Fellow White Folks and Personal Finance Nerds: We Need to Talk About the Racial Wealth Gap

I’m a firm believer that part of financial literacy also includes understanding the way that financial policies and economic systems affect individuals and society.

Because of this, we’re going to be talking about the racial wealth gap here in the U.S.

Now, to be clear, this is a topic that many books could be written about (and have been, here’s a good one to start with) and there are others who can talk about this much more eloquently than I can. But, while I have you here in my little corner of the internet, we’re going to do a quick overview that hopefully gets you thinking of some things in a new way, piques your interest enough to do some further self-education, and maybe even inspires some action.

So, what is the racial wealth gap?

The racial wealth gap between Black and white households is not a gap. It’s a staggering disparity.

Chart depicting the racial wealth divide using 1983 and 2016 comparison years. It is broken down by all, white, black, and latino. 

Total wealth all 1983: $84,111
Total wealth all 2016: $81,704

Total wealth white 1983: $110,160
Total wealth white 2016: $146,984

Total wealth Black 1983: $7,323
Total wealth Black 2016: $3,557

Total wealth Latino 1983: $4,289
Total wealth Latino 2016: $6,591

source: visual by Tableau, data by Institute for Policy Studies

In my last post, I made reference to the fact that if wealth accumulation remains at the same rate it has been among Black households, it is estimated that it will take 228 years for Black Americans to reach the same level of wealth white households enjoy today.

In 1863 (the year of the Emancipation Proclamation) Black communities owned less than 1% of total U.S. wealth. Now, it’s 157 years later and the Black community still owns less than 3% of the nation’s wealth, despite accounting for 13% of our population.

We often hear about the wage gap and how white men out-earn Black and Hispanic men (and women of all races). However, wealth is far more unequally distributed than income. While Black men earn 73 cents on the dollar, and Black women 65 cents on the dollar compared to white men, when it comes to wealth, Black households hold less than 7 cents on the dollar compared to white households.

See, wealth and income are separate from each other and don’t always correlate. Your income is what you earn while your wealth is your savings and assets minus your debts.

Net worth (wealth) = Savings + Assets – Debts

Someone could earn $30,000 per year but have incredible wealth from an inheritance. Another person could make over $100,000 yet have very little wealth because of negative financial decisions, having to take care of other family members, or high student loans.

(By the way, it’s a racist myth that Black families make worse spending decisions than their white counterparts. I’ll get to that below, but also wanted to clear that up right now).

Over the past century, the racial wealth gap has not only persisted; it’s grown. That’s precisely because “wealth is built primarily by the transfer of resources across generations, locking in the deep divides we observe across racial groups.”

Why does the racial wealth gap exist?

For centuries, white families have enjoyed the benefits of passing down wealth — and that wealth was often able to accumulate because of slave labor or massively underpaid labor off the backs of Black people, immigrants, and other people of color.

During those centuries, black folks were enslaved and then had their savings and property stolen while also being purposely excluded from wealth-generating programs backed by the government — the same programs that led to the rise of the white middle class.

Here are some quick excerpts from this article from the 1619 Project, which “aims to reframe the country’s history by placing the consequences of slavery and the contributions of Black Americans at the very center of our national narrative.”

  • “In 1865, following the legal ending of slavery, 40-acre plots across Florida, Georgia, and South Carolina were promised to Black families for settlement as compensation. A mere year later in 1866, President Andrew Johnson returned the land on which 40,000 black families had settled to white plantation owners.”
  • “In 1865 the Freedman’s Savings Bank was formed to help formerly enslaved people gain financial freedom. Over the next 9 years, 60,000 black people deposited over $1 million into the bank. This money was then used to issue speculative loans to white investors and corporations by its all-white trustees. Because of this, the bank failed and depositors lost their savings.”
  • “In 1921 a prosperous black neighborhood in Tulsa, Oklahoma was burned and looted. It is estimated that up to 300 black people were murdered and 10,000 were rendered homeless.”
  • “In the 1930s, FDR’s New Deal introduced Social Security and the minimum wage. However, the majority of black people at the time were agricultural laborers or domestic workers, occupations that were ineligible for those benefits.”
  • “The Federal Housing Administration and G.I. Bill, both of which were instrumental in helping millions of working-class white families enter the middle class, did not benefit Black families as they would only guarantee bank loans to developers who wouldn’t sell to black people.”

This is by no means an exhaustive list of examples. It’s actually only the smallest tip of the iceberg. There are countless other examples of unjustified theft of wealth from the Black community and blockades on wealth accumulation.

There is also, of course, the long-lasting economic effects of disproportionate mass incarceration.

There is the fact that black families are often denied access to credit at higher rates, face higher costs for borrowing, and are targeted by predatory lending practices, all of which made them especially vulnerable to the 2008 housing crisis and resulted in them disproportionately losing their homes to foreclosure.

Again, there are entire books written about this.

And yet many try to explain the racial wealth gap away with myths about individual behavior. If you are a white person who thinks this can be solved by simple financial literacy and better savings on the individual’s part, you should know that when income is controlled for, Black families have a slightly higher savings rate than their white counterparts. And, at comparable incomes, white folks spend 1.3 times more than Black families.

If you’re a white person who thinks a college degree is a great equalizer, you should know that among college-educated folks there is a $200,000 difference between the median net worth of a white college grad and median net worth of a Black college grad.

And, that Black college grad’s household still has a median net worth less than the median white household who didn’t even obtain a high school diploma.

Chart showing median household net worth by race and education. 

Net worth (white) by education — 
post college: $455,212 
College: $268,028
Some College: $135,415
High School: $118,580
Less than high school: $82,968

Black net worth by education: 

Post college: $141,115
College: $70,219
Some college: $18,200
High school: $6,660
Less than high school: $2,775

Data from "What We Get Wrong About Closing the Racial Wealth Gap" Duke University 2018
Data from What We Get Wrong About Closing the Racial Wealth Gap, Darity et al, 2018

So, why does the racial wealth gap exist? Well, like much of the inequities we see today, it exists because it was designed to exist.  

I’ve been thinking a lot lately about a quote I referenced in my undergraduate thesis from Robert O’Meally and Genevieve Fabre’s History and Memory in African-American Culture:

“As Nathan Huggins has stated, altering American history to account fully for the nation’s black voices would change the tone and meaning — the frame and substance — of the entire story. Rather than a sort of Pilgrim’s Progress tale of bold ascent and triumph, American history with the black parts told in full would be transmuted into an existential tragedy, closer, Huggins says, to Sartre’s No Exit than to the vision of life in Bunyan. “

And another quote that oral historian Michael Frisch recalls his Nigerian friend saying:

“Why bother with history when you’re rich and powerful? All it can do is tell you how you climbed to the top…For the rest of us, it’s a lot different. We don’t have the luxury of ignoring history. History is a giant stone that lies on top of us; for us, history is something we have to struggle to get out from under”

We cannot continue to explain away the present without acknowledging and redressing our nation’s past.

I’m all for empowering individuals to believe in their own efficacy and agency in taking control of their personal finances to make a difference in their day-to-day lives (that’s why I love writing and talking about personal finance), but when it comes to the racial wealth gap, the conversation needs to be so much bigger.

When we talk about investing and building wealth here on the blog, we often talk about how the time that you have is more important and has an outsized effect compared to the amount you have to initially invest.

And that’s the problem — time to build wealth has been stolen from the Black community in this country over and over again and continues to be so.

We can’t give back time, but we can make reparations and make change for the future.

What can you personally do?

Support Black-owned businesses, artists, authors, etc. with your dollars.

Donate, donate, donate.

Keep learning. And learning. And learning. And learning.

Here’s the full episode that is linked behind the first “learning” link.

Vote. Just as I encourage each of us to align our personal budgets with our priorities, our local and national budgets should align with our priorities as well. It’s important that we vote for candidates who want to invest in marginalized communities, look different than ourselves, and support and fight for much-needed, large-scale, dismantling-the-status-quo structural change.

Black Lives Matter. Donate to These Organizations Today

One of the best things about having enough, being in control of your finances, and not having to deal with financial stress on a regular basis, is being able to put this financial security to good use through supporting causes and communities you care about.

If you have room in your budget this month, I highly suggest donating to one or more of the following:

Prosperity Now: African American Financial Capability Initiative

Since this is a personal finance blog, I wanted to make sure to include at least one organization that is doing year-round work directly related to closing the racial wealth divide in the United States.

If wealth accumulation remains at the same rate it has been among black households, it is estimated that it will take 228 years for black Americans to reach the same level of wealth white households enjoy today.

Prosperity Now and its African American Financial Capability Initiative is doing work to combat this trend, with programs across the county, including the Twin Cities.

Here’s a video of St. Paul Mayor, Melvin Carter talking about the benefits of Prosperity Now’s data on influencing policy.


Black Emotional and Mental Health Collective

BEAM’s mission “is to remove the barriers that Black people experience getting access to or staying connected with emotional health care and healing. We do this through healing justice based organizing, education, training, grant making and advocacy.” 

Equal Justice Under Law

Equal Justice Under Law works to end wealth based discrimination in the justice system by fighting pre-trial money bail, wealth-based driver’s license suspensions, debtor’s prisons,  abusive private probation practices, and other areas of wealth-based inequality in our justice system.


National Bail Funds


Local Bail Funds in the United States

These are organized alphabetically by state. Not all states have operating bail funds and not all states (including Washington D.C.) have cash bail. We’ll update this list as we find more organizations that are running permanent or temporary bail funds.

Alabama

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawai’i

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maryland

Massachusetts

Michigan

Minnesota

  • Minnesota Freedom Fund (this organization has requested that you send donations elsewhere, due to the remarkable number of donations they’ve received)

Missouri

Nebraska

Nevada

New Hampshire

New York

North Carolina

Ohio

Oklahoma

Oregon

  • Portland Freedom Fund (note: their website is currently down and they have indicated that you can donate through their fiscal sponsor, the Northwest Aliance for Alternative Media and Education. More info here)
  • PDX Protest Bail Fund

Pennsylvania

Rhode Island

Tennessee

Texas

Utah

Virginia

Washington State

Wisconsin


Other Places to Donate

The Minnesota Freedom Fund has fortunately had donations pour in and are now recommending other various Minneapolis based organizations (some of which are listed below).

GoFundMe for George Floyd’s Family

This GoFundMe was set up by George Floyd’s younger sister, Bridgett Floyd, to offer some financial support to his daughter and family who were left behind. His brother, Philonise Floyd, is also managing a GoFundMe for the Floyd family.

GoFundMe for Tony McDade’s family

On May 27, 2020, Tony McDade (a Black trans man) was shot and killed by a member of the Tallahassee Police Department. Funds will go to Tony’s mother, Wanda.

GoFundMe for Ahmaud Arbery’s family

On February 23, 2020, Ahmaud Arbery was out for a jog when two men made the racist assumption that he was the suspect behind some break-ins. They chased him down in their vehicle and shot him, killing him. This GoFundMe will support his family after death.

Black Visions Collective

Straight from the Black Visions Collective website: “Since 2017, Black Visions Collective has been putting into practice the lessons learned from organizations before us in order to shape a political home for Black people across Minnesota. We aim to center our work in healing and transformative justice principles, intentionally develop our organization’s core “DNA” to ensure sustainability, and develop Minnesota’s emerging Black leadership to lead powerful campaigns. By building movements from the ground up with an integrated model, we are creating the conditions for long term success and transformation.”

North Star Health Collective

A mutual aid group and group of street medics providing resources and healthcare to those on the ground.

Throughout the year they provide trainings, continuing education, online resources, and events.

Reclaim the Block

Reclaim the Block is doing work to push Minneapolis to invest in community-led safety solutions and prevention work, rather than an increased police presence.

From the Reclaim the Block website: “We stand with our neighbors and community organizations who are doing work on the ground to provide safety and services for our neighbors, who are often being told that “there’s not enough money to go around.” Minneapolis has continued to increase its police budget each year, without putting even a fraction of those resources toward solutions that really work….As members of the Minneapolis community, we know that access to housing, youth services, harm reduction, and protections for low-wage workers help keep our communities more safe and more stable.”

Communities United Against Police Brutality

CUABP runs a 24-hour hotline in addition to their education and advocacy work. Their hotline allows you to report incidents of police brutality and connect with resources.

Know Your Rights Camp’s Legal Defense Initiative

From their website: “If you, or a loved one is in need of legal assistance, or has been arrested while fighting injustice across the nation, please complete the form below with as much detail as possible.” They will then connect with you to get you legal support. Their mission is to “advance the liberation and well-being of Black and Brown communities through education, self-empowerment, mass-mobilization and the creation of new systems that elevate the next generation of change leaders.”

Shop Black Owned Businesses

If you don’t have extra funds to donate this month, try to redirect some of the money you were planning to spend on needed purchases to black-owned businesses online or in your community.


And to myself and my fellow white readers, we must keep learning, keep giving, and keep grieving. The news cycle may decide that this is no longer breaking news, but that doesn’t mean our hearts should stop breaking too.

Keep this anger, keep this sadness, and keep this line in your budget.

Reader Question: Should You and Your Partner Join Your Finances?

In my last post we covered how you can start the money conversation with a partner. Here, we’ll be continuing along those same lines of money and relationships and answering another part of the reader’s question that came in.

To merge or not to merge; that is the question. Or is it?

When we talk about merging finances, it can seem like it’s a black-and-white or all-or-nothing type of question. In reality, the decision to merge finances (or not merge) with a partner can be as nuanced as you want.

You can start slow and merge things based on what makes sense for your relationship and the comfort level of all parties involved.  

When you get to a certain point in your relationship, it makes sense to begin asking each other how you feel about combining your finances. Even if you’re someone who doesn’t want to join finances until you’re married, it’s good to have conversations about when and how you would want to merge your finances once you start seriously building a life together.

These decisions are super personal, require a lot of trust, and should be founded on shared priorities and goals.

The logistics and efficiency of shared finances aren’t a good enough reason to merge. You should feel good and comfortable with the decision, not riddled with anxiety.

Like I mentioned before, combining your finances exists on a spectrum and you and your partner can tailor it to your needs, goals, and comfort at a given time and adapt as necessary.  

Levels of Financial Merging

Level 1: Merge the Basics

Many couples move in together before getting married (if they ever get married) and may share a lot of expenses. If this is the case it might make sense (and simplify things) to open a shared checking account that you each contribute a set amount of money to each month to cover your basic bills such as rent, utilities, and groceries.

This can make things a little easier and doesn’t require Venmo-ing each other back and forth throughout the month or needing someone to front money before a transfer clears. It can also be a great way to test the waters of merged finances and build up some of that trust.

Level 2: Merge on Goals

If you talked about shared priorities and goals you have as a couple during your initial money conversation, this can also be a great opportunity to test out some of the benefits of and how you feel about shared finances.

Determine a financial goal for yourselves as a couple based on your priorities — it could be a saving up for a great vacation (you know, when we can travel again), a down payment on a house, or anything else you can dream up.

Open a high-interest joint savings account and each commit to transferring a certain amount out of each paycheck to it. It could be $10 per month or $300 per month — the important thing is that you’re working together as a team towards making one of your dreams a reality.

It can be fun to watch how by joining forces you’re able to reach your goal more quickly. Plus, you can hold each other accountable for your savings goals.  

Level 3: Yours, Mine, and Ours

Many couples take the “yours, mine, and ours” approach to merging finances. This means they might have a joint checking and savings account, share some assets such as a home or car, but also keep their own personal checking and savings accounts.

Each month they’ll transfer most of their income to their joint accounts to cover bills and joint savings goals, but keep some in their personal accounts to cover any personal “fun money” and add to their personal savings.

This can be a great way for couples to still maintain some financial autonomy while also working together on financial goals and simplifying their joint expenses.

Level 4: The Full Merge

And then, of course, there’s The Full Merge. This is where you combine all of your finances, close all personal accounts, and add each other as authorized users to all credit cards. Plenty of couples do this, and it works well for many, but it’s not a choice to be entered into lightly (although, to be fair, none of these are).

If you’re in a healthy, long-term, committed relationship and you have a clear shared vision of the life you want and are actively working towards this together, then go for it.

But please, don’t think you have to go zero to full merge. There are plenty of other options that can help you test things out and build your comfort with sharing finances and shared financial responsibility. You may decide that you never want to fully merge your money, and that’s okay. Your decision is your own, so do what feels best for you and your relationship.


Cassie and I are currently in the “yours, mine, and ours” stage and will probably keep it this way for the foreseeable future. We’ve recently moved more and more into the “ours” category. This works for us now, but I can also see a future where we step closer to the Full Merge realm — between the two of us, we have a truly ridiculous number of accounts and could definitely benefit from some consolidating.

It’s important to figure out what works best for you as a couple, and you may disagree about this at first. One person may be super excited to financially commit in this way and the other may be a bit more hesitant, and that’s okay. Don’t take it personally.

Have a conversation with your partner and try to better understand where they’re coming from. The reason probably has nothing to do with you, and with the right communication, they may start to understand your point of view better as well. At the same time, if they aren’t comfortable, don’t pressure them. Maintaining financial independence is really important for many people and our personal money scripts heavily influence that.

There are plenty of reasons to merge your finances. Like I’ve said, it can greatly simplify things, help you and your partner feel on the same team as you tackle your financial goals, and help build and solidify trust. But the logistics and efficiency aren’t a good enough reason to do it.

You should feel good and comfortable with the decision, not riddled with anxiety.

If you decide to merge your finances in some way, make sure to have a conversation of what exactly that will mean and look like. Decide where you want to open your joint accounts, how much you’re each agreeing to contribute to the joint accounts each month, and what expenses will be paid from these accounts.

Then set aside a time to sit down together and make it happen, open your new accounts, close any old accounts you won’t be using anymore, and perhaps update beneficiary information on investment or retirement accounts and life insurance policies – whatever it is you’ve decided to do.

Of course, there’s also the difference between legally merging your finances and simply merging your finances in day-to-day practice. If you don’t want to legally merge your finances but are splitting expenses and bills and think it’s time to start budgeting together, my next article will offer some helpful advice for budgeting as a couple without leading to arguments or resentment.

Reader Question: How Do You Start Talking Finances with a Partner?

Sorting out our own spending habits, relationships with money, and monthly budgets can be tricky enough as it is. So it makes sense that when we add another person into the mix, things can get complicated pretty fast.

This past week a reader sent in the following question that touched on this:

I’d love to hear about merging finances and/or determining a budget with a partner! There’s all kinds of feelings associated with gender and independence and priorities that I’m grappling with right now and would love to hear your thoughts on navigating those conversations.

I loved getting this question in my inbox because having honest conversations about money is incredibly important to sustaining a healthy relationship — but it’s not something we always feel comfortable with or necessarily know where or how to begin (thanks, society).

But this isn’t just one question, it’s a few. There’s the “how do you merge finances?” question, the “how do you build a budget with a partner?” question, and the deeply layered gender, independence, and priorities question.

So, I’m going to break it down into smaller answers to get to the heart of these central questions. Each question will get its own post, so stay tuned for the follow-ups!

First up, we’re talking about how you can start money conversations with a partner.

Why Talking About Money Is Important

One of the primary sources of conflict in relationships (and a leading cause of divorce) is disagreements over money. Arguments over money can be especially damaging to relationships because as relationship expert Dr. John Gottman writes, “Arguments about money aren’t about money. They are about our dreams, our fears, and our inadequacies.”

When we don’t address money issues in our relationship for what they are, they can leave some pretty serious scars and build up resentment.

Arguments about money aren’t about money. They are about our dreams, our fears, and our inadequacies.

dr. john gottman

Conversations about money can turn into arguments, but they can also become fulfilling conversations that get you and your partner on the same page. It’s rewarding work that is crucial to sustaining the long-term health and happiness of your relationship, plus, it helps you better understand each other.

Even if you and your partner have been together for a long time and don’t disagree over financial issues because just one of you takes care of all of the financial stuff and your family is comfortable, you might want to think about starting up a regular time to check in on the finances together.

It’s important for all members of a relationship to be involved in the financial decisions of a household, to understand what’s happening in their financial lives, and to regularly check-in about financial goals and priorities. After all, money is a big part of building your future together.

Leaving one person in charge of it all also creates an imbalance in the relationship’s power dynamic, where one person’s financial decisions could have an outsized effect on all partners’ financial health (if, for example, a couple shares a credit card but Person A handles the bill, so Person B never knows that Person A has maxed the card out). That’s called financial infidelity, or basically, breaking the covenant of your relationship by lying about money in some way.

Then there’s financial abuse, which isn’t just mismanaging money. Financial abuse is a form of interpersonal abuse and some studies have shown that it happens in 99% of domestic violence cases. Financial abuse is when one person controls the entire budgeting and allocation of funds, including the other person’s paycheck (if they’re allowed to work at all). Financial abuse is one way that abusive people control their partners’ movements, decisions, and ability to leave the relationship.

Even if you’re uncomfortable talking about money, I recommend that you find ways to build your comfort with it. Being deeply familiar with your own financial situation (plus your partners’) helps you retain autonomy in your relationship and can help you and your partners build intentional futures together.

Plus, money conversations with a partner can actually be really fun and exciting. I know, I can feel you rolling your eyes at me on the other side of this screen. But I promise, it’s possible.

For one, you get to learn more about your partner. But most importantly, you get to think about and share your dreams and goals, and actually make a plan to work together to make them happen.

When (and How) to Start the Conversation

I can promise you this: The next time you and your partner are in the middle of a disagreement over money or spending is decidedly not the time to try and have a larger conversation about money and your relationship.

Money is personal and emotional. If you or your partner want to have a conversation about money — whether it’s about wanting to cut back some on spending, creating a budget, splitting expenses, merging your finances, or anything else – you want to give them a heads up.

If it comes up suddenly and your partner isn’t prepared for that kind of a conversation, they can be thrown off and might be a little defensive.

Plus, if you’re at the point where you want to have this kind of conversation, you’ve probably been thinking about it for a little while and have had time to think about things and what you want to say and get out of the conversation. It’s only fair to give your partner a little thinking time, too.

When making plans to have a conversation about money, frame it constructively rather than as an intervention. You do not want to say, “Hey I think we should sit down and talk about your spending” or “I want to make our budget.” Nope. Not going to get you far, buddy.

If money arguments aren’t about money, then your money conversation isn’t going to be about money, either.

It’s going to be about your priorities, your dreams, your goals, and the life that you want to build together. Frame your request for a conversation in those terms and I bet your partner will be a lot more excited and engaged.

Once you’ve given your partner a heads-up, set aside a day and time to start the conversation (and stick to it). When the time comes, give it your full attention. Put your phones away, go in with an open mind rather than an agenda, and really prepare yourself to listen to each other.

I suggest picking a time when you won’t already be tired and potentially grumpy (so avoid just after work or late at night). You could stay home, go for a walk, or go out. I will say that these first few conversations can result in a few tears (because again, money is personal) so I suggest planning to be somewhere somewhat private and where you feel comfortable.

Money Questions to Ask Your Partner

Okay, so the time has come and the conversation is here. What do you say? How do you start?

I suggest starting with a question, not a monologue (just some friendly advice that certainly doesn’t come from any personal experience whatsoever, nope, definitely not) and a question that you’ll be answering as well. Remember this is a conversation, not an interrogation.

I also think it can be helpful to start the conversation with questions that on their surface don’t seem to be about money, but will really be the backbone and the why for all of your future money talks. Questions like:

  • What are the things you value the most in life? How come?
  • What are priorities for you in your life? Why?
  • What do you want your life to look like in 5, 10, 15 years? Why?
  • What does a perfect day look like to you? What about it feels perfect?
  • What do you wish there was more of in your life? What are your top sources of joy?
  • What do you wish there was less of in your life? What are your top sources of stress?

Because money represents so many different things and we all have our own money scripts from past experiences and upbringing, it’s important to learn about your partner’s money script. And it’s especially important to learn about it from them, and not from psychoanalyzing their spending habits.

Here are some questions to get the conversation started about both of your relationships with money:

  • What was your family’s financial situation when you were growing up? How did it affect you?
  • Did your family talk about money when you were growing up? If so in what way? If not, why?
  • Where did you learn about money growing up?
  • How confident do you feel about your ability to manage your money?
  • How would you describe your relationship with money?
  • What does money mean to you? What does it represent?
  • How do you think your gender has influenced your relationship with money?
  • How was money dealt with in your past relationships?
  • Are you more inclined to spend or save money? Why?
  • What were you most nervous about for this conversation?
  • Why do you think it’s important to have these kinds of conversations?

Once you each have opened up about your priorities, hopes, financial upbringing, and relationships with money, you’ll want to eventually start talking about actual numbers.

If you’re in a serious relationship with another person and you’re building a future together, it’s important to be open with them about your current financial realties:

  • Do you have any debt? If so, what kind and how much?
  • Do you have any assets? If so what kind and how much are they worth?
  • Do you financially support any family members?
  • What’s your monthly income?
  • Do you currently have savings?
  • Are you actively saving for retirement?
  • What’s your credit score?

The pacing of these conversations will be different for different relationships. You might dedicate a separate date for each set of questions or you might fly through them all in one sitting. Either way, I encourage you to take your time.

These question lists are by no means exhaustive or prescriptive and are just meant to get you started, so add your own and ask follow-up questions to better understand where your partner is coming from.

The truth is that this is an ongoing conversation that requires building trust and a willingness to be vulnerable, both with yourself and your partner. Heck, even my wife and I still don’t always move through these conversations with the most grace. The important thing is to start somewhere and keep at it. It gets easier, and I promise you’ll thank yourself for it in the long run.

In the next articles in this series I’ll talk about how you can use this foundational conversation as a starting point to have conversations more specific to your scenario, and work as a team to start putting in place a financial plan and practices to help you reach your financial goals and build the life you want.

PS: I have a whole list of post ideas waiting to be written, but if there’s a topic or question you have that you’d like to read about or is timely feel free to submit your suggestions here.

Back on the Budget

Whew, it’s been a while and a lot has changed. Both, you know, in the world and personally.

I took a break from writing these past two months for two reasons. First off, we closed on a duplex on April 1st and have been fixing it up in the evenings and on weekends, leaving little time or energy for much else. 

I’m excited to say that we finished the updates and got mostly moved in last weekend! I’m sad to say that on the eve of moving in, a pipe burst in our wall and I’m now waiting for a plumber to arrive to cut into my freshly painted wall to make a repair that will cost a not-insignificant amount of money.

We’ve been thoroughly welcomed to homeownership over these past two months.

While we’ve had a lot of expenses (expected and not) related to the house, we are still incredibly excited for this next step and have been continuously grateful that we’ve been financially secure enough to handle them with minimal stress during an already stressful time.

Despite Cassie losing $4,000 in expected income in April (when our expenses were three to four times that of a typical month), we were able cover things with relatively little stress because of our past work on our financial lives. The past couple of months have really demonstrated why I love personal finance and financial literacy so much.

The second reason for the pause was that it just felt really weird to be writing about money when so many people were facing financial uncertainty and loss of income.

I’ve realized though, that this is exactly the time to have these conversations. When you’re dealing with lost income, practicing frugality and having a budget becomes doubly important.

When you still have income, but it feels more uncertain than before, that’s a good time to practice those saving skills to prepare for the unknown future.

When the world all feels a little upside down, it can be really helpful to get more clarity on what you value.

And when you’re safer staying in than going out, it’s a perfect time to improve those at-home cooking skills.

We’ve already covered in other posts that our relationships to money and how we spend it have more to do with our emotions and sense of security and coping than with actual money. So, when we’re all feeling a little less secure and our emotions are a little more heightened, we have to be having these conversations. We have to make sure we’re practicing healthy and intentional coping and that we’re building actual security and financial resiliency in our own lives (and society) rather than a false sense of it.

Because of this (and the fact that my nights and weekends won’t be taken up with installing flooring and painting walls) I’m committing to getting back on my writing schedule of twice a week to help start and continue these conversations. And, frankly, to also help me personally feel a little more in control.

I have a whole list of post ideas waiting to be written, but if there’s a topic or question you have that you’d like to read about or is timely feel free to submit your suggestions here.

I’m excited to get back into the swing of things and keep the conversation going. As always, but especially right now I hope that you and your loved ones are taking care of each other and those around you as well as finding moments of joy in the little things.

P.S. The plumber just left (the repair cost about $300, plus we’ll have to repair the drywall ourselves) and this is what my bathroom now looks like:

72 Things You Can Do While Self-Quarantining (That Aren’t Shopping Online to Try to Stave Off Existential Dread)

So, you could say a lot has changed in the past week.

With the constant news, empty shelves, plummeting stock market, and disruption to normalcy in almost every way imaginable it makes sense to feel a little bit out of control. It makes sense to feel a little scared. Or overwhelmed. Or uncertain. Or anxious.

You may be worried about your health. Or your family’s health. Your job and your finances. You might even be feeling some deep existential dread. You might feel angry. Or maybe you just feel restless and bored and stuck in your house.

Anything you’re feeling right now makes sense.

When many of us feel any of those aforementioned feelings, our automatic reaction is often to buy things. To spend money. We spend money to try and soothe the negative feelings with the promise of whatever positive feeling we think the thing we’re buying will give us. We spend money because we’re trying to feel more in control. It’s something we can do, and we can do it now, goddammit.

We tell ourselves the thing we’re buying will help.

But will it?

Odds are, that thing you order online isn’t going to help alleviate those negative feelings (at least long-term) and it won’t actually give you more control of your situation. In fact, it may take away some of your future control as many of us enter an uncertain financial future.

As you make spending decisions over the next few weeks, refer back to the 4 questions I ask myself before I buy things, and when you do decide to buy things, I hope it’s local.

Some things that might actually help you feel more in control (and that also serve you) include creating and sticking to a morning routine, keeping your living space clean and organized, taking some deep breaths and practicing gratitude.

So, here is a list of 72 things you can do over the next couple of weeks while you self-quarantine that aren’t shopping online for that thing you definitely (probably) don’t need.

They range from the mundane and obvious to the ridiculous. Enjoy!

72 Things to Do While You’re in Your COVID-19 Quarantine Pod

  1. Read or listen to a book
    While libraries across the country are closing many have online collections of ebooks and audiobooks.
  2. Watch a long movie you usually wouldn’t have the time (or patience) to watch
  3. Marathon-watch a TV series you keep hearing about, but haven’t had the chance to watch yet.
  4. Listen to a podcast.
  5. Clean your house. Who knew your ceiling fans had that much dust on them?
  6. Do your laundry.
    One perk of working from home is that you can throw on a load or two during the day when you need a short break. We have finally (almost) conquered laundry mountain this week. Almost.
  7. Cook delicious food.
  8. Bake something.
    Go ahead, pretend Paul Hollywood is taste-testing. We won’t judge.
  9. Practice an instrument or have a (virtual) jam session
  10. Practice a language.
    Anyone else getting Duolingo notifications? The Duolingo Owl is going to get very upset if you don’t open that app like, right now.
  11. Play that board game no one ever wants to play because it takes too long.
  12. Do an online exercise or yoga class.
  13. Color-code your closet.
  14. Alphabetize your book shelf, or organize it by genre.
  15. Start that hobby you bought all the stuff for but never actually started doing
    *shifts eyes towards that box full of fabric squares and embroidery string*
  16. Research something you’ve always wondered about.
    Time to research what happened to the missing Slowsky commercial for the 17th time. Ask me about it sometime. Or on second thought, don’t.
  17. Call or Facetime friends and family.
  18. Write letters or postcards.
    Your penmanship is about to be fabulous.
  19. Scavenger hunt in your own house.
    Make one for your kids or challenge a partner to see who can find something for each letter of the alphabet first.
  20. Make a quarantine playlist, or one for each of your friends and for a variety of situations.
  21. Organize photos (printed or digital)
  22. Organize your garage or pantry (or both).
  23. Have a cooking competition with whatever is in your pantry.
  24. Learn a new skill
    This is a great time to start juggling or take an online web development course. It doesn’t need to be a permanent commitment, just a way to pass the time and maybe learn a new thing.
  25. Make a bucket list
    Or a 30-before-30 or 50-before-50 list.
  26. Sit in your yard and enjoy a cup of coffee.
  27. Record an oral history interview with a family member.
    Seriously though, this is a great thing to do.
  28. Play Would You Rather?
  29. Write anything (journal, short story, article, thinkpiece, poem, etc)
  30. Organize your computer files.
    Why are Macs so hard to organize? Why?
  31. Do a crossword puzzle.
  32. Do a Sudoku puzzle.
  33. Have a spa day.
  34. Teach your dog some new tricks.
  35. Get creative! Draw, paint, craft, etc.
  36. Take turns asking your partners or quarantine buddies questions.
  37. Make minor repairs around the house
  38. Have a talent show with anyone else you’re quarantined with or over video call.
  39. Wash/clean out your car.
    Where did all of these french fries come from?
  40. Update your budget!
  41. Do your taxes.
  42. Meditate.
    Calm and other apps have put together some meditation starter guides to help alleviate COVID-19 stress.
  43. Scream-sing your favorite throwback songs.
    Haven’t you people ever heard of closing the goddamn door? No!
  44. Write a haiku about being quarantined.
  45. Take a long bath.
  46. Virtually check out the orchestra.
  47. Read articles about what to do when self-quarantining.
    Yes, you’re doing this right now. Great job!
  48. Call your grandparents.
  49. Explore a museum virtually
  50. Take a class.
  51. Take a walk around your neighborhood (just stay 6 feet away from others).
  52. Do a puzzle.
    Charles Wysocki 1000-piece puzzles are my personal fave.
  53. Tidy up with Marie Kondo.
    Does it bring you joy? No? Buh-bye. (And thanks).
  54. Watch every Tom Hanks movie ever made.
  55. Build a living room fort for the aforementioned movie marathon.
  56. Practice something you always wished you were better at.
    Perhaps folding a fitted sheet, shuffling cards, or typing really fast.
  57. Take a nap or go to bed early.
  58. Make a list of the things you’re grateful for.
  59. Play poker.
    Maybe you’ll finally master your poker face.
  60. Dance!
  61. Make a pet rock for company
    You can name them and talk to them when you start to feel a little stir-crazy.
  62. Have a photoshoot with your pet (rock, or otherwise).
  63. Unfollow all of the social media accounts that aren’t bringing you joy.
  64. Try on all of the clothes you have and put together a few new outfits.
  65. Research a sport that you’ve never fully understood.
  66. Learn how to up-cycle some of your old stuff.
  67. Look-up organizations you may want to donate to.
  68. Do a taste test of the coffees and teas you have in your house.
  69. Send some wholesome content to 5 people who may need it.
  70. Make a PowerPoint to teach someone about something you are super interested in.
  71. Floss after every meal.
  72. Remember that everything will be okay.

Now, take a deep breath and leave a comment letting me know how you’re passing the time and staying connected.

9 Simple Ways to Lower Your Grocery Bill That Don’t Involve Clipping Coupons

With grocery store shelves being emptied daily as people prepare for possible quarantining with the spread of the COVID-19 coronavirus, I thought it might be a good time to share my favorite tips for saving money on my weekly grocery shop.

Here are 9 simple ways to lower your grocery bill that don’t involve cutting coupons.

1. Plan ahead and make a list

This is probably the quickest way to see a significant cut to your grocery (and dining out) bills. When you plan your meals for the upcoming week, you’re able to make a grocery list with the exact items you’ll need to buy when you make your shopping trip. Planning ahead helps save you money in a few different ways.

For one, you can pick recipes that have a “theme” or use overlapping ingredients. This limits the number of items you need to buy for the week and will help you limit your food waste.

By having a set grocery list ahead of time, you’re also able to check your fridge and pantry before you leave for the store so you don’t end up buying things that you already had sitting there waiting to be used (ask me about the time I bought our fourth consecutive container of sour cream, even though we still had the other 3).

And perhaps most important, if you go into the store armed with a list, you’ll know exactly what you need for the week and will be less likely to impulse buy random things that made a lot more sense when you were putting them in your cart than when you get home.

2. Buy generic

Sure, there are few things that I insist on buying a brand name for. But there are plenty of items that I buy I’m happy to buy generic — and honestly, I can’t tell the difference.

I’ll buy store brand for most dry and canned goods (like pasta, beans, and rice), but also for frozen vegetables and even ice cream. The price difference between the brand name and the generic option ranges from a few cents to a couple dollars, but those small price differences can really add up over a month’s worth of groceries.

3. Eat less meat

Meat tends to be a more expensive way to get protein into your diet, but there are plenty of inexpensive (and more environmentally friendly) options out there.

If you typically eat meat every day, try to find a few vegetarian meals to rotate throughout the week. Here are some of our favorites:

If you feel strongly about having meat as a daily part of your diet, see if you can start using it in smaller quantities, so it’s a part of your meal but not the star of your meal. Your wallet will thank you.

4. Stock up on staples when they go on sale

If you know you eat a lot of something, whether it’s pasta, peanut butter, oatmeal, or a certain type of meat, know what the typical price is so that you can recognize if it goes on super sale and can stock up. You can do this with anything that is shelf-stable or can be easily frozen.

Obviously, the amount of storage or freezer space you have will affect this, but you’ll probably always be able to grab an extra one or two of something that you know you’ll use when you see a good deal. As concerns about COVID-19 began to increase, we were grateful that our freezer was pretty well-stocked with proteins that we use often. Plus, we have enough dried beans to last a lifetime (or at least a month).

5. Make your own snacks

Snack foods are what will really dig into your budget when it comes to grocery shopping.

If you know you have a sweet tooth, plan to do a weekly bake so you always have something to snack on. The cost of the ingredients you’ll need to bake things from scratch is often a lot less than what you would spend buying a pack of them ready-made at the store. Here are some of Cassie’s favorites that are also freezable:

Plus, keep an eye out for great deals on produce. If, for example, apples or strawberries go on sale, stock up. You can use your surplus to bake something (hello, apple pie) or keep them on-hand for a midday snack. Sticking to fresh fruits and vegetables as a go-to midday snack helps out your wallet, but it’s good for your body, too.

Image result for organic raspberry confidence

6. Drink less alcohol

Nothing can ramp up that grocery bill quite like some craft beer or a nice bottle of wine. While I am a fan of an after-work beer or a glass of wine with dinner, I’ve tried to drink more sparingly throughout the week to help lower my grocery bill.

About a year ago, we switched to the Three Wishes brand of wine at Whole Foods (it’s their store brand). It costs $2.99 per bottle, so if we end up not finishing it before it turns sour, we don’t feel bad. When beer goes on sale at Publix, we might buy a 6-pack that hasn’t been refrigerated yet.

While buying these things at a grocery store will definitely save you money compared to buying them out at the bar or restaurant, cutting back in general is another great way to see pretty immediate savings on your grocery tab. Try limiting your alcohol consumption to just one or two days per week, and even then, just one or two drinks per night.

7. Grow your own herbs

For the past few years, we almost always have basil, rosemary, parsley, mint, green onions, sage, and thyme growing on our patio. We haven’t been able to keep any cilantro plant alive, unfortunately (especially considering we use it pretty much weekly).

Our parsley plant is pretty happy right now.

This definitely saves us money since we don’t have to buy most of our herbs at the grocery store. There’s an initial startup cost to planting an herb garden, but if you cook with fresh herbs often like we do, you’ll earn that back pretty quickly.

8. Use a cash back grocery app like Ibotta

I started using Ibotta a little over a year ago, and Cassie and I have earned nearly $200 in cashback since then — and we don’t even remember to use it all of the time. It’s a simple app that offers you cash back for uploading your receipts. You add things you’ve bought and redeem cashback for the items.

Some need to be a specific brand and some can be any brand of a particular item in order to redeem. Once you’ve hit $20 in earnings you can transfer that money to your Venmo or another account. If you use it regularly, it won’t take that long to hit the $20.

I don’t let it inform my grocery list, and instead just shop for what I was planning to get anyways and then see what I can redeem. It’s super simple, doesn’t take long, and there’s always at least one thing I can get cashback for. For example, this week, we got $1 just for submitting a receipt. They also always have between $2 and $6 dollars back for various six-packs, bottles of wine, and bottles of liquor.

9. Download your grocery store’s app

Speaking of apps, download your grocery stores app and you can often automatically take advantage of deals and coupons they have just by scanning a code at checkout. Okay, so this one is sort of clipping coupons. But they’re digital, so at least you won’t lose them! This is the 21st century y’all.

A screenshot of our grocery app

If you don’t have a phone that can download apps, that’s okay — you can do this exact same thing from a computer. Just make an online account with your grocery store, connect it to your grocery rewards account, and then add the coupons that are relevant to you. Spend five minutes doing this each week, because sometimes, the coupons are ridiculous. Then, at check-out, just give your phone number or email address and the cashier should be able to load your digital coupons onto your total.

Perhaps you already do a couple of these, but maybe there’s something new here for you to try on this week’s trip to the store. If you have a tip that I missed, share it in the comments!

PS — The Ibotta link is a referral link. I wouldn’t recommend Ibotta if I weren’t enthusiastic about it, and I think you will be, too!

February 2020 Meal Plan — Month in Review

This month I spent $189.64 on groceries and $83.33 on dining out. We did spend a few days out of town, and all of my food costs for those days were categorized under travel, plus we used some gift cards on a few nights out. Overall we did good cooking most meals at home, but I wouldn’t call this month a win for the budget on food spending. But it was a win for my stomach.

We tried eating less meat this month and were pretty successful until the last week. We also tried out a few new recipes, used up some pantry staples, and bought a good amount of on sale meat to freeze and use later.

Dashes represent meals that we skipped (not a great practice, but sometimes the day just gets away). Meals that say “work” are free meals included in some kind of work event.

Week 1:

LunchDinner
Sunday 2/02PizzaPasta and salad
Monday 2/3PastaSalad
Tuesday 2/4Scallion herb chickpea salad and naan
Wednesday 2/5Scallion herb chickpea salad and naanRoasted veggie bowl
Thursday 2/6Roasted veggie bowlDinner out with a gift card
Friday 2/7Roasted veggie bowlTacos
Saturday 2/8BagelsNachos

I made my own naan! We stuck with pretty simple easy stuff for the first week and tried to lean a little more veggie heavy. However, we used beef for the tacos and nachos. Y’all, the nachos were so good.

Week 2:

LunchDinner
Sunday 2/9Brunch OutNachos
Monday 2/10Salad
Tuesday 2/11Orzo saladCreamy White Bean & Spinach Quesadilla
Wednesday 2/12Orzo saladCreamy White Bean & Spinach Quesadillla / Orzo Salad
Thursday 2/13Out of townOut of town
Friday 2/14Out of townOut of town
Saturday 2/15Out of townOut of town

We we’re out of town the second half of week two and I always categorize all of my out of town food spending under travel. Easy stuff using some pantry staples before we left town. The orzo salad is a regular in our house that we typically make at least once a month. This was the first time we made these quesadillas though, and they were super easy and tasty, definitely will be making again.

Week 3:

LunchDinner
Sunday 2/16Out of townSalad
Monday 2/17Work LunchChicken Pot Pie (frozen from Whole Foods)
Tuesday 2/18Chicken Pot PieSalad
Wednesday 2/19Work LunchSalad
Thursday 2/20SaladDinner out
Friday 2/21Random stuff I packed (yogurt, fruit, cheese, etc.)Pineapple Shrimp Fried Rice
Saturday 2/22Pineapple Shrimp Fried RicePineapple Shrimp Fried Rice

We got home Sunday night and ran to the store to grab some salad supplies and a frozen pot pie to get us through the first couple days back in town. We also had some shrimp in the freezer and added it to what we were originally going to have be a vegetarian fried rice. This made super great and easy left overs — a priority when I’m planning meals.

Week 4:

LunchDinner
Sunday 2/23Lasagna
Monday 2/23LasagnaLasagna
Tuesday 2/24LasagnaLasagna
Wednesday 2/25LasagnaChinese Take Out (gift card)
Thursday 2/26Leftover ChineseLasagna
Friday 2/27Leftover ChineseWork Dinner
Saturday 2/28Chicken Noodle SoupDinner out with Friends (gift card)
Sunday 2/29LeftoversConference Dinner

We limped into the last week of the month and Cassie made a giant lasagna with quality ingredients. I ate it for days. So much lasagna. The rest of the days we used gift cards to eat out. Time to plan for March!

February 2020 Review: Spending & Savings Report

It’s that time of the month! Time for a review of my past months earnings and spending. When I invite you all to explore the nitty gritty of my finances down to the penny. While it can feel a little weird sharing so many details here on the world wide web, I think it’s important to help start normalizing conversations around money and why we spend on what we do. Each section of this post breaks down my income, my expenses, and then my total savings. Let’s start with income:

February 2020 Income

Pretty normal month. Two paychecks, dog walking check was in the standard range, did a small amount of freelance work.

Here’s the full breakdown:

Income Source$$$Notes
Full-Time Income (Salary)$2,332.91
Deferred Retirement Savings & Match$657.20
Dog Walking$585
Other$195.67Freelance work, selling stuff online, savings interest, cash back rewards, etc.

Total February 2020 Income: $3,770.78


February 2020 Spending

February was a pretty typical spending month for me, spent a little less than last month, but it was also two days shorter, so that tracks. As always some categories are a little higher than usual and some a little lower and it all evens out.

It’s still been great weather, so our electric bill has been nice and low since we can just keep the windows open. I’m still throwing extra money at my car loan, and hopefully will be finished paying it off this month!

We spent a few days in Pennsylvania this month partly on a work trip for Cassie and partly to visit some family. When I travel I categorize all of my dining and transportation costs into the travel category, so this also helped the food categories stay a little lower this month. Gift cards also helped, as we went out a couple times using gift cards that had been lying around. (Stay tuned for the meal plan update, complete with recipes, later this week).

I bought a new lens for my camera and applied to grad school.

Overall it was a pretty good month. I spent a lot of time outside, visited family in Pennsylvania, finished a few books, went to a play, and had a really great month at work.

The chart below shows how my spending broke down. Everything with an asterisk* means that Cassie and I each pay that amount (so our total rent is $1,410 per month, but we each pay $705).

Category$$$Notes
Rent*$705
Water/Waste*$50.96Our city is in the middle of overhauling the water infrastructure, so we have extra high fees/taxes along with usage costs.
WiFi*$32.49
Electric*$27.73
Renters Insurance*$9.71
Car Payment$634.64My car payment each month is only $184.64, but I’ve been paying an extra $450 each month towards the principle for the past few months so that I can just be done with it. One more months to go!
Auto Insurance$67.23Raised my deductible by a few hundred dollars, so my monthly rate dropped $10.
Gas$25.46
Groceries*$189.64Almost on target this month. Meal plan review coming up next!
Dining Out & Entertaining$83.33This would have been higher this month, but we were able to use some gift cards that had been lying around for a few meals out. Still working on this category!
Fun Money & Bars$14.31
Subscriptions & Memberships*$17.05Netflix, Spotify, etc.
Stuff for the House*$32.10Had to buy a new air mattress
Travel$331.08Spent a few days in Pennsylvania, and pre-paid for our Airbnb for a trip to Tennessee we’re taking in May
Insurance (Health, Dental, Life, Disability Insurance)$96.60
Work Expenses$48.83Dry cleaning and bought something for my office
Gifts/Giving$32.25
Misc. $210.20I bought a new lens for my camera and applied to grad school!

Total Spending: $2,326.33


February 2020 Savings & Investments

I earned $3,770.78 this month, spent $2,326.33 on expenses, which means I saved $1,444.45. Despite savings almost $1,500, my net worth only increased about $800 because the stock market dropped around 10% right at the end of the month. But remember, when you’re investing for the long haul, those dips don’t mean too much in the long term.

Total Saved: $1,444.45

Savings Rate: 38%

Current Net Worth: $23,445.74

I’m pretty happy with how things went this month, and am excited to see where my spending levels out once I’m done paying off my car next month.

A Beginner’s Guide to Investing (and Busting the Myths That Are Stopping You)

For many people the thought of investing can seem overwhelming, confusing, and scary — especially if you grew up in the midst of the 2008 financial crisis.

And, investing can seem out of reach. You may think you need a lot of money to get started or that you need to hire a financial advisor to manage your investments for you. You may think investing is like gambling.

However, all of these are myths. Let’s break down all of the ways they’re wrong.

Myth #1: Investing is confusing and you need a financial advisor to help you.

Let’s start with the idea that investing is confusing. There are a lot of terms when it comes to investing, and you may not know exactly (or at all) what they mean — expense ratios, dividends, ETFs, mutual funds, stocks, bonds, capital gains, etc.

While it doesn’t take long to start to understand what each of these terms mean (we’ll get to a few of them in this article), you don’t need to understand all of the details to get started.

In fact, a successful investment strategy boils down to two very simple rules.

1. Buy low-cost passive index funds regularly.

2. Hold onto them for a long long time.

This is the conclusion that John Bogle, the founder of Vanguard, came to in his book The Little Book of Common Sense Investing, and it’s also the advice Warren Buffet recommends, as well as most folks in the FIRE community.

Low-cost passive index funds are low-cost because they are passively managed. They are passively managed because they are a mutual fund that simply mirrors one of the major market indices, such as the S&P 500 or the Dow Jones Industrial Average.

A mutual fund is a collection of many stocks, bonds, and possibly other securities, that you are able to purchase all together. When you buy index funds, you are essentially buying a small piece of the market, reflecting hundreds — sometimes thousands — of companies. This allows you to automatically have a diversified portfolio and eliminates you having to pick “winning” individual stocks and trying to time the market (that’s when investing becomes more like gambling).

The point is to buy and hold, and watch the magic of compound interest.

The “low-cost” in low-cost index funds does not refer to the amount you are purchasing the fund for, instead it refers to the amount you will be charged to manage the fund. This is referred to as an expense ratio.

While actively managed funds often have 1-2% expense ratios, a low-cost index fund’s expense ratio should be less than 0.2%, and are often lower than 0.05%.

If you are paying a financial advisor to handle your investments, you’re probably paying them an additional 1-2% of the value of your assets to do something that you can totally do yourself.

While 1-2% may not sound like a lot, that amount will eat into your growth, and over the lifetime of your investments can easily cost you hundreds of thousands of dollars.

Plus, you’ll often be paying for worse results. There are almost no actively managed funds that outperform the market in the long term (especially after accounting for growth lost to these fees!). Sure, they might have a good couple of years here and there, but averaged out over 10 years, very few fund managers can match, let alone outgrow, the S&P 500.

Myth #2: Investing is like gambling

When people think the stock market is like gambling, they are thinking of investing only as buying and selling individual stocks. It is difficult and time consuming to pick “winning” stocks and to time the market correctly — and nearly impossible to do so consistently. You will average far better results by sticking to low-cost index funds.

This is because when you purchase index funds, you are purchasing a large and diversified piece of the market, with small pieces of hundreds of companies. So yes, some of those companies might not do so hot, and some might even go bankrupt from time to time. But some of those companies will see massive growth, and most will see steady growth. You don’t have to worry about predicting which companies will do what because you have a piece of them all.

“Don’t look for the needle in the haystack. Just buy the haystack!”

John Bogle in The Little Book of Common Sense Investing

On the whole, the market goes up. Sure, the market is volatile, and day to day, month to month there can be massive dips and peaks. However, if you broaden the time horizon that you’re looking at, the market consistently sees upward growth. This growth tends to average out between 7-8% per year. Some years may be double that and some years may be in the negatives, but over time, you are almost guaranteed growth.

The secret is that you have to hold onto your investments and you have to be able to tolerate the short-term risks. Even if the stock market dropped 15% tomorrow, none of that loss would be real unless you actually sell your funds.

If you just keep your investments as-is and go about your life, market dips don’t mean anything to you (except perhaps a sale). If you continue your regular investment contributions when the market dips and most people are selling their funds at a loss out of fear, you’re able to buy those funds at a discounted price and enjoy the bonus of all of the future growth when the market rebounds.

This is why it is important to make sure you have an emergency fund saved before you start directing larger amounts to investment accounts. You don’t want to have to pull from your investments during a dip in the market, forcing you to lock in and realize losses.

However, you also want to be careful about how much you keep saved in a savings account out of fear. While some people are afraid of losing money in the stock market, over the long-term it is a small risk. The short-term volatility is not an accurate reflection of the risk level when you are using a buy and hold strategy and avoiding unnecessary fees.

In contrast, you are almost guaranteed to lose money when you have too much parked in a savings account. That’s because of inflation. If inflation averages 3% per year, then each year your dollars are losing 3% of their purchasing power. This is why it is so important to put your dollars to work for you through investing.

Myth #3: You need a lot of money to start investing.

If you have a retirement account through your employer, great! You can start investing today. When you enroll in your employer’s retirement program you’ll have to select which funds you want your contributions to invest in. They usually have a set of options to choose from. Look at what index funds they have as options and pay attention to what the expense ratios are. Choose a low-cost index fund.

The Vanguard Total Stock Market Index is a favorite among index fund investors, but there are plenty of other options if that isn’t included in your employer’s fund choices.

If you don’t have an employer account but want to start investing on your own, or if you want to open an IRA or taxable account you can do so with Vanguard, Fidelity, or Betterment. There are plenty of others out there but those are the three that I would recommend first.

You can open an account with Vanguard for nothing, but their mutual fund options have a minimum $1,000 balance requirement. Once you’ve met this threshold though, you’ll have access to some of the lowest expense ratios out there. A $3,000 account balance with Vanguard will automatically bump you up to admiral shares with even lower expense ratios.

Fidelity also has similar minimums to Vanguard, however, if you set up automatic monthly transfers the minimums are waived and you can begin investing in low-cost index funds with less than $1,000.

For someone just getting started, Betterment is a great option. It works off a flat 0.25% annual fee, and for this you will get a very user-friendly website, no required minimum account balance, and your investments will be split among various Vanguard funds depending on your chosen asset allocation.

Side bar: The Vanguard funds that Betterment invests in are actually ETF funds, not mutual funds. They are very similar with some differences, but I don’t want to confuse you today.

They still have low expense ratios, but often have lower minimum investments than index funds. So, if you opened a Roth IRA in Vanguard but didn’t have the $1,000 minimum to purchase their mutual funds, you could look at their ETFs as a similar alternative.

You can rebalance easily and whenever you want with Betterment, and there are no additional trading and transfer fees.  

If you made it to the end, I hope you feel like you know a little bit more about investing, and ideally feel confident to start yourself. Remember, what matters most is the time your money has to grow, so the sooner you are able to start the better off you are.

Future you will thank you, I promise.

PS — The Betterment link is a referral link. I wouldn’t recommend Betterment if I weren’t enthusiastic about it, and I think you will be, too!