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75 Personal Finance Rules of Thumb

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A “rule of thumb” is a mental shortcut. It’s a heuristic. It’s not always true, but it’s usually true. It saves you time and brainpower. Rather than re-inventing the wheel for every money problem you face, personal finance rules of thumb let you apply wisdom from the past to reach quick solutions.

Table of Contents show

I’m going to do my best Buzzfeed impression today and give you a list of 75 personal finance rules of thumb. Some are efficient packets of advice while others are mathematical shortcuts to save brain space. Either way, I bet you’ll learn a thing or two—quickly—from this list.

The Basics

These basic personal finance rules of thumb apply to everybody. They’re simple and universal.

1. The Order of Operations (since this is one of the bedrocks of personal finance, I wrote a PDF explaining all the details. Since you’re a reader here, it’s free.)

2. Insurance protects wealth. It doesn’t build wealth.

3. Cash is good for current expenses and emergencies, but nothing more. Holding too much cash means you’re losing long-term value.

4. Time is money. Wealth is a measure of how much time your money can buy.

5. Set specific financial goals. Specific numbers, specific dates. Don’t put off for tomorrow what you can do today.

6. Keep an eye on your credit score. Check-in at least once a year.

7. Converting wages to salary: $1/per hour = $2000 per year.

8. Don’t mess with City Hall. Don’t cheat on your taxes.

9. You can afford anything. You can’t afford everything.

10. Money saved is money earned. When you look at your bottom line, saving a dollar has the equivalent effect as earning a dollar. Saving and earning are equally important.

Budgeting

I love budgeting, but not everyone is as zealous as me. Still, if you’re looking to budget (or even if you’re not), I think these budgeting rules of thumb are worth following.

11. You need a budget. The key to getting your financial life under control is making a budget and sticking to it. That is the first step for every financial decision.

12. The 50-30-20 rule of budgeting. After taxes, 50% of your money should cover needs, 30% should cover wants, and 20% should repay debts or invest.

13. Use “sinking funds” to save for rainy days. You know it’ll rain eventually.

14. Don’t mix savings and checking. One saves, the other spends.

15. Children cost about $10,000 per kid, per year. Family planning = financial planning.

16. Spend less than you earn. You might say, “Duh!” But if you’re not measuring your spending (e.g. with a budget), are you sure you meet this rule?

Investing & Retirement

Basic investing, in my opinion, is a ‘must know’ for future financial success. The following rules of thumb will help you dip your toe in those waters.

17. Don’t handpick stocks. Choose index funds instead. Very simple, very effective.

18. People who invest full-time are smarter than you. You can’t beat them.

19. The Rule of 72 (it’s doctor-approved). An investment annual growth rate multiplied by its doubling time equals (roughly) 72. A 4% investment will double in 18 years (4*18 = 72). A 12% investment will double in 6 years (12*6 = 72).

20. “Don’t do something, just sit there.” -Jack Bogle, on how bad it is to worry about your investments and act on those emotions.

21. Get the employer match. If your employer has a retirement program (e.g. 401k, pension), make sure you get all the free money you can.

22. Balance pre-tax and post-tax investments. It’s hard to know what tax rates will be like when you retire, so balancing between pre-tax and post-tax investing now will also keep your tax bill balanced later.

23. Keep costs low. Investing fees and expense ratios can eat up your profits. So keep those fees as low as possible.

24. Don’t touch your retirement money. It can be tempting to dip into long-term savings for an important current need. But fight that urge. You’ll thank yourself later.

25. Rebalancing should be part of your investing plan. Portfolios that start diversified can become concentrated some one asset does well and others do poorly. Rebalancing helps you rest your diversification and low er your risk.

26. The 4% Rule for retirement. Save enough money for retirement so that your first year of expenses equals 4% (or less) of your total nest egg.

27. Save for your retirement first, your kids’ college second. Retirees don’t get scholarships.

28. $1 invested in stocks today = $10 in 30 years.

29. Inflation is about 3% per year. If you want to be conservative, use 3.5% in your money math.

30. Stocks earn 7% per year, after adjusting for inflation.

31. Own your age in bonds. Or, own 120 minus your age in bonds. The heuristic used to be that a 30-year old should have a portfolio that’s 30% bonds, 40-year old 40% bonds, etc. More recently, the “120 minus your age” rule has become more prevalent. 30-year old should own 10% bonds, 40-year old 20% bonds, etc.

32. Don’t invest in the unknown. Or as Warren Buffett suggests, “Invest in what you know.”

Home & Auto

For many of you, home and car ownership contribute to your everyday finances. The following personal finance rules of thumb will be especially helpful for you.

33. Your house’s sticker price should be less than 3x your family’s combined income. Being “house poor”—or having too expensive of a house compared to your income—is one of the most common financial pitfalls. Avoid it if you can.

34. Broken appliance? Replace it if 1) the appliance is 8+ years old or 2) the repair would cost more than half of a new appliance.

35. Used car or new car? The cost difference isn’t what it used to be. The choice is even.

36. A car’s total lifetime cost is about 3x its sticker price. Choose wisely!

37. 20-4-10 rule of buying a vehicle. Put 20% of the vehicle down in cash, with a loan of 4 years or less, with a monthly payment that is less than 10% of your monthly income.

38. Re-financing a mortgage makes sense once interest rates drop by 1% (or more) from your current rate.

39. Don’t pre-pay your mortgage (unless your other bases are fully covered). Mortgages interest is deductible, and current interest rates are low. While pre-paying your mortgage saves you that little bit of interest, there’s likely a better use for you extra cash.

40. Set aside 1% of your home’s value each year for future maintenance and repairs.

41. The average car costs about 50 cents per mile over the course of its life.

42. Paying interest on a depreciating asset (e.g. a car) is losing twice.

43. Your main home isn’t an investment. You shouldn’t plan on both living in your house forever and selling it for profit. The logic doesn’t work.

44. Pay cash for cars, if you can. Paying interest on a car is a losing move.

45. If you’re buying a fixer-upper, consider the 70% rule to sort out worthy properties.

46. If you’re buying a rental property, the 1% rule easily evaluates if you’ll get a positive cash flow.

Spending & Debt

Do you spend money? (“What kind of question is that?”) Then these personal finance rules of thumb will apply to you.

47. Pay off your credit card every month.

48. In debt? Use psychology to help yourself. Consider the debt snowball or debt avalanche.

49. When making a purchase, consider cost-per-use.

50. Make your spending tangible with a ‘cash diet.’

51. Never pay full price. Shop around and do your research to get the best deals. You can earn cash back when you shop online, score a discount with a coupon code, or a voucher for free shipping.

52. Buying experiences makes you happier than buying things.

53. Shop by yourself. Peer pressure increases spending.

54. Shop with a list, and stick to it. Stores are designed to pull you into purchases you weren’t expecting.

55. Spend on the person you are, not the person you want to be. I love cooking, but I can’t justify $1000 of professional-grade kitchenware.

56. The bigger the purchase, the more time it deserves. Organic vs. normal peanut butter? Don’t spend 10 minutes thinking about it. $100K on a timeshare? Don’t pull the trigger when you’re three margaritas deep.

57. Use less than 30% of your available credit. Credit usage plays a major role in your credit score. Consistently maxing out your credit hurts your credit score. Aim to keep your usage low (paying off every month, preferably).

58. Unexpected windfall? Use 5% or less to treat yourself, but use the rest wisely (e.g. invest for later).

59. Aim to keep your student loans less than one year’s salary in your field.

The Mental Side of Personal Finance

At the end of the day, you are what you do. Psychology and behavior play an essential role in personal finance. That’s why these behavioral rules of thumb are vital.

60. Consider peace of mind. Paying off your mortgage isn’t always the optimum use of extra money. But the peace of mind that comes with eliminating debt—it’s huge.

61. Small habits build up to big impacts. It feels like a baby step now, but give yourself time.

62. Give your brain some time. Humans might rule the animal kingdom, but it doesn’t mean we aren’t impulsive. Give your brain some time to think before making big financial decisions.

63. The 30 Day Rule. Wait 30 days before you make a purchase of a “want” above a certain dollar amount. If you still want it after waiting and you can afford it, then buy it.  

64. Pay yourself first. Put money away (into savings or investment accounts) before you ever have a chance to spend it.

65. As a family, don’t fall into the two-income trap. If you can, try to support your lifestyle off of only one income. Should one spouse lose their job, the family finances will still be stable.

66. Every dollar counts. Money is fungible. There are plenty of ways to supplement your income stream.

67. Savor what you have before buying new stuff. Consider the fulfillment curve.

68. Negotiating your salary can be one of the most important financial moves you make. Increasing your income might be more important than anything else on this list.

69. Direct deposit is the nudge you need. If you don’t see your paycheck, you’re less likely to spend it.

70. Don’t let comparison steal your joy. Instead, use comparisons to set goals. (net worth).

71. Learning is earning. Education is 5x more impactful to work-life earnings than other demographics.

72. If you wouldn’t pay in cash, then don’t pay in credit. Swiping a credit card feels so easy compared to handing over a stack of cash. Don’t let your brain fool itself.

73. Envision a leaky bucket. Water leaking from the bottom is just as consequential as water entering the top. We often ignore financial leaks (e.g. fees), since they’re not as glamorous—but we shouldn’t.

74. Forget the Joneses. Use comparisons to motivate healthier habits, not useless spending.

75. Talk about money! I know it’s sometimes frowned upon (like politics or religion), but you can learn a ton from talking to your peers about money. Unsure where to start? You can talk to me!

The Last Personal Finance Rule of Thumb

Last but not least, an investment in knowledge pays the best interest.

Boom! Got ’em again! Ben Franklin streaks in for another meta appearance. Thanks Ben!

If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

This article—just like every other—is supported by readers like you.

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My True Travel Insurance Story – A Broken Leg & Surgery in the Dominican Republic

Today, I have a great article written by my sister-in-law and editor, Ariel Gardner. She is sharing her travel insurance review story, and goes in-depth on the travel insurance process. I asked her to write about this because I feel like it’s not really discussed, yet there is a lot to learn! You may have seen her here before talking about taking her side hustle full-time, living in a small house, real life frugality, and more.

Earlier this year, I was enjoying myself on a relaxing Caribbean cruise with one of my best friends.

I had breakfast delivered to my room every morning, drank fancy cocktails in the evening, and barely thought about the travel insurance policy I bought just in case.

On the fourth day of our cruise, we docked in Santo Domingo, Dominican Republic and disembarked to explore the city. Our group ended up at Fortaleza Ozama, a Spanish fort built in 1502.

We walked up four or five flights of stairs to get a view from the top, and on the first step back down, I fell and broke my leg.

It wasn’t a major fall.

But I twisted my leg in just the right way to end up with a spiral fracture that broke several bones in my ankle, my tibia, and fibula. 

There was so much chaos as we figured out how to handle everything, from whether or not to have surgery in the Dominican Republic and how to fly my husband down.

On top of everything, this was at the beginning of March 2020, just as the U.S. and many other countries were shutting their borders down because of COVID-19.

The impressive Fortaleza Ozama. 

My travel insurance policy went from an afterthought to a necessity as I racked up more than $10,000 of out-of-pocket medical costs and unexpected travel expenses in just a couple of days.

Eight months after this whole ordeal began, I’ve finally got closure. My travel insurance claims are paid, and I had my last visit with the surgeon who fixed my leg with a metal rod and seven screws.

I learned so much about the travel insurance process over these past few months, and I was excited when Michelle asked me to share my experience. 

My biggest takeaway from it all? I will always buy travel insurance when traveling out of the country, and I’m about to explain why.

Related content:

My True Travel Insurance Review Story & Why You Should Consider Travel Insurance

The cost and details of my travel insurance plan

You can expect travel insurance to cost 5%-10% of your total trip cost. The cost largely depends on what kind of coverage you want, where you’re traveling, length and cost of trip, and your age. 

I decided to purchase a travel insurance plan through Generali Global Assistance because they had high ratings and offered the kind of plan I wanted. 

For $142.68 my trip would be covered under Generali’s Preferred Plan, which offered the following coverage limits:

  • Trip cancellation: 100% of trip cost
  • Trip interruption: 150% of trip cost
  • Travel delay: $1,000 per person
  • Baggage loss: $1,500 per person
  • Sporting equipment: $1,500 per person
  • Sporting equipment delay: $300 per person
  • Missed connection: $750 per person
  • Medical & dental: $150,000 per person
  • Emergency assistance & transportation: $500,000 per person
  • Accidental death & dismemberment (air flight accident): $75,000 per person/$150,000 per plan
  • Accidental death & dismemberment (travel accident): $25,000 per person/$50,000 per plan

There were a few aspects of this plan that I was really concerned about, including trip cancellation and interruption. I was leaving for a cruise as the COVID-19 pandemic was hitting the U.S., and there was a real possibility something might happen to my travel plans.

Cruising at the start of a global pandemic wasn’t an awesome idea, but luckily no one on our ship showed signs or tested positive for COVID-19 after getting back to the states.

My plan offered “cancel for any reason” coverage for trip cancellation and interruption. This is the most comprehensive kind of coverage – you’re reimbursed for a portion of your costs no matter what your reasons are – but it’s a little more expensive. 

Medical coverage wasn’t a huge priority to me because I assumed the chances of getting hurt were pretty slim. This is laughable now.

Despite feeling like medical coverage wasn’t necessary, the reason I got travel insurance (with higher medical coverage) was because of a story an acquaintance told me a few years earlier.

This woman had gone on a 10-day cruise in the Mediterranean, and her esophagus spontaneously ruptured a few days into the cruise. This is an incredibly serious condition that will result in death if it’s not immediately treated.

When the cruise ship doctor realized what was happening, they ordered a helicopter to medivac her to the closest hospital. I can’t remember which country she ended up in, but between surgery, complications, and recovery, she ended up in the hospital for two months.

She paid $450 for a premium travel insurance plan, and it covered all of the $1,000,000+ expenses she incurred. From health care, medivac, trip interruption costs, and flights back and forth for her husband.

With that story stuck in my head, my worst-case-scenario mindset kicked in and told me to buy travel insurance for my cruise.

What my travel insurance actually covered

I’ve broken my ankle before and the treatment is pretty straightforward and easy. Slap a boot on your leg and be on your way. This break was worse, and being in a foreign country complicated things.

First of all, I sustained an open fracture. That means my tibia bone broke through my skin, which puts you at risk of infection. Had it been a closed break, maybe I could have gotten back on the cruise ship, had the onboard doctor set my leg, and cruise back on painkillers until I got home.

Open fractures need to be treated with surgery as soon as possible so the wound can be cleaned out. Surgery meant that I would not be getting back on the cruise ship. 

There was a lot of debate about where to take me – the Dominican Republic has a very different health system. It was decided that the best care would come from a private clinic. 

The clinic required a deposit of 80,000 Dominican Pesos (DOP) before I could be treated. The exchange rate varies day-to-day, but this equals $1,369 at the time of writing.

I was put on an IV drip for antibiotics, given IV painkillers, was x-rayed, had an electrocardiogram, and was prepped for surgery. The surgery to clean out the wound was quick, but it still required anesthesia. 

The surgeon said I also needed an ORIF (open reduction internal fixation) to fix my leg. This is where they fix your break with a rod and screws. It’s not a complicated surgery, but after talking with some people back home, and with a doctor friend who was traveling in our group, we decided it was best to wait until I was back in the U.S. for the ORIF surgery. 

After the surgery to clean out the wound, the surgeon ordered me to stay in the clinic for two days before it was safe for me to fly home. I spent that visit on more IV antibiotics and painkillers. After the deposit was applied to the total, my stay was another 357,000 DOP or $6,110.

Between just having surgery and the fact that my broken leg wasn’t fully fixed, I couldn’t just fly home by myself. The surgeon in the Dominican Republic said I needed a travel companion to help me fly home, so my husband booked a flight and came out the day after my surgery. His flight was $400.

The surgeon ordered two things to fly home safely: an ambulance to transfer me to the hospital and first-class flights home to give me enough room for my bandaged leg. Side note: this was the first time I’ve ever flown first class, and I’d love to do it again when I can appreciate it. At least my husband got to enjoy the complimentary Bloody Marys.

Those tickets weren’t cheap. Not only was it first class, it was a last minute, one-way flight at the start of a global pandemic. We paid $1,275 for each ticket.

The ambulance ride to the airport was 7,600 DOP or $130. We paid the drivers in cash plus a tip. They were amazing, by the way. Neither of them spoke English and we don’t speak Spanish, so we spent the 30 minute drive communicating via Google Translate.

Because I was wheelchair-bound at this point, we would need more time in the airport, and our ambulance ride was going slower than expected. The driver knew we were pressed for time and drove over the grassy median into oncoming traffic to get us to the airport in time. Probably not the safest move, but it worked.

They were so sweet and even wanted to take a picture with us because, as they said, “You’ll want to remember this day!” 

Omg, the compression sock and three-day old outfit is a look. What you can’t see is that I was also traveling with a catheter in because I was completely immobilized. Definitely won’t forget that day!

Between my husband’s flight to the Dominican Republic, our first-class tickets home, and the ambulance ride, that was an additional $3,080.

Here’s what travel insurance covered from those costs:

  • $1,369 deposit for the clinic
  • $6,110 for surgery and hospital stay
  • $2,550 for two flights home to the U.S.

=$10,029 total costs reimbursed

Travel insurance didn’t cover my husband’s $400 flight to the Dominican Republic – they said it wasn’t part of emergency assistance and transportation. Their reasoning was that someone already in the Dominican Republic could have flown home with me.

We also claimed $200 for the flight I would have taken home from Florida after the cruise, and this was denied too because I paid for it with credit card points. Some travel insurance offers reimbursements for points, but Generali’s plan didn’t. We tried to claim it knowing they might deny it.

The other cost travel insurance denied was the $130 ambulance ride from the clinic to the airport. The problem was that the receipt wasn’t dated. 

That’s $730 that I wasn’t reimbursed for.

One thing I haven’t mentioned is the cost of the cruise and getting reimbursed for the part of the trip I wasn’t able to take. Long story short, my friend was part of the cruise’s entertainment and the organizers covered my ticket because I was going as her guest. 

The cruise organizers have their own insurance to deal with that claim. Had I paid for the cruise, then I would have submitted that loss to my travel insurance company. Make sense?

All in all, my $142.68 travel insurance policy saved me more than $10,000 in out-of-pocket costs.

Will my health insurance cover medical costs when I travel?

It’s unlikely that your domestic health insurance plan will cover medical care outside of the U.S. If your plan does cover anything, it will only be for very, very emergent situations. 

For example, my broken leg was a serious enough injury that I needed emergency surgery in a foreign country. I had to leave my friends and my belongings on the cruise ship and stay in a hospital for two days.

My health insurance company (Anthem Blue Cross Blue Shield) did not consider this an emergency situation – it was only deemed urgent. 

This is how my insurance company describes emergency care: if the injury is severe enough that it places “the Member’s physical and or mental health in serious jeopardy; serious impairment to bodily functions; or serious dysfunction of any bodily organ or part.”

I recommend calling your health insurance company and asking about their policy on international travel, but realize that it probably won’t offer the kind of coverage you’re looking for.

What about the travel protections offered by my credit card?

Not all credit cards come with travel protections, but some of the more popular travel cards (like the Chase Sapphire cards and American Express Platinum card) do offer it. Important point: you will have to book your trip using that card to qualify for coverage.

The other thing about the coverage that comes with your credit card is that it’s fairly limited when you compare it to third-party travel insurance. 

The most common kind of coverage through your credit card is for baggage delays, trip delays, trip interruption, emergency trip cancellation, accidental death and dismemberment, and auto rental collision damage cover.

But you probably won’t get the kind of coverage you need if you, say, break your leg in the Dominican Republic.

I have three credit cards that are considered travel cards, and none of them would have covered what my travel insurance did.

The Points Guy has a really good article that explains more: When to Buy Travel Insurance vs. When to Rely on Credit Card Protections.

What about flight insurance?

Most airlines offer a limited form of travel insurance, and limited is key.

I’m sure you’ve seen the pop up when you enter your payment information for your flights. Something like, “Do you want to spend $25 on coverage to protect your flight from cancellation or delays?” 

Seems like a good deal, and I’ve bought it before when I didn’t understand what it covers. The coverage airlines offer does not include medical care, lost luggage, and it’s not “cancel for any reason” coverage. 

When should you buy travel insurance?

You now know that you can’t rely on your health insurance in a foreign country, your credit card doesn’t offer comprehensive coverage, and flight insurance is meh. 

That’s why I highly recommend travel insurance if you’re traveling out of the United States. Experts will offer the same advice for these reasons:

1.You’re concerned about medical expenses

Travel medical insurance is similar to your domestic health insurance, and it’s honestly the main reason experts recommend travel insurance. Without it, a medical emergency in a foreign country could devastate your finances. Most policies have limitations for pre-existing conditions, but you can shop around and find coverage for pre-existing conditions.

2. You want coverage for your baggage and personal belongings

It’s not uncommon to travel with some pretty expensive stuff. It adds up quickly when you think about the combined value of your laptop, tablet, cell phone, camera, jewelry, etc. 

Travel insurance may cover these things if they’re lost or damaged. I say “may” because most policies expect that you’re not being reckless with your belongings. For example, you’re not leaving your laptop unattended in the hotel lobby. 

You should ask about high-value things like your wedding rings because there will be some limitations to the coverage. Better yet, leave your expensive jewelry at home.

Some policies have additional coverage for things like golf clubs, ski equipment, and hunting or fishing gear. They might even offer coverage if you miss days for skiing or golfing, or even pay for rental gear if yours is lost or delayed in transit.

3. You’re an adventurous traveler

There are risks with all kinds of travel – my husband cut off the tip of his finger during a relaxing beach vacation in the Bahamas, and he was only chopping green onions. But there are some kinds of vacations where you’ll encounter more risks.

Hiking through the jungle, ziplining, parasailing, surfing, caving, etc., those are all things that can increase your chances of getting hurt. World Nomads is one of a few travel insurance companies that covers extreme sports.

4. You want to be able to cancel your trip for any reason

Things come up. Maybe you didn’t apply for your passport soon enough, your pet gets sick, you have a financial emergency, you’re traveling during a global pandemic, etc. If you want the option to cancel your trip for any reason, travel insurance can help. 

I’ve said this already, but not all policies are considered “cancel for any reason” or CFAR. Most CFAR policies don’t cover 100% of your prepaid and nonrefundable travel expenses – it’s more like 50% to 75%. 

These policies are more expensive and cover less than people expect, so do your research. Most companies offer CFAR as an add-on, but they’re expensive and cover less than people expect. 

5. You might need to come home early

A friend of mine had to leave his honeymoon early because his new father-in-law landed in the hospital with a life threatening illness. It’s a good thing they came home because the father-in-law passed away a few days after they got back. Travel insurance reimbursed him for the rest of his honeymoon and their last-minute plane tickets.

All in all, travel insurance is peace of mind. You can’t control what happens, but you can reduce a lot of the financial stress associated with emergency scenarios.

Traveling with travel insurance

Before you leave for your trip, make sure you have your travel insurance policy printed and stored somewhere you can easily access. It should stay on you when you’re away from your hotel, cruise ship, etc.

Because I didn’t have my policy on me, someone had to go back to the cruise ship, find it, and bring it back. 

It’s also not a bad idea to send a copy of your policy plus your itinerary to someone back home. They can quickly hop on the claims process without needing to get login information or policy numbers from you.

What to expect when you file a travel insurance claim

I won’t lie, dealing with the claims process was extremely frustrating. My husband was super stressed waiting for us to be reimbursed for our out-of-pocket expenses. He called and emailed every couple of weeks to make sure things were still moving forward.

We had to re-submit paperwork twice, our entire claim was denied the first time (I will explain why in a minute), and it took a full seven months before our claim was paid.

What I didn’t realize is that what we went through is more common than you would expect. Travel insurance companies are very specific with how they accept paperwork and the process for filing claims. 

Here’s what you need to know about the claims process:

  • File your claim ASAP. This gets the ball rolling, you’ll be fresh on the details, and most companies require you to submit claims within a 90-day window.
  • Everything needs to be submitted electronically. You’ll have to take pictures of your receipts or scan them. Pictures need to be crystal clear (this is why I had to resubmit paperwork). 
  • Medical claims need to go to your health insurance company first. Because your health insurance might cover the expenses, you’ll need to submit it to them first. My travel insurance claim was denied at first because we didn’t have an official denial from my health insurance company.
  • Keep any document related to your travel costs or emergency expenses. Even if it seems redundant or useless, keep it. A handwritten note in broken English is why insurance covered our expensive flights home, and we almost didn’t submit it.
  • Your claim will take longer than you expect to process. It can take a minimum of three months for your claim to be processed, and this feels like forever if you’re waiting to be reimbursed for out-of-pocket costs.

I know it’s hard, but be patient. You can always email your claims agent if you have questions or want to be reassured that they’re working on your claim.

Should you buy travel insurance?

Moving forward, I will always be buying travel insurance when I leave the country. It’s an extra expense we’ll have to budget for and build into the total cost of our vacations. 

What I went through is pretty small, but the majority of our cash savings would have been wiped out without travel insurance. 

It was really scary being injured in a foreign country where I didn’t know the language. You can’t put a price on this, but believing that the majority of my expenses would be covered helped me get through those couple of days until I got home. Okay, painkillers really helped too.

But the point is, travel insurance is peace of mind. Buying it is a choice, but I hope you realize what a beneficial choice it can be in the long run.

Do you usually buy travel insurance? Do you have anything that you’d like me to add to this travel insurance review?

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Pizza Delivery is for Millionaires

My son and I are having a beautiful Saturday night here at home. The sun is setting over the mountains outside my bedroom window and I’ve just finished baking a pizza which I am about to serve up for his dinner.

Although our day has been very simple, there has been an underlying magic within it that triggered an epiphany that I just had to write to you about. Because within this simple moment seems to be the secret to pretty much everything.

We woke up to a cloudless blue sky and were treated to summer-like warmth even though it’s November. I served up a French toast breakfast and then we ate together as we made plans for our day. We decided the first stage would be some computer work for him, while I went out to do some yard work and a bit of maintenance and cleanup on my construction van, to get it ready to lend to a friend.

Stage Two was our big walk downtown. Little MM wanted to get some shots of old buildings as part of an assignment for photography class, and I wanted to fix a minor leak in the roof of the MMM HQ Coworking building, so we decided to combine the errands. The walk was long and adventurous and we even stopped for some exorbitant ice cream cones on the way, courtesy of a gift card I received for helping someone last month.

We got it all done – Little MM got his 24 required shots, I fixed the roof and also ran into my co-owners Mr. and Mrs. 1500 who were setting up the building for a group breakfast tomorrow. So my boy and I strolled the 1.5 miles home through the sunny leafy autumn streets of Longmont and settled in for the night.

I popped one of my homemade pizzas into the oven. Because it was a big one, it was going to take at least 25 minutes to cook so I figured I’d use that time to shower off the day’s dust and sunscreen. But then I noticed my hair was starting to get a bit out of control so I gave myself a quick haircut before the shower.

And as I stepped out of my room, dressed in clean clothes and feeling sharp and healthy and arriving in the fancy kitchen I built last month just as the oven beeped to indicate the pizza was finished, I realized that this is the secret to wealth. Days like today. Monetary wealth for sure, but also every other kind of wealth.

We had just enjoyed an almost perfect day almost effortlessly, just by having the right habits in place.

We had a shitload of fun, socialized and exercised and advanced the projects that are important to us. But simultaneously, we spent very close to zero dollars, and left the world mostly unscathed as we finished our day.

The beeping of that oven full of homemade pizza was what really set off the epiphany in my head.

“Damn”, I realized, “even with all this excess money building up over the years, it didn’t even occur to me to order a pizza. It’s just automatic, and thus faster and cheaper and healthier, to make my own.”

Plus by avoiding the delivery I am saving my neighbors from one gas-powered car bringing an unnecessary extra serving of danger and pollution onto our street. It’s a three-way win with no losing involved.

Ordering a decent extra-large pizza including tax, tip and delivery: $20
Dad’s Homemade pizza: about $4
Difference: 500%

Sure, the difference here is only sixteen bucks, but I wanted to highlight the percentage difference instead. Because if you apply this philosophy of efficient, automatic habits all through your life, it really does tend to cut your costs so that your life becomes 2, 3, 4, or even 5 times less expensive.

So I thought to myself “WHY does anyone who is not even a millionaire yet, or even worse who has a mortgage or credit card debt, still do something as frivolous and easily avoided as ordering a pizza?*”

With that example drawn out in detail, let’s look at some of the other details of this day:

New kitchen in my latest frugal fixer-upper house in progress. Even the toaster is fancy!

My new kitchen which made that pizza cooking so enjoyable was built on a total budget of about $6000 including changing the floorplan, electrical, plumbing, cabinets, countertops and all the appliances.

This is less than half of what custom-ordered cabinets alone would have cost, and a full kitchen remodel of this type usually tops $25,000. But by getting assemble-it-myself cabinets from Ikea and my appliances from Craigslist and doing all of the work myself, I cut the cost by about 75%, while earning plenty of great physical exertion and satisfaction at the same time. Savings: about $20,000 or 80%

My son is in the public middle school rather than in the private school across town, which is where some of the other multimillionaire parents send their kids. If the private school were better for his needs, of course we could afford to send him there too. But we gave the local option a chance and it has turned out to be an incredible place for him. Savings: about $20,000 per year or roughly 100%

We chose walking as our means of transportation, and if we were in a rush we would have ridden our bikes. This habit of not driving doesn’t just save me gas and maintenance money, it also allows me to keep an older vehicle. I have a 1999 Honda van that is still in sparkling new condition.

She just reached drinking age, all cleaned up for her first can of Coors Light!

It stays new because I barely use it, because I have designed my life to be within an entirely muscle-powered radius. But this brand-new van is worth less than two grand and insurance is about twenty bucks a month. Maintenance is less than $10, registration is $5. Savings versus owning an “average” $35,000 American car and driving an average amount: about $600 per month or 90%.

We didn’t go “shopping” (100% savings), watched a movie at home instead of the theatre (100%), I cut my own hair for the something-hundredth time (100%), we advanced our health rather than chipping away at it (100%), and built this warm caring relationship with each other as well as with our friends (priceless).

And there were all sorts of other less tangible things working in the background too. I bought a commercial building and started this coworking space as a way to pass the time and spend time with old and new friends – the same reasons that someone might buy a vacation home in the mountains or at the beach.

But instead of costing me a few thousand dollars per month and requiring 100 miles of driving every time I visit, this building is just a pleasant walk from home and it generates thousands per month in cashflow and appreciation. It is great for the mental and physical health of all of our 75 members and growing, and we all save money by being a part of this community.

Mr. 1500 and I hosting a party at MMM-HQ for the first screening of the Playing with FIRE documentary, April 2019

The funny part of all this is that today was a completely normal day for us – most of my days are very similar to this one. The only unusual part was that I happened to take a step back and actually notice it. And that is really the point of this whole article:

We get used to our daily routine, and think of it as “normal”, even if it is completely ridiculous.

In recent months, I have just had my eyes re-opened as I have had more contact with people who are living more typical American lives than me. Their normal is different than mine, so when I visit I happen to notice the differences – more car trips and impulse purchases and pizza deliveries.

These people are not living lifestyles that appear exorbitant at all, and their houses aren’t packed with expensive things. But these little 5-to-1 differences just silently happen, quietly and consistently and add up to perhaps $100 per day, when compared with a more streamlined lifestyle.

And $100 every day becomes $36,500 every year, and if you invest that conservatively it will compound into about $520,000 every decade.

$520,000 per decade.
Just from the tiny mindset switch between
“hey lets order a pizza”
versus
“Hey, let’s throw a pizza into the oven.”

I really think this is important, and as this whole “FIRE Movement” thing grows, some people are getting soft and complaining that Mr. Money Mustache is “too extreme”, and so we should take a gentler and easy path and let our spending get sloppy if that is what’s right for us.

The thing is, this is usually just wrong. It’s laziness rather than practicality. Because Mr. Money Mustache is already plenty spendy, and plenty sloppy – well beyond the level required to live a happy life.

I can afford to live this way, because I’m old and wealthy now. If you are still young and poor, you should be spending less than me, not more.

So, pizza delivery is for millionaires, and it’s also time to put away those car-clown keys and get back on your bike. We’ve still got work to do.

* Of course, this is a perfect-world generalization. Real life has room for joyful exceptions and imperfections. But you have to know the reality of what you should be doing, before you can safely start making exceptions like ordering your pampered ass a pizza.

Source: mrmoneymustache.com

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Downsizing Your Home? Here’s How I Went From A 2,000 Square Foot House To An RV

Downsizing your home can be a big process. And, less and less people seem to be doing it these days.

Downsizing Your Home How I Moved Into An RV From a 2K sqft Home

Downsizing Your Home How I Moved Into An RV From a 2K sqft HomeThe average home size in 1950 was less than 1,000 square feet. Fast forward to 2013, the average home size has increased to nearly 2,600 square feet, according to the U.S. Census Bureau.

We were fairly close to this size when we owned a house. The house we owned in the St. Louis, Missouri area was around 2,500 square feet if you included our finished basement, and it was just for myself, my husband, and our two dogs. Our home in Colorado was almost as big, at slightly over 2,000 square feet (with no basement).

More and more people seem to be purchasing large homes, but that’s not the case for us. We sold our home last year and moved into an RV.

We made this decision for many reasons, but the main reason was that traveling nearly full-time added to the stress of owning a home. So, we figured why not just take it a step further and actually travel full-time?

Related:

So, we did it. We went through all of our possessions, stored certain belongings that we couldn’t part with (we have a VERY small storage unit, the size of a closet, filled mainly with hundreds of photo albums that my dad left me after he passed away, family paintings, childhood mementos, etc.), and moved into our RV.

It wasn’t the easiest task on earth, and really we dreaded all of the work that had to be done. However, we knew it was well worth it to live the life we wanted.

And, it was! We are so glad that we decided to downsize our home. We haven’t regretted the decision one bit, and now we are happier than ever.

There are many other reasons for downsizing your home:

  • To save money. A bigger home can cost more in some cases due to higher utility bills, more clutter being bought, higher insurance, more maintenance and repairs needed, higher purchasing price, etc.
  • To have less clutter. The bigger your home, the more likely you’ll have empty rooms that you feel the need to put stuff in. Now that we live in an RV, we are much more mindful of what we buy. We think about every purchase in terms of weight, size, where we can store it, and more.
  • To spend less time on maintenance and repairs. If all other factors between two homes are the same (age, location, etc.), a bigger home is more likely to take up more of your time due to more things breaking.
  • To spend less time cleaning. A larger home is going to take a lot more time to clean than a smaller one.

Whatever your reason may be for downsizing your home, here are my tips. Of course, certain downsizes may be easier than others, but overall the tips below can help you sort through your items.

Tips for downsizing your home:

Make a plan for downsizing your home.

Downsizing your home can seem like an easy task to some, but in reality it is not. There are many things that go into downsizing your home, such as:

  • The layout and amount of space in your new home.
  • The time you have to downsize your home can impact your sorting process, stress, etc.
  • How you will donate, sell, or throw away items to get rid of.
  • How and what you determine to keep, donate, or throw away.

What do you think you just cannot get rid of?

To start off, you should make a list of all the items you believe you just cannot part with. Your list may start out long, but it will help you decide what items you don’t need and should get rid of.

What can you easily get rid of?

If you have the time, then you may want to start getting rid of things that you know you don’t need as soon as you can. By doing this, you can clear a lot of clutter and it will also help you realize that you may not need other items you once thought you needed.

Usually getting rid of the first few items is the hardest. After that, it gets easier to downsize your home!

Think about why you want to keep certain items.

Many people have a hard time parting with things for reasons such as:

  • Memories
  • How much money they spent on it
  • The length of time that they’ve held onto it
  • The potential for future use

If you just don’t have the room in your new home, you should really dig deep and figure out why you believe you need to keep so many items. Talk about your reasoning with your family or out loud to fully grasp it. Doing so may help you realize how ridiculous your logic may be.

Sometimes, you may laugh at your reasoning, and this may help you get rid of an item more easily.

Find ways to store documents digitally.

For me, I just couldn’t bring myself to store my dad’s photo albums digitally, even though numerous people have told me to scan them and throw them away. The memory is in the actual photo albums as well as the photos, as my dad loved photography and we would often put the photo albums together as a fun project.

However, there are many other non sentimental things that you can store digitally. This includes tax information, receipts, paper documents, and so on.

The average person has thousands of papers that they store!

Paper is a big reason for clutter, and so many people keep items that they don’t need. Go through your documents and start either digitally storing them or recycling them.

We kept just one binder of papers and scanned the rest. It was very easy to do, and getting rid of all of that paper felt amazing.

Give yourself time.

Going through your whole house and downsizing your home in one day would be quite difficult and stressful. Instead, you should give yourself time to really think about what you do and don’t need.

This means that you may want to take a few days, weeks, or even months to go through your home.

Start off room by room and see what you can get rid of. Then, when you are done doing that, go through everything again and again until you are down to the amount of items you need to have. By doing this process, you will clearly see what you need and do not need, because you will be able to see how much you have, evaluate items more clearly, apply past reasoning to other items you think you can’t get rid of, and so on.

Create a donation list.

Donating items makes getting rid of things and downsizing your home a little easier. By knowing that your items will be better used by someone who actually needs them, you are giving your stuff new life! If you have a large amount to donate, many donation centers will even come to your home, which can make getting rid of items a breeze.

Plus, you’ll feel great about it.

Related: 58 Random Acts Of Kindness

Think about when the last time was that you used an item.

Many people keep items that they hardly use or have never used, yet keep and store them anyways.

If you want to start downsizing your home, you should think about the last time you used a specific item.

For me, this is a big reason for why it was so easy to get rid of so many things. I just sat down, created a list, and thought about the last time I used a certain item. For many things, it seemed like years had passed since I had actually used that item. For some things, I knew I didn’t actually need to use them when I thought I did.

So, you should do the same. Think about when you last used an item, if you will ever use it in the future, if you’re better off just renting or borrowing something you occasionally use, and so on.

Related: How To Live On One Income

Get rid of the “maybes.”

If you have no space for items in your new home, but you still have a huge pile of things that you want to take with you, you may want to think about just completely getting rid of your “maybe” pile.

After all, these are “maybes” and you probably don’t want them as badly as you think! This can make downsizing your home much easier in one swoop of a decision.

Related tip: Are you looking to downsize? I recommend checking out the course Downsizing for Tiny Life. This course gives you the step by step process for downsizing to move into a smaller space. This course will help you identify what to get rid of, change your mindset about your stuff, help you sell your stuff, and more.

Carefully evaluate future purchases.

So that you are less likely to have as much clutter in the future, you should evaluate future items before you buy them.

You should think long and hard about whether you truly need something, whether you should buy, borrow, or rent it if you won’t need it in the future, and think about where the item will be stored in your home.

We do this now that we live in an RV. We think about every purchase in terms of weight, size, where we can store it, and more. This has helped prevent us from buying many items because we know it’s not realistic to bring everything into an RV.

How big is your home? Is downsizing your home something you are interested in?

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Source: makingsenseofcents.com

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Wealth Tax: Definition, Examples, Pros and Cons

Wealth Tax: Definition, Examples, Pros and Cons – SmartAsset

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A wealth tax is a type of tax that’s imposed on the net wealth of an individual. This is different from income tax, which is the type of tax you’re likely most used to paying. The U.S. currently doesn’t have a wealth tax, though the idea has been proposed more than once by lawmakers. Instituting a wealth tax could help generate revenue for the government but only a handful of countries actually impose one.

Wealth Tax, Definition

A wealth tax is what it sounds like: a tax on wealth. This can also be referred to as an equity tax or a capital tax and it applies to individuals.

More specifically, a wealth tax is applied to someone’s net worth, meaning their total assets minus their total liabilities. The types of assets that may be subject to inclusion in wealth tax calculations might include real estate, investment accounts, liquid savings and trust accounts.

A wealth tax isn’t the same as other types of tax you’re probably familiar with paying. For example, you might be used to paying income tax on the money you earn each year, self-employment tax if you run a business or work as an independent contractor, property taxes on your home or vehicles and sales tax on the things you buy.

Instead, a wealth tax has just one focus: taxing a person’s wealth. According to the Tax Foundation, only Norway, Spain and Switzerland currently have a net wealth tax on assets. But a handful of other European countries, including Belgium, Italy and the Netherlands, levy a wealth tax on selected assets.

How a Wealth Tax Works

Generally, a wealth tax works by taxing a person’s net worth, rather than the income they earn in a given year. In countries that impose a wealth tax, the tax is only levied once assets reach a certain minimum threshold. In Norway, for instance, the net wealth tax is 0.85% on stocks exceeding $164,000 USD in value.

Wealth taxes can be applied to all of the assets someone owns or just some of them. For example, the wealth tax can include securities and investment accounts while excluding real property or vice versa.

Every country that imposes a wealth tax, whether it’s a net tax or a tax on selected assets, can set the tax rate differently. It’s not uncommon for there to be exemptions or exclusions to who and what can be taxed this way.

A wealth tax can be charged alongside an income tax to help generate revenue for the government. The wealth tax rates are typically lower than income tax rates, in terms of the actual percentage rate, but that doesn’t necessarily mean paying less in taxes. Someone who has substantial assets that are subject to a wealth tax, for instance, may end up paying more toward that tax than income tax if they’re able to reduce their taxable income by claiming tax breaks.

Is a Wealth Tax a Good Idea?

In countries that use a wealth tax, the revenue helps to fund government programs and organizations. In some places, such as Norway, revenue from the wealth tax is split between the central government and municipal governments. It would be up to the federal government to decide how wealth tax revenue should be allocated if one were introduced here.

In the U.S., the concept of a wealth tax has been used to argue for a redistribution of wealth. Or more specifically, lawmakers who back the tax have suggested that it could be used to more fairly tax the wealthy while relieving some of the tax burdens on lower and middle-income earners. While wealthier taxpayers may take advantage of loopholes to minimize income taxes, a wealth tax would be harder to work around, at least in theory. That could yield benefits for less wealthy Americans if it means they’d owe fewer taxes.

That sounds good but implementing and collecting a wealth tax may be easier said than done. It’s possible that even with a wealth tax in place, high-net-worth and ultra-high-net-worth taxpayers could still find ways to minimize the amount of tax they’d owe. And the tax itself could be seen as unfairly penalizing wealthier individuals who own charities or foundations, invest heavily in businesses or save and invest their money instead of using it to buy things like luxury cars, expensive homes or other physical assets.

It’s important to keep in mind that a wealth tax is targeted at people above certain wealth thresholds, so most everyday Americans wouldn’t have to pay it. But it could cause problems for someone who unexpectedly receives a large inheritance that increases his wealth, even if his income remains at the lower end of the scale.

The Bottom Line

In the U.S., the wealth tax is still just an idea that’s being floated by progressive politicians and lawmakers. Whether a wealth tax is ever implemented remains to be seen and it’s likely that debate over it may continue for years to come. And enforcing one could be difficult if it were ever introduced, if for no other reason than there are many ways for the extremely wealthy to avoid taxes. In the meantime, talking with a tax professional may be the best way to manage your own personal tax liability.

Tips on Taxes

  • Consider talking to your financial advisor about the best ways to handle taxes as you grow an investment portfolio. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors online. It takes just a few minutes to get your personalized financial advisor recommendations. If you’re ready, get started now.
  • Managing taxes is an important part of growing wealth and creating an estate plan. The less you pay in taxes, the more money you have to save and invest toward establishing a legacy of wealth. A free income tax calculator is a good way to start figuring what you owe or to get confirmation that  your calculations are correct.

Photo credit: ©iStock.com/Serhii Sobolevskyi, ©iStock.com/svengine, ©iStock.com/FG Trade

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Move Like a Minimalist: How to Avoid New Nest Syndrome

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Spring is a common time when people start buying new homes, or simply moving to new apartments across town. Moving by itself is an incredibly stressful time, and no one needs to add additional financial stress into the mix. Moving tends to be expensive, transporting things across town (or further) and getting everything settled can put a major dent in an established monthly budget. Once you get to your new place, it’s likely that the layout of the furniture won’t be the same, and you’ll need to figure out how to best fit everything in while very likely buying some new furniture to make everything work.

When you’re starting the moving process and getting settled into your new place, don’t let the expenses get out of control. Here are some tips to help prevent the new nest instinct from taking over and ruining your savings and budgeting progress.

1. Walk The New Space To See How Things Will Fit

Take some time to walk through your new home, make and record some measurements and roughly plan where things will go. Doing so will allow you to declutter the things that you either don’t need or simply won’t fit in the new space. There’s no sense moving something that you’ll just end up getting rid of shortly after. This preparation will allow you to save money by potentially renting a smaller, less expensive moving truck.

2. Wait To Buy New Things Until You’ve Lived There For A While

While it’s tempting to go to your favorite furniture store and buy everything you think you’ll need in your new home, I’d highly suggest waiting until you’ve lived there for a few weeks. Unless something is absolutely essential, you will benefit from waiting and seeing what things you actually need. This gives you the opportunity to find the small quirks and needs of that specific home and you won’t waste money buying things before you know you need them.

3. Take Your Time And Acquire Unique or Interesting Pieces

Just like number two, if you’re willing to wait a little bit and acquire things more slowly, you’re more able to find interesting and unique pieces of furniture to bring into your space. These pieces will add more character to your home, and really bring it to life. If you’re the DIY type, you can make some custom solutions that will perfectly fit the space you have. Even if it’s repurposing and upcycling an antique piece by painting or refinishing it, it’s guaranteed to be cheaper and likely more durable than something from a local superstore.

4. Remember That White Space Is Perfectly Fine

Especially if the space you’re moving into is bigger than your previous home, remember that you don’t need to fill up every corner of every room. It’s okay to leave big open spaces in your new living quarters, for a clean, uncluttered look. If you don’t feel the need to fill in all the space, you’ll save a ton of money on potential furniture and decorative purchases along the way. Focus on fewer, more meaningful purchases and you’re good to go.

5. Don’t Buy Everything Right Away

When visiting the homes of parents and other folks that have lived in their homes for a long time, it’s easy to feel like that level of furnishing is expected. Don’t go into debt immediately buying furniture for your new place! The reality is that most people have had years (sometimes decades) to furnish their home and have done it over a very long period of time. Relieve yourself of the pressure to have a perfectly decked out home and feel free to leave some rooms open, undecorated, or even unused if you want. It’s your space, and you get to choose exactly how you use it.

If you follow these tips, you’ll significantly cut the cost of moving into a new home whether it’s an apartment, a house, or anything in between. While you might feel pressure to get everything set up right away, take your time and make everything work to your advantage.

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