn’t going to change!

  2. Though there are now some limits, mortgage interest is generally deductible on your income tax return. If it is, your effective interest expense, after factoring in what you’ve saved on income taxes, is even lower than the stated mortgage interest rate. However, you have to be able to itemize deductions to take advantage of this tax benefit. After the Tax Cuts and Jobs Act (TCJA) came in to effect in 2018, only about 10% of Americans can still itemize deductions, down from 30% prior to TCJA. If you’re in that 10%, enjoy the benefit of tax deductibility!

  3. If home ownership is your goal, using a mortgage to finance the purchase can make it possible. Your desire to own your own home speaks to the life experience improvement. Two factors make home ownership, and the accompanying mortgage, attractive financially:

  • Homes generally appreciate over time, and

  • Home ownership may cost less than renting.

You may want to pay your mortgage off before retirement to reduce your monthly expenses, but otherwise there isn’t a rush to get rid of mortgage debt. For most people, this is the kind of good debt we can live with.


Student loan debt: We borrow for education because we expect it to lead to better opportunities. Interest rates are usually reasonable. Most taxpayers can deduct student loan interest without having to itemize deductions. Our three criteria for good debt are satisfied! But be careful here! As a nation, we borrow more for education than we can easily repay…which sounds like bad debt. As a community college administrator, I saw students borrow thousands of dollars for degrees that led to very low paying jobs. (Don’t even get me started on the logic of offering college degrees that lead to non-living wage jobs…). Others borrowed but never completed a degree at all.  From a financial perspective, these weren’t good investments. However, if your education allows you to do something you truly love and consider your life’s work, then the life experience boost may trump the financial cost. Your prospects, in additional to the amount of debt and its interest rate, all need to considered for you to decide if student loan debt is good for you.

Credit card debt: Credit cards have so many different options today, they do everything but the dishes. But they still carry stiff interest rates if balances aren’t paid off each month.

  • If you aren’t prone to overspending, you can use credit cards for purchases to get cash back and earn rewards. Then pay the balances in full every month. This isn’t debt and there is no interest.

  • If you are carrying a balance from month to month, it’s debt, and it’s likely the bad kind, even ugly. If you’re using a no fee, zero percent interest offer on a credit card and it’ll be paid off without problem, that’s debt, but not bad debt. If you used that offer to pay down other higher interest rate debt, it’s even useful debt.

  • Running a balance and paying interest because you bought things that you can’t afford right now is bad debt.

There’s some wiggle room between the two extremes. Be honest with yourself about where you are.


Auto loans: In a perfect world, we would save and buy cars with cash. In the US, more than 80% of new cars are financed. We borrow to buy new cars even while knowing that they won’t be worth what we owe when we drive off of the lot (this is the definition of being upside down on a loan). If a car is a necessity—to get to work, for example—and you don’t have cash, you can minimize how bad your auto loan is:

  • Keep your purchase modest and inexpensive to maintain—you don’t need a Corvette to get to work. Scour the reviews to make sure that the car you’re buying is going to be reliable. I don’t care how reliable the Ferrari is, if you need to finance the purchase you can’t afford the maintenance.

  • Get the lowest interest rate possible—shop for the best financing offer. Consider tapping your credit union for an affordable interest rate.

  • Buy used—a lot of the depreciation has already occurred and the prices are lower.

  • Maintain it and drive it until the wheels fall off. During your current car’s life, set up automatic monthly savings deposits to build up your next car purchase fund.

Personal loans: Credit unions and banks offer personal loans to borrowers with good credit. Unlike a mortgage or auto loan, these loans are not secured by a physical asset. The lender is relying on your ability and willingness to make payments. Because this is a risk for the lender, you’ll pay a higher interest rate than you would for a mortgage or secured loan. However, the interest rates are typically substantially lower than those on credit cards. The lowest interest rates go to borrowers with the highest credit (FICO) scores.


RV/boat/airplane debt: If you’re living in it, you could call it a necessity, and maybe it’s good debt. Even so, you don’t get the other benefits of home mortgage debt—attractive interest rates and potential income tax deductions. And if these are really toys, this isn’t good debt.

Even though traditional financial planning wisdom says that you should save and wait to make a luxury purchase instead of borrowing, that’s not what we did to buy our boat. We bought Phoebe Alice with a loan several years before we left NYC. Though she was only 31 feet, we had never sailed a boat her size. We chose to pay more (purchase price plus interest over a couple of years instead of purchase price alone) so that we could have the boat during those couple of years to learn to sail her. It also gave us time to get her equipped for long distance sailing and to become our floating home. She was paid for and equipped before we took off and we had experience sailing her. Was this good debt? No, but it wasn’t bad debt either—it was useful. We paid more to have the boat sooner and never regretted it. What are your personal decision factors?

Home equity debt: A second mortgage or home equity line of credit (HELOC) can be used to make improvements to the home, in which case the interest expense is deductible within limits, just like a primary mortgage. Since TCJA, however, interest on a second mortgage or HELOC that isn’t used to make improvements isn’t deductible, even with the other limitations imposed (that you have to be able to itemize and the limit). A HELOC can be used to supplement your curveball fund when unexpected expenses crop up. This should be kept in tight bounds—you don’t want to lose your home because you’ve borrowed on your HELOC to cover living expenses after losing your job. Good or bad—depends on you and the specific circumstances.

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Second home/vacation home mortgage debt: Now we’re veering into the luxury territory. While mortgage interest rates may be attractive, interest deductibility isn’t guaranteed. TCJA introduced new limits on the total amount of mortgage debt interest you can deduct, if you are in the 10% of taxpayers who still itemize deductions anyway. Few people can make the case that a second home is a necessity. Debt for a luxury shouldn’t go in the good debt column, even if it satisfies the first two good debt criteria.

We ventured into second home ownership a few years ago. Mortgage rates were low and real estate prices continued to be depressed in the Blue Ridge Mountains, where we hoped to relocate. We decided to go ahead and buy a second home in the area where we would move “in a couple of years”. Then life took a turn and we moved my dad to North Carolina so we could take care of him. The move to the second home had to be pushed off.  Much as I love the place, our lives would be much easier today without a second home. What started off as useful debt is now edging in to the bad column.

Payday and pawn shop loans: Use of either of these is the red flag of financial distress. The Federal Trade Commission can guide you in Choosing a Credit Counselor. Get started today!

Understanding the role debt plays in your life can help you make better decisions. Need a second opinion? Give me a call at (336) 701-2612. 

Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Fair Winds Financial Advice may offer investment advisory services in the State of North Carolina and in other jurisdictions where exempted.

Cruising into retirement—time for a mind shift!

You’ve spent years in the workforce and have bulked up your retirement and savings accounts—good work! Your financial planner confirms that you have enough to fund your post career lifestyle so you pick your date. This is a momentous transition in many, many ways. Today we’re going to talk about just one area that likely wouldn’t occur to you—your attitude to money.


Time is on my side

Our attitudes to money evolve as we move through life. Often life events, whether a brush with serious illness or career-induced stress, teach us that money isn’t the key to happiness. But we spend decades in the money earning mode. There is plenty of time for an asset growth mindset to develop and be constantly reinforced.

During our earning years, we focus on both growing our income and, hopefully, saving for later. We have lots of lead time to reach our financial goals, if we maintain good money habits (saving early and often, living within our means). During this growth phase, we can handle a fair amount of risk (varies by individual, of course) because we have the time to earn our way out of downturns. An expensive car repair, an unexpected medical bill, student loans, the birth of a child, the loss of investment value in a down stock market…these are all things that we can weather over time. The market will come back, we’ll continue to earn money, probably even more money than we make right now, and the bills will be paid. I don’t recommend it, but I spent my younger years living as if my income were going to double the next year…and I got away with it! Our attitude towards risk is heavily influenced by our focus on growth.


New era, new attitude

Your transition from working for money to living on your accumulated assets can happen overnight...but the money scripts you’ve followed for years won’t simply adjust! In fact, without conscious effort, your attitudes may not change at all. But they need to, if the level of risk you’ve been taking no longer fits your life circumstances. During our earning years, we focus on growing our asset base over time. However, a typical retirement goal is to have a reliable fixed income that will keep up with inflation over time. Our objective is no longer growth but protecting our income source. This is a completely different game and requires a money mind shift.

When you have spent a lifetime accepting, maybe even seeking risk, in order to grow your net worth, it feels normal. Ratcheting down the risk in order to protect what you’ve earned can feel scary after years of earning good returns by taking risk. If you’ve stayed invested in stocks for decades, your investments have likely multiplied many times. We like seeing that! We don't want to miss out! How will you react when your financial planner suggests that, now that you’re ready to retire and draw down your assets, you need to move more of your money out of stocks and in to more conservative bonds…earning lower returns? It can be a hard change to embrace!


This is an instance where I know from personal experience that knowledge isn’t enough. As a financial planner, I help clients match their investment mix with their goals, taking in to account the amount of risk they are willing and able to take. I have a thorough understanding of the underlying principles—as the time you’ll be drawing on your investments gets closer, you gradually shift into less risky investments. But for years, I just didn’t do it with my own investments. Knowing does not equal doing! Only as I prepared to have my own financial planner review my situation did I strong-arm myself into lowering the risk (as if she wouldn’t notice that I had just made the investment change!) to better match my stage of life. Being aware of the need to change is good, having an accountability partner is better!

Whether you’re on the brink of retirement or another exciting life transition, we can help you navigate the change! Give me a call at (336) 701-2612.


Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Fair Winds Financial Advice may offer investment advisory services in the State of North Carolina and in other jurisdictions where exempted.

Climbing out of the overspending hole—first steps

Many of us have a vague concern that we may be living beyond our means. It is tempting to believe that next month will be different. It’ll be the month when there are no unplanned expenses and our income more than covers our expenses. There’s something to be said for remaining ignorant. If we don’t examine the details, we can keep thinking next month will be different without really having to face up to our true situation. After enough sleepless nights, though, we may be willing to make a change.

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As Peter Drucker famously wrote, “What gets measured gets managed.” The opposite is at work in our unexamined lives—what we don’t measure, we can’t manage. The key to turning around our spending habits is looking at the details. Though it is hard work, we can measure our income and expenses and use what we learn to get on a better track financially. Which, by the way, leads to less stress and fewer sleepless nights on the way to our achieving our dreams!

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Taking a closer look

To change your spending habits, first you must commit to at least 30 days of tracking every penny of income and expense. I was first introduced to the idea of tracking in the 90’s by Joe Dominguez and Vicki Robin’s classic Your Money or Your Life. It literally changed my life. Tracking the details gave me the foundation to live a more deliberate and meaningful life, leaving the corporate world to sail to the Caribbean and discover subsequent careers that closely reflect my values.

For at least 30 days (more is better, but you know best what you can live with), track every penny that moves through your life, whether cash, credit or any type of electronic transfer. You can use an app, there are plenty, or an old-fashioned spreadsheet that you update frequently. If you use a spreadsheet, you’re going to need a method of capturing transactions in real time, with a paper or electronic receipt, for example. Pick the system that you’re most likely to use, recognizing that detail tracking is not a favorite task for most of us.

Real-time money tracking gives us a detailed picture of our cash inflows and outflows. The details are useful come review and decision making time! For example, I want to know whether I was out for drinks with a girlfriend or coffee with a client. Did the trip to Costco include a standing rib roast for a birthday celebration or just the usual groceries? By capturing detail, I can more realistically target areas to reduce.

I admit that I’m a financial geek—I think the numbers tell a story. Stay with me here, because your next step, after collecting a lot of data, is to see the story your money is telling you. Group expenses in to categories that make sense to you, then look at your monthly totals. If expenses exceeded income, you know you have some digging to do. Reflect on how you feel about your income and spending and how it aligns with your values.

  • Individual expenses: Some purchases that felt good at the time may not hold up well in review. We’ve all convinced ourselves that we couldn’t live without an item only to find it still in an unopened box in a closet weeks or months later.

  • Categories: Any surprises here? Often our detailed review confirms our nagging suspicions—yes, you have been eating out/ordering in five nights a week.

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Decision Time

Like losing weight, overspending has two variables—inflows and outflows. In a perfect world, earning more cures overspending. In the real world, until we learn to spend less than we make, earning more means overspending at a new, higher level. Focus on your outflows. Which expense categories stand out as being out of sync—not providing satisfaction that equals or exceeds the expenditures? What areas of spending need to be reduced because they aren’t in-line with your priorities? If your overall spending is keeping you from achieving your goals, pick the areas that you want to cut. We’ll share tips for implementing your cost-cutting decisions in a future blog post.

Mindful Spending

Living within our means and loving it takes practice. However, pausing before purchasing gets us on our way. Before you make any purchase, from paying the electric bill to buying a coffee to charging a Caribbean cruise, stop briefly to reflect. Merely pausing will eliminate some of those unconscious purchases—not a bad outcome! Checking in to see how the impending purchase makes you feel and asking yourself how it fits in with your priorities will allow you to make a better decision for you. With the awareness you’ve gained from tracking and critically reviewing your money story, you’ll be more discerning when you pause to consider a new purchase.


Celebrate the progress you’re making as you start to see daylight and climb out of the overspending hole! That progress will build your confidence and motivate you to take another small step. Changing our habits is hard work. Find an accountability partner. It’s a process to turn around our tendency to overspend. The best time to start was when you were five, but the second best time is today!

Need coaching to change your own financial picture and start moving towards your dreams? Give me a call at (336) 701-2612.

Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Fair Winds Financial Advice may offer investment advisory services in the State of North Carolina and in other jurisdictions where exempted.

The benefit of delayed gratification—or what I learned from a funnel cake

Implementing your most excellent financial plan can be a big challenge. Getting our financial lives in order often calls for delaying gratification…something human beings weren’t designed to do! Through most of our species’ history, the now was the priority. Leaving that mammoth haunch for later instead of consuming it now just meant it was wasted.

Welcome to the 21st century where we struggle mightily to prioritize later—think of dieting, saving, making healthy lifestyle choices. All involve delayed gratification and that delay is hard!

Why is it so hard?

We are hard-wired for instant gratification because it has helped us survive and thrive for most of humanity’s existence. The benefits of delayed gratification are so recent, measured in hundreds vs. thousands of year, that our wiring hasn’t caught up. Our thinking leads us to choose now for several reasons:

  • Uncertainty about the future—It feels risky to trade an uncertain future outcome for an immediate sure thing. Will foregoing that Grande Caramel Cocoa Cluster Frappuccino today really mean I can enjoy a financially comfortable retirement in 30 years?

  • Delay discounting--We discount future rewards when we compare them with immediate rewards. The future just doesn’t feel as valuable as the present. It would be wonderful to take a nice vacation in two years (save the money) but I can see myself in this pair of shoes today.

  • Trust—Past experiences that haven’t panned out make you less likely to risk the delay. When trying to choose the future over the present, don’t be surprised when your brain trots out examples of how that hasn’t worked out in your past. Which makes me think of funnel cake…

What does this have to do with a funnel cake?

I’m motivated to be healthy, so I exercise and watch what I eat. Spending lots of time at baseball games with my dad makes this difficult. I see and smell a constant parade of food that I really shouldn’t eat. If I weren’t at the ballpark, I wouldn’t smell that warm, sweet funnel cake that the guy next to me is clearly enjoying! Instead of just giving in and having a funnel cake, I made a deal with myself last baseball season—I would forego funnel cake the first 69 home games in order to celebrate the last game of the season, which was also my birthday, with said funnel cake.

I’m pleased to tell you that I was able to keep my bargain, though I did drink some beer and eat a few pizzas, corn dogs and bowls of ice cream…but no funnel cake. My partner Ron was even more excited about my birthday funnel cake than I was. He could hardly wait to get to our seats at that final game before he started asking if he should go get my treat. Picture this—when I was ready for the long awaited sweet, he headed off to the concession stand only to be told that they had removed the funnel cake fryer earlier in the week. Ron had a heated (pun intended) conversation with the poor concession guy, first trying to convince him that they couldn’t have removed the fryer. After conceding that the fryer was gone, Ron terrorized the concession guy, saying that he was afraid to return to our seats and telling this unfortunate food service worker to go inform me that I wasn’t going to get my long anticipated birthday funnel cake. He struck out on both counts (it’s baseball season, forgive the baseball analogies).

I was sad not to get my treat, but part of me was telling myself, “I told you to have the funnel cake the first day of the season—if you had, you wouldn’t have missed out. Delaying gratification just leads to disappointment.” I was going to get a lot of mileage out of using that evidence to prioritize now over later. This is that trust, or lack thereof, I mentioned above at work.

Fast forward to the start of this year’s baseball season.  I learned my lesson—this year, I’m getting my funnel cake early, before they start thinking about removing the funnel cake fryer. On opening day, we’ve barely taken our seats when Ron asks if I’m ready for my funnel cake. I make him wait an inning or two, then off he goes to the concession stand. The guy at the stand sees him coming and clearly remembers him, “uh oh, here comes the guy whose wife didn’t get her birthday funnel cake”. He has that fryer cranked up in no time and gives Ron two funnel cakes free of charge. Yes, it tasted great, thanks for asking. But there goes my evidence against delayed gratification—twice the quantity at no cost is a pretty strong case for waiting!

Making the delay easier

Even if you believe funnel cake today is better than funnel cake in a few months, you’ll probably concede that, when it comes to our money, saving some for the future is a good thing. How do we make it easier?

  • Imagine your desired future in detail. Flesh out the details of this future you’re prioritizing to make it seem more real and relevant. I didn’t love the experience of scrimping and saving for years to buy and outfit a sailboat, but I loved my vision of the life I would have sailing around the Caribbean. That detailed image of the sights, sounds, smell and feel of the future kept me motivated at a difficult task for years. 

  • Set realistic deadlines and goals. If, like many of us, you spend what you earn each month, a goal of saving 20% this month is unrealistic. Make the commitment more palatable by starting small, even if it’s $25 this month. Give yourself a chance to succeed, then build on the success by committing to increase your goal for next month. (This is a time when delay discounting works in your favor—because $100 next month feels like less than $100 today, you’re more likely to be willing to commit to save it next month.)

  • Make it automatic. By having money directed automatically to savings as soon as it comes to you, you only have to decide and act once. It’s much easier to make one thoughtful good decision to promote your financial well-being than to rely on making a continuous stream of smaller good decisions as they come up. Pay yourself first!

  • Identify a current benefit for the delayed gratification. Is there anything positive about the delay? When I don’t buy shoes and save the money instead, I like to remind myself that I’m making progress right now in my efforts to minimize. One (two, actually) less items to store, take care of, and then downsize.

  • Make it specific. When it comes to building better financial habits, the cause and effect are not as clearly linked as they are with that other familiar form of delayed gratification—eating better. I’m reminded of my desire to eat better every time I consider taking a bite. I can quickly reflect on whether this is moving me closer to or farther from my goal. When it comes to money, the link between my action now and my financial goal may not be as clear. When you stop for take-out or supersize your cable TV package, you probably aren’t thinking “I’m spending this now instead of saving it to reach my goals”. It’s worth taking the time to review how you do spend your money now so that you can set realistic, specific, goals. Maybe you’ll see that you’re eating out seven times a week. Would you be just as happy cutting that back to three times? Now you have a specific goal—eat out no more than three times each week and move what you would have spent on the other four meals to savings for the longer term.

Even when we see the need and have the information, change is hard! If you want a thought partner to help you craft an action plan that is tailored just for you, give me a call at (336) 701-2612.


Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Fair Winds Financial Advice may offer investment advisory services in the State of North Carolina and in other jurisdictions where exempted.

Countdown to Opening Day

Tomorrow is the most eagerly anticipated day of my dad’s year—Opening Day for the Winston-Salem Dash. When you’re approaching the century mark (2-1/2 years away), widowed, and have difficulty seeing, hearing, and getting around, most of the best things in life are in the past. Minor league baseball, however, in our beautiful local ballpark, still holds Dad’s interest and gets him charged up.

Making a Commitment

Almost two years ago, on a whim, I told my dad I would take him to all 70 Winston-Salem Dash home baseball games in 2018. I had a theoretical idea of the challenges involved—the physical demands on Dad and the scheduling demands on me. Keeping up with both work and baseball for five months was every bit the stretch I had expected. The rewards, though, were far greater than I had imagined:

  • I spent a lot more time with Dad than during the off-season. Baseball games last longer than the typical dinner together at home!

  • Dad and I spent most of our time engaged and talking cause we had current action on the field to discuss. This connection is precious to me!

  • I actually came to appreciate baseball by learning enough about the game to commentate for Dad (his low vision keeps him from following what is happening on the field).

Full disclosure—Dad only made it to 69 of the 70 games. He chose to miss one game because it conflicted with a Glenn Miller Orchestra concert. I missed a few of the 69 games due to work conflicts. Fortunately my partner Ron made sure Dad got to those games in good company.

Check out the story about us on WXII12 News.

Check out the story about us on WXII12 News.

This year, an informed commitment

On the eve of Opening Day 2019, I have a much better feel for the magnitude of this commitment. I understand what it will take to free up enough time to take Dad to the ball park. And with Dad a year older and visibly frailer, the logistics will be a more complex puzzle to put together. Maybe he won’t be able to make it through more than a couple of innings each game this season—who knows? Maybe he won’t be able to hear or understand my commentary this year…and we won’t have plays and players to talk over. We’ll see soon. I wouldn’t trade this opportunity to spend another 70 Winston-Salem Dash games with my dad for anything, come what may.

The Winston-Salem Dash playing at beautiful BB&T Ballpark

The Winston-Salem Dash playing at beautiful BB&T Ballpark

Father-Daughter Pact

Dad and I are both committed to a 70 game baseball streak this year. I know I can count on him to do his part and Ron will back me up to help me do mine. For us, watching baseball together is a powerful way to demonstrate love.

Need help solving your financial quandary? Give me a call at (336) 701-2612.

Inching towards Minimalism

When I’m free to live where I want, I’ll move to my happy place—a little house on a mountainside at the end of a paved road in the Blue Ridge Mountains. In a fit of optimism a few years back, we went ahead and bought our “someday” house. I don’t need my crystal ball to see that, in my future, I’ll be downsizing from the current two homes crammed full of stuff to the smaller of those two, a reduction of more than 65%. It’s time to minimalize!

Photo by  Egor Kamelev  from  Pexels  

Photo by Egor Kamelev from Pexels 

Much has been written on the downsizing process. Whether you go for Marie Kondo or my current favorite, Joshua Becker’s The Minimalist Home, there’s a guide that will match your personal style. But living with less is a lot like dieting—it’s hard work to get the weight off, but even harder to keep it off. How do we maintain our minimalist goal?

Lessons from living aboard

I spent eight years living on sail boats in the Caribbean, so I have experience with living without stuff. When you live on a 31 foot sailboat, pointy at both ends and only nine feet across at its widest, you become very discriminating about what you bring into your floating home. It should be useful, preferably on a daily basis, and you should love it. Items that meet one criteria but not the other will quickly be replaced. Our oft repeated rule for stuff was “one thing in, one thing out”. Small space imposes discipline.

My personal key to living happily with less was being shielded from the vast array of potential wants and needs. (A lovely setting and laid back lifestyle didn’t hurt, either!) We stumbled on to this truth with our live aboard lifestyle. It was the mid-90s. There was no such thing as the internet or social media and, living in an anchorage in the Virgin Islands, we were cut off from most traditional media, most importantly, TV. When I no longer watched footage of other people’s lives crammed full of things I didn’t have, my material desires waned. This was a life changing lesson!

Photo by  Artem Pochepetsky  on  Unsplash

Photo by Artem Pochepetsky on Unsplash

Fast forward to 2019. Living joyfully without stuff is best done on a sailboat in the tropics or, alternatively, by living under a rock. Short of living under a rock, or maybe out in the Alaskan bush, it’s hard to envision life without media exposure, both the social and traditional forms. Living under a rock and living joyfully feel like a contradiction in terms, so practically speaking, what can an aspiring minimalist do?

Mind over Media

Being mindful of the media influences in our lives is the practical antidote to our culture of consumption.

  • Consider the sources: Take the time to think through the pros and cons of the different media you consume. Our household has been TV free for more than a decade. I was so entranced by the images on the TV screen, it felt like an addiction. We both love to read and decided we would be happier with more time to read and less time for the passive entertainment that I had difficulty corralling. I realize this may not be a popular choice, but consider it an example of weighing the trade-offs.

  • It doesn’t have to be all or nothing: I’m a social media lightweight by design. I use it a bit for business as it’s important to keep my brand out there. Personally, I’ve been delighted to be able to reconnect with old friends in distant locations on social media. Also, it’s a way for me to keep my father’s far flung friends up-to-date on his life. I’m sticking with personal social media, but limit my activity. I don’t post often and I only occasionally look at my feed.

Photo by  Sarah Dorweiler  on  Unsplash

Photo by Sarah Dorweiler on Unsplash

I’ve noticed since I’ve been paying attention that some of my favorite media sources are losing their appeal. I used to love magazines, but when I started really noticing how much of the content, not just the overt advertising, was intended to convince me that I needed to buy more stuff—makeup, shoes, clothes, kitchen gadgets, I started to push back. Naah, I’m fine the way I am, thank you. I’m doing okay without Oprah’s favorite things!

While I’m getting rid of stuff, I’m already practicing not bringing in more to replace it. It’s like physical training—the more you do, the stronger you get. It may be two steps forward, one step back, but I’m determined to keep life more peaceful and simple by not letting the junk back it.

Need help right-sizing and simplifying your financial life? Give me a call at 336-701-2612.

Photo by  frank mckenna  on  Unsplash

Photo by frank mckenna on Unsplash

Living with uncertainty

As a financial planner, I love helping my clients figure out what they want their lives to look like, then coming up with the options to get them there. I’m all about planning! I like to think I understand the limits of planning and that I accept that life is unpredictable and can’t ultimately be controlled. Some weeks that is easier than others.

Life at 97

Thank goodness for minor league baseball (10 days away) and Big Band music! Those, paired with love of family and good food, keep my 97 year old dad, Les Agnello, going. He’s at a stage of life where he lives in the moment with little recall of the recent past and difficulty imagining the future (other than the aforementioned start of baseball season). Frankly, I’m envious!

Dad and me at the Winston-Salem Dash final home game of the 2018 season.

Dad and me at the Winston-Salem Dash final home game of the 2018 season.

I can’t help but see that Dad is more frail with each passing month. He continues to be able to climb the 16 steps to the main floor of our house to have dinner with us each evening, but with increasing difficulty. As his strength wanes, so does my confidence. I no longer bring him to the house when Ron is away. I’m not sure that, by myself, I can keep him safe enough on those stairs. What will our lives look like when Dad can no longer climb the stairs and be part of our everyday home life?

Safety is an illusion

In the past six weeks, Dad has twice had falls, each time with the first fall followed by a second a day later. He uses a walker, has an attentive physician, his meds have been checked, he gets physical therapy, lives in an assisted living, but I have nightmares about not being able to keep him safe. Because, as much as I love him, I can’t. The only safety from physical harm would come with confinement…and that would wring every last bit of joy from Dad’s life. So we continue, taking one day at a time, moving into an unknown and unknowable future, doing the best we can today.

Dad at the Carolina Theater with Glenn Miller Orchestra band director Nick Hilscher and singer Hannah Truckenbrod in January 2019.

Dad at the Carolina Theater with Glenn Miller Orchestra band director Nick Hilscher and singer Hannah Truckenbrod in January 2019.

I still believe it’s better to have a plan, though life’s not very subtle reminders that the future is uncertain are coming through loud and clear! If you want help planning care for your loved one, give me a call at (336) 701-2612.

Why I love Roth IRAs

Many years ago a financial planner pointed out to me that when I retired, all of my sources of income would be taxable (pension, traditional IRAs, Social Security). He suggested I start a Roth IRA so that I would have an option to draw down funds without any tax consequence. This is one of the best pieces of advice I’ve ever received!

What’s a Roth IRA?

Most retirement accounts (traditional IRAs, employer sponsored retirement accounts) are tax deferred. Your taxable income is reduced by the amount you contribute to the account. This lowers your tax bill now. However, when you draw from the account in retirement, you have to pay the piper—your draws are taxed as ordinary income. If you contribute $5,000 to a traditional IRA, you save yourself from paying taxes on $5,000 of income this year. If it doubles to $10,000, that’s what you’ll be taxed on later, when you take the money out.

With a Roth IRA, there’s no tax deferral. You pay taxes on your income now, but you don’t owe anything when you take money out of the Roth in retirement. If your current tax is 20%, you’ll pay $1,000 in taxes on your $5,000 and end up with $4,000 to contribute to your Roth. But then when it has doubled to $8,000, you won’t pay taxes on drawing that money down in retirement--sweet!


Both is a better strategy

There are lots of good reasons to use both tax deferred accounts and a Roth IRA as part of your investment strategy:

Tax deferred:    

  • If you can participate in an employer sponsored retirement plan to which your employer will also contribute—do it and lucky you! For example, if you have the option of a 401k with a match up to 3%, definitely contribute the 3%. While you’ll have to wait for the employer’s matching 3% to vest, you still have twice as many dollars in your retirement account today to grow and compound.

  • It makes good sense not to pay today what we can defer until tomorrow or even later. As Wimpy says, “I’ll gladly pay you Tuesday for a hamburger today" This is the logic behind tax deferred accounts—you defer paying taxes until some date far in the future. Because a dollar today is worth more than a future dollar, the later we pay the better. However, realize that when you do pay taxes down the road, it won’t be on the amount you contributed (the $5,000 on the example above)…it’ll be on the entire appreciated value that you draw—or the $10,000 above. So, if you were in the 20% tax bracket, you saved paying $1,000 when you made the contribution, but now you’re going to pay $2,000 when the money comes out.

  • If money is so tight that they only way you can contribute to an IRA is with the tax break available with traditional IRAs, go for it—better to save for retirement than not to save.

  • Part of the case for tax deferred retirement accounts is that we’ll be in a lower tax bracket when we retire than while we’re working. For example, you were in the 20% tax bracket when you earned the $5,000, so you deferred paying $1,000 in taxes. Now in retirement you’re in the 15% tax bracket, so you’ll only pay $750 on the original $5,000 (or $1,500 on the entire appreciated balance of $10,000).

Roth IRAs:          

  • There’s no way of predicting if and how our tax code will change. It doesn’t make sense to bank on getting better tax treatment in retirement than you do today.

  • What if the tax code doesn’t change? You may not actually be in a lower tax bracket when you retire. Most of us would like to have as much income in retirement as we do while working. As one pre-retiree points out, in retirement “every day is gonna be Saturday, but I’m supposed to spend less? Unlikely!” Of course, you won’t have the expense of contributing to retirement savings accounts or commuting or buying work clothes…but it doesn’t take too many trips to see the grandkids or volunteer to help hurricane victims or see the world to keep your expenses in retirement at a pre-retirement level.

  • Psychologically, it’s easier to pay taxes during your earning/accumulation years than during your retirement/spending down years. We have more financial flexibility while we’re still in the work force seeing dollars roll in, particularly during our peak earning years.

  • Unlike traditional IRAs and employer sponsored retirement plans, there are no RMDs on Roth IRAs. You have the ability to take money or not in retirement. The timing is up to you.

  • A final important difference between Roth and traditional IRAs is that you can take back the funds you’ve contributed to a Roth (but NOT any appreciation or earnings on those funds) without a penalty or tax consequence. There are far greater restrictions on taking money out of a traditional IRA before reaching age 59-1/2.  With a Roth, the dollars you contribute are after tax, so you can also take them back out without being taxed.  Hold on, now—you do need to save for retirement! I’m not suggesting that you pull funds from your Roth IRA to remodel the kitchen or ski at Breckenridge. However, a Roth can be a nice place to stash your emergency funds—you can easily take your contributions back out and, in the meantime, you don’t pay taxes on the bit of interest they earn.

  • Ideally, though, the Roth is a good home for your highest return assets. It feels great to invest after tax dollars in a Roth IRA and see them double and then double again over time, knowing that the taxes are already paid and what’s in there is free and clear!

Photo by  Sebastian Voortman  from  Pexels

The Fine Print

 My love story about Roth IRAs (Roth 401ks have similar benefits but are beyond the scope of this post) is just intended to get you thinking. I don’t give investment advice except to clients whose situations I know enough about to do a good job. However, the IRS does have rules on who can contribute to Roth IRAs:

  • Married couples filing jointly with modified adjusted gross income of less than $189,000, and

  • Singles with modified gross income of less than $120,000

You can still make 2018 contributions until your 2018 income tax return is due—April 15, 2019 for most of us!

You can contribute the lesser of:

  • $5,500 ($6,500 if you are 50 or over) or

  • your taxable compensation

And the contribution limits will go up in 2019 to $6,000 or $7,000 for people 50 or over.

For more information, refer to IRS Publication 590A and IRS Publication 590B (Doesn’t everyone love reading IRS publications?)

I’m now stepping down from my soapbox. If you want to work with a financial planner to figure out whether a Roth IRA is right for you, give me a call at (336) 701-2612.

Photo by  Daria Rem  from  Pexels

Photo by Daria Rem from Pexels

Confession of a reluctant saver

Nature or nurture?

My parents raised four kids on a school teacher’s salary. While I was growing up, saving was not a topic of dinnertime conversation. In my case, it could have been nature, nurture, or any combination of the two—I was not a natural saver. As a child, I spent my allowance…I didn’t even have a piggy bank. As a teenager, I opened first a checking account, then a credit card account, never a savings account. As a young adult, I lived right on the financial edge, lying awake at night wondering if I’d be able to juggle my paycheck to cover all of my bills. The only thing that kept me from trading in my MGB for a 1969 Jaguar XKE with a V12 was that I could see that even if I gave up eating I wouldn’t have enough money left for an oil change. It didn’t hurt that the XKE was an automatic (this was way before the Internet, so the car in front of me was the car that was available). I led a charmed life and got away with all of this, which set me up to keep doing the same.

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Cash flow turns positive

In my 30’s, there was grad school to pay off and a sailboat to buy and outfit, neither conducive to saving, despite my attractive salary as an institutional investor. Anyway, my employer was putting money into my pension fund. Didn’t that cover “saving for retirement”? When I transitioned to being self-employed, running a sailing vacation business in the Virgin Islands with my partner Ron, we did put money into IRAs. This saving was mainly motivated by my desire not to pay any more taxes than necessary. Believe it or not, in the days before cellphones and widespread Internet access, when you lived on a sailboat and took people on sailing vacations for a living, the opportunities to spend money were few and far between. We spent money on our guests and for the business, but rarely on ourselves. For the first time in my life, income regularly exceeded expenses.

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My moment of truth

Even when you have an MBA and finance is your thing, you make the same mistakes as everyone else…they’re just more embarrassing and harder to explain away. I couldn’t stand seeing a pile of cash earning virtually nothing when the stock market was running wild. So I invested it…in tech stocks…at the height of the tech bubble. Within a year, we had lost more than 50%. Coincidentally, we were also ready for a life makeover. We gave up the sailing vacation business and sailed back to the US to plan our next chapter. We needed our “savings” to cover our expenses. Not only did we buy at the top of the market, we had to sell at the bottom of the market—oops! That hurt financially, but it also hurt my pride to make several compound foolish mistakes by ignoring time tested truths:

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• Keep an emergency fund that is liquid (accessible and free from market risk)

• Match your investment time horizon to when you’ll need those funds

• Diversify—use low cost mutual funds and ETFs (exchange traded funds) to invest in a variety of companies and industries.

The Demise of the Reluctant Saver

Did I mention that I’ve led a charmed life? We were fortunate to get our new, North Carolina-based, lives up and running before we ran through all that remained of our savings. While our tech stock debacle was still recent enough to sting, we started saving for future emergencies. It wasn’t a lot, but we followed these two rules:

1) Pay yourself first! Paycheck comes in, savings goes out, before anything else.

2) Make it automatic. By having an automatic draw set up immediately after payday, we always pay ourselves first.

For one who became a saver later in life, it was surprising how good it felt to see the emergency fund grow. Nice to know that when the car breaks down you don’t have to charge the repair to a credit card! And, as impossible as it may seem at the outset, you will see the day when you have the recommended three to six months of living expenses saved. You’ll be thrilled by the sense of freedom you’ll feel, and the peace of mind!

Need help planning your own transformation? Give me a call at (336) 701-2612.

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Emergency savings decoded


Wondering if you need an emergency savings fund? The short answer for most of us is yes. Have you seen the statistic—that the majority of Americans wouldn’t be able to manage an unexpected $400 car repair? The odds are that you do need an emergency fund to be able to navigate life’s curve balls and still sleep at night.

How much do I need?

 Your emergency stash should cover those unexpected car or home repairs, medical bills and other expenses you couldn’t predict. But one of the most important functions of this financial buffer is to cover a loss of income. To be effective, you should target saving:

·        3 months of living expenses if you have a two-income household, or

·        6 months of living expenses if you have a one-income household

Few of us plan to lose our jobs, whether for economic, performance, or health reasons…or just due to bad luck. Nor do we expect that it would take long to replace our employment income, if we needed to. Having worked with long-term unemployed professionals during the last recession in North Carolina, I can tell you that these folks didn’t anticipate their misfortunes either! Several months of living expenses in savings reduces stress while you get life sorted out.

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Saving several months of living expenses may seem daunting, but you can build up to it over time. The best way to start is by making it automatic. Have a set amount transferred to savings when your pay arrives. Most of us don’t even realize the money is gone. Even if you’re paying off credit cards or student loans, set aside a fixed amount each pay period for your emergency savings and make it automatic. Those of us born without the saving gene have an amazing ability to spend all that we take in. So don’t wait until you’ve paid for everything else to save because there won’t be anything left.

Where should I keep my emergency savings?

 Your emergency funds need to be:

·        Accessible: easy enough to get to in an emergency but not easy to dip in to for everyday expenses, and

·        Free from market risk: money saved for emergencies needs to hold its value and not be subject to the ups and downs of the market.

To meet these requirements, your emergency fund should be in a separate account designed for savings:

·        Regular savings, offered by banks and credit unions

·        High-yield savings, offered by online banks

·        Money-markets, offered by banks, mutual fund and investment companies

These account types will earn a modest return while keeping your money available when you need it. It is critical to keep expenses low so they don’t wipe out your already small return. Keep an eye on the expense ratios when comparing money-market funds!

A Roth IRA, if you’re eligible to contribute to one, can be a great place to keep your emergency fund. Unlike traditional IRAs, there are no penalties or taxes due if you withdraw your contributions from a Roth IRA, just make sure not to take out any of the earnings. And you won’t have to pay income taxes on what you do earn on your Roth. Remember, though, if you are using a Roth to save for emergencies, your investments should be in savings or money market accounts that meet the criteria above.

Can Emergency Savings be invested to earn more?

 In a word—no. Stock or even bond investments can be expected to earn more over time than the savings accounts recommended for emergency funds. But the key is “over time”. By investing your emergency fund, you are exposed to market volatility. Your account balance is constantly changing and not always in an upward trend. There’s no peace of mind when you lose your job at the same time the market is down and your emergency fund has taken a 40% hit! We give up the possible upside on this particular pot of money in return for a stable balance that’ll be there when we need it.

Emergency savings boost confidence and provide peace of mind. Get started today!

More questions about your money? Call us at (336) 701-2612.