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Jessica Sillers

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Best Financial Lessons I Learned from Financially Fearless

As part of my journey to save a down payment for our new family home, I’m deepening my financial literacy by adding to my reading list. This month, I read Financially Fearless by Alexa Von Tobel, the founder of LearnVest.

I chose Financially Fearless because I’ve quoted Von Tobel in articles I’ve written before, but hadn’t sat down and read her book cover to cover. So without further ado, let’s jump in so I can share the top takeaways from this read with you!

Is Financially Fearless Worth Reading?

Financially Fearless emphasizes that having a plan for your money is essential, and inevitable! Even if you think you don’t have a plan in place, that still counts as a plan--and a bad one. If you’ve been winging it by default with your finances by falling into easy mistakes like not keeping a budget, this book will whip you into shape.

For people who have some of the basics of money management down, this book will still likely come in handy. The hands-on exercises and detailed breakdown of a wide range of financial topics cover your bases so you can assess what you’re doing right, and where to improve.

Downsides of this book? There’s not a lot of actionable advice for people whose budget is way off from the 50-20-30 rule. Unless you’ve got lots of flexibility to change your lifestyle, you may have a hard time finding advice you can apply right away. The book was also published in 2013, so some of the student loan information in particular may be outdated and less helpful now.

How to Use the 50-20-30 Rule

I’d encountered the central concept of Financially Fearless before. The 50-20-30 rule advises spending no more than 50% of your take-home pay on necessities, putting 20% toward savings and protection for the future, and using the remaining 30% to fund your best life.

What I really liked was the way Von Tobel broke this down into even more detail. For people who have a hard time coming up with an accurate list of necessities, or deciding how to portion out the 20% of savings money, this book can bring some real value.

50%: Necessities

No more than half of your take-home income goes toward necessities, in LearnVest’s ideal budget. Taken a step further, the money splits like this:

  • 30%: Maximum take-home income to put toward housing (don’t forget to include home or renters insurance in this figure!)

  • 10%: Groceries

  • 5%: Utilities

  • 5%: Transportation

What I wish Financially Fearless did differently: I would have liked to see the book make it clearer that groceries aren’t just food. Most of us buy toilet paper, cleaning supplies, trash bags, paper towels, baby shampoo, and other household incidentals right along with ingredients for dinner. I’d recommend striving for about 7-8% of the budget going toward food, and leaving a little gap to cover those basic supplies.

Similarly, transportation isn’t just gas or Metro/subway fare. Oil changes and maintenance is a recurring cost. I like to aim for at least $50 per month to go toward regular tune-up costs, so I’m not blindsided every 3,000 miles.

Overall, though, I love that Financially Fearless took matters a step further than offering me 50% as a lump figure. Seeing my needs separated into concrete categories helps me check my actual spending against the ideal.

20%: Saving

Or really, saving plus paying off debt, plus funding your kids’ college account, plus insuring yourself against a crisis that could wreck your finances. The challenge of saving 20% is that it at once looks like such a big chunk of your income, and at the same time splits so small by the time you’ve listed all your goals.

First, keep in mind that not all savings goals share the same level of priority. A reasonable order could look like:

  1. Health insurance

  2. Emergency fund (The stories from struggling federal workers during the government shutdown are a reminder of why you need at least a few month’s worth of pay set aside. Almost half of Americans have less than 3 month’s income in savings--which side are you on?)

  3. Retirement

  4. Life insurance (Probably term life, since it’s cheaper and designed to help replace your career income)

  5. Disability insurance (About 25% of people will spend time disabled during their career! An injury or even a complicated pregnancy could become a short-term disability. Start by checking options with your employer.)

  6. Kids’ college savings (Why so low on the list? Scholarships, loans, and grants can help cover the difference, whereas there’s no such thing as a retirement scholarship to pay your bills after you stop working.)

  7. Goals like a down payment or vacation fund

Oof, right? It can feel like you’re never going to wade through the list of boring stuff to get to something like a blowout trip.

For one, remember the 30%, or lifestyle money, is still untouched! That’s your key to plan fun splurges without neglecting serious priorities.

Also, enrolling in an employer’s retirement plan can help you save even more (or make your true take-home budget go further).

By the time you get your paycheck, the 401(k) contribution is already subtracted from what hits your bank. If you’ve got even a few percentage points of employer match, that’s extra!

If you can, I’d suggest saving enough to get the full employer match and increasing over that until you’re saving at least 15% of your before-tax salary. Then, if possible, don’t count retirement savings as part of your 20%.

If you can aim to put 20% of the actual figure you see on your paycheck toward your future, you’ll have the most room to dream big and plan to afford the house walking distance from town center, with a wraparound porch and a kitchen big enough for 15 of your closest friends to help stir cookie dough or blend drinks (or whatever dream makes your heart sing).

30%: Lifestyle

The fun money! Spoiler: Some of this ends up in savings, too! It’s okay, though. Making a plan for fun splurges, and occasionally delaying gratification, is how we’re affording a guilt-free European vacation without falling behind on our 5-year plan to buy a house.

One of my favorite tips from Financially Fearless was to put a dollar amount on how much “happy” your go-to treats bring you.

Start with the price of the item. Rate it from 0-10 on how happy it really makes you. Then, estimate how many hours the splurge provides this feeling. Divide the price by that time (and anticipation, like the fun of picking out bucket-list sightseeing or activities for a trip, counts too), and you’re left with the price per hour of the fun.

So, if I plan a $5,000, 3-week vacation that registers a 9 or 10 for how much joy it brings me:

3 weeks = 21 days. Subtract 8 hours a day for sleep, and you get 16 x 21: 336

Plus at least 10 hours of giddy planning = 346

5,000/346 = $14.45 per hour for something that makes me wildly excited every time I imagine getting on the plane

Compare that to a dinner and drinks date with my husband, at a mid-price restaurant for our area, let’s say around $60 (with free babysitting from family).

Add 1.5 hours for the dinner date itself, and another hour of anticipation, and you get $24/hour for an outing that’s probably about a 7 on my happiness scale: definitely appreciated, but not jumping-up-and-down delighted.

Suddenly, it’s a lot easier to suggest more nights in so we can put our fun money power toward a major getaway!

Deciding on kids’ activities also works well in this system. My area has abundant opportunities to send my 3-year-old to tot swim, music, ballet, gymnastics, sports and camps of every kind, etc. I want her to have chances to try and enjoy new things, but we can’t say yes to everything. Choosing one or two activities she talks about all week, and finding free ideas the rest of the time, makes me happy that we’re getting the best emotional rewards for our fun spending.

Easy to read, with clear equations to plug in your numbers

What area of your budget are you working on the hardest right now?

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