The timing was confusing—they’d just taken us all on a multi-day retreat in Chicago two weeks earlier.

Despite that, my spidey senses were firing. I knew something was up, and I confirmed my suspicions when our HR manager and CEO called me for a surprise meeting. I felt a deep sense of shame and loss when they told me I was one of four employees in the lay-off. Then I realized I’d be losing the fantastic health insurance I’d enjoyed for the last two years.

Woes of the open healthcare marketplace, and falling back into the warm embrace of an employer-sponsored plan

In the days that followed, I told a number of friends how losing my job was rough. But losing health insurance was the real loss.

Back on my old plan, I’d been seeing my physical therapist for a few months for a knee injury—each visit only cost me $5. Both my husband and I were both able to see our mental health therapists for free. It was some of the best healthcare insurance I’d ever had, and I was devastated to let it go.

I called up our healthcare broker and set my husband and myself up with a plan on the open market. The new plan would cost over double what we’d been paying before, with a sky-high deductible and very few benefits. I paid nearly $700 for the first bill.

Luckily, it was short-lived. I found a new job six weeks after my layoff and returned to the warm embrace of employer-sponsored health insurance.

Choosing a health insurance plan: Analysis paralysis

The plan options with my new employer weren’t quite as good as my previous employer’s.

There were three total options I was considering. My primary decision factors were the premium, deductible, and cost for specialists (physical therapy, mental health, i.e.).

I had just a couple of weeks to make a decision, and I truly agonized over which plan to choose. I’ll go through each, looking at the pros and cons of picking a low-premium, high-deductible plan vs a high-premium, low-deductible plan.

Option A: Low-cost premium with a high deductible

My husband and I dubbed this option the “self-insure” option. We have a $20,000 emergency fund that we figured we could dip into if need be. I loved that we would only be paying around $200 per month with this plan, and justified that we’re both young and healthy and unlikely to need anything major, medically speaking.

The downside to this option was zero coverage for anything specialist-related. No physical therapy, mental health, or other specialists, such as dermatologists.

Option B: Mid-cost premium with a lower deductible

This plan felt like the safest option. We’d be covered with a lower deductible if anything major happened, and we’d still be paying less than if we were on the open marketplace (which would have been closer to $650). We didn’t really like the $70 specialist visit, but it seemed reasonable when a typical visit to a physical therapist could be upwards of $150 without insurance.

Because we’re climbers and tend to be always coping with some niggling issue, we use PT fairly frequently. $70/visit could really add up if you were to go every week. However we recognized we could use this a few times per year without it making a huge dent in our finances.

Option C: High-cost premium with very low deductible

Even though this plan was the most expensive at $600, I was very tempted by the $300 deductible. I realized we’d meet our deductible quickly and then be able to enjoy much cheaper physical therapy and other specialist visits right away. Even so, the higher premium gave us both pause.

Mathing it up

At first, I wanted to go with Option C. I loved the idea of being fully covered for almost everything. I was beginning to justify it based on what we had been paying on the open marketplace.

On the other hand, a really low premium would help us save more each month. We figured we could always dip into our emergency fund if one of us spontaneously broke a bone.

So we did what Kristy Shen from Quit Like a Millionaire recommends and mathed that shit up.

For premiums only, Option A would cost just $2,268 for an entire year. Option B would be $5,265, while Option C would cost $7,176.

Option C, while great on paper for specialist visits, would require us to pay an extra $400 per month over and above Option A. We could have seen our therapists, PTs, and other specialists for a small fee each time, but we’d pay hundreds extra upfront each month just for the option.

Option B didn’t feel as tempting due to the higher premium and costly specialist visits.

Ultimately, based on our ability to self-insure with our emergency fund, our great health, and the monthly savings, we went with Option A. I knew it was risky, but felt the savings were worth it. However, to hedge our bets, I elected to get accident coverage, for a small additional fee (under $10 per month).

And then a month later, I broke my ankle and blasted through my deductible in three weeks.

The accident (and why you should never break a bone on a Friday night)

On a Friday night on the first of September, I was gleefully making my way around a roller skating rink with several of my closest friends to celebrate a friend’s birthday. We were still riding the Barbie wave (think pink, lots of pink), so naturally, it was a Barbie-themed party.

About half an hour into the night, I was testing out my ability to do a crossover turn when it happened. I crossed my right foot over my left, and instead of picking up my left leg to finish the turn, it just kept rolling underneath me. I came down hard on my right ankle.

Time slowed down as I fell, long enough to hear a distinct crack that I’d desperately hoped was just the sound of my skate hitting the slippery rink.

Maybe it’s a sprain…?

Two friends quickly came to my rescue, helping me off the rink and out of my skate. I clung to the hope it was just a bad sprain. I couldn’t put any weight on it without searing pain and was starting to feel nauseous. I laid down with my feet up, and my friend who I’d arrived with offered to drive me to urgent care.

I sat in the passenger seat holding my leg, crying because I felt silly and anxious about what this mistake was going to cost. The urgent care turned us away because they didn’t have an X-ray machine, recommending the closest ER.

We tried desperately to find urgent care with an X-ray machine that was open at 7:30 p.m. on a Friday night. We quickly realized the emergency room was my only option.

Accepting my fate

The tears fell hot and fast and I felt my anxiety rise as I thought about the cost of being in the ER. I was reminded of my early 20s when I had no health insurance. I desperately hoped I’d never have to see the inside of an ambulance, much less an emergency room.

While my situation is objectively different now—I have $20k in an emergency fund AND health insurance. But, I still felt that familiar creep of dread about medical costs. It was emotional and a surprise to realize how long it takes to shake off that kind of financial anxiety.

As reluctant as I was, my friend drove me to Foothills ER. I got the confirmation that I’d cracked my fibula and may have also dislocated my ankle. They splinted me and sent me home, saying I’d need an orthopedic surgeon to review my injury.

Orthopedic urgent care for the win

Here’s my first piece of advice: If you break your ankle, make sure it’s not on a Friday night. And then, if you can, find an orthopedic clinic that takes urgent care patients. It’s thousands cheaper than the ER and they can tell you right away if your break is surgical.

The next day, I went to a local orthopedic clinic that takes walk-ins and costs $250 for an X-ray and consult. The orthopedic surgeon on call confirmed I’d need surgery, recommending a plate and screws to patch up my fibula.

My heart sank as I remembered my sky-high deductible, realizing how much this whole ordeal was going to cost me. In some ways I felt slightly comforted that I knew exactly how much I’d be paying—$6,350. I also felt devastated and incredibly stupid for compromising my health and finances for something as silly as roller skating on a Friday night.

The aftermath

Fast forward a couple of weeks: I’d had the surgery—which went smoothly aside from vomiting several times upon waking up from general anesthesia—and I was at home recovering.

I was non-weight-bearing for six weeks, somewhat housebound due to the injury being my right ankle (no driving!). I had been telling my former boss about my ordeal and how much it costs to break a bone. Then he mentioned he was grateful he had accident insurance.

“OMG,” I told him, “I have accident insurance!!”

I couldn’t believe it: I’d bought accident insurance and had completely forgotten about it until he mentioned it.

I quickly filed a claim, which offered reimbursement for several things:

• ER visit (which ended up being nearly $5,000 for two hours of care)
• Orthopedic clinic visit and X-ray
• Surgery
• Medical equipment like the hands-free crutch I used (and would highly recommend to anyone with a non-weight-bearing foot or ankle injury!)

In all, I got over $4,000 back. That nearly filled up the hole in our emergency fund left behind from the deductible.

3 steps to help you choose the right health insurance plan

While breaking my ankle and dropping over $6,000 for medical expenses in a matter of weeks was certainly stress-inducing, I’m at peace with everything that happened. After berating myself initially for my decision to go with Option A, ultimately I think it ended up working out better than I could have imagined, thanks to accident insurance.

Here are some takeaways that I’m going to think about the next time I need to choose my health insurance plan,

1. Do the math

First, take the Shen approach, and figure out what each premium will cost you each year. Take a look at what you spent in the past year on specialist visits, and decide for yourself if that type of care is a deal-breaker for you. Run through every scenario for each plan, helping you understand how much you’ll be spending if you choose to see a therapist or PT regularly throughout the year.

2. Determine your ability to self-insure

I went into choosing Option A thinking I’d self-insure if need be, and immediately got hit by a $6,350 deductible.

Let’s do a little more math: The full cost of our yearly premium plus the full deductible was $8,618. My total accident insurance reimbursement was $4,300. So, even though I paid my full deductible and premium in one year, the total cost of my accident was $4,318.

That’s all still cheaper than Option B, which would have cost me $5,265 for the premium alone.

We were fortunate to have an emergency fund to cover the initial $6,350—that was crucial in giving me peace of mind.

Consider your emergency fund. Do you have enough to cover your deductible should you break a bone roller skating with your buds? If you don’t, prioritize adding to your emergency fund so you aren’t stuck with a massive bill and no way to pay it.

3. Purchase accident insurance

Even if you’re getting a lower-deductible plan, consider purchasing accident insurance. It’s very affordable and can help lessen the blow of a major unforeseen accident or surgery. It made a massive difference in my financial situation—having $4,000 drop in my account after my claim was processed felt like Christmas morning.

The post How to choose the right health insurance plan appeared first on A Way to FI.

My goodness, was I wrong.

In this past year, my partner and I have amassed enough travel reward points to book flights to four different countries on two different continents—almost completely for free. This article will dig into how we did it.

Credit card sign-up bonuses = maximum travel rewards

Before digging too far into the process, I want to clear up something that had me a bit mystified when I first started investigating this stuff.

The best way to accumulate a high number of points quickly is through credit card sign-up bonuses.

While using credit cards for everyday spending is a great way to continuously amass points, by far the best way to gain points quickly is by taking advantage of sign-up bonuses through various travel rewards credit cards.

For example, Chase Sapphire Preferred (my top choice for an everyday-spending credit card) has sign-up bonuses of 60,000 to 80,000 points, depending on when you sign up—so long as you hit the minimum spend within the first few months of owning the card.

If you can open a few cards that all have hefty sign-up bonuses, you’ll find yourself with a nice pile of travel rewards points in very little time. This is what my partner and I did to accumulate over 350,000 Chase points and nearly 200,000 Southwest points—plus scoring us the coveted Southwest Companion Pass—in less than a year.

Travel rewards cards we use

Here is our line-up of credit cards that allowed us to earn the above points.

• Chase Sapphire Preferred
• Chase Business Ink
• United Business MileagePlus
• United Explorer Mileage Plus
• Southwest Rapid Rewards Plus
• Southwest Rapid Rewards Performance Business

Technically, these are all Chase cards, but the United and Southwest cards only earn points for those airlines, with a bit of flexibility for transferring between the three.

We’ll use all our Chase Ultimate Rewards and United points to travel to Europe and Africa in early 2023. Our Southwest points will be used for several domestic trips and to visit Central America, which we’re taking advantage of in late October to go to Mexico.

Southwest Companion Pass

The Southwest Companion Pass is one of those travel rewards that sounds a bit too good to be true. Here’s how it works: If you collect enough Southwest points, you can choose a companion to fly with you for free. And if you get the timing right, you can have this perk for almost two full years.

My partner and I learned about this travel reward almost exactly a year ago, which was great timing. If you can meet the point threshold for the companion pass (125,000 points in a single year) early on in the year, you can get the pass for an entire two-year period.

To make this work for us, my partner opened both his Southwest cards in November 2021. We then made sure to meet the minimum spend by February 2022. We did this through a combination of normal spending and putting large expenses on these cards, including paying our estimated taxes to help us meet the spending threshold required to get the sign-up bonuses.

One of the cards had a 50,000-point sign-up bonus, and the other had an 80,000-point sign-up bonus. We hit both minimum spends by February 2022 and had 130,000 total points, which was enough to qualify for the companion pass for almost two full years—through the end of 2023.

If this all sounds a bit confusing, there’s an excellent podcast episode by Choose FI that dives into this in great detail (Choose FI Episode 353: Families Fly Free). It’s the episode that clued me into the Southwest Companion Pass, and I highly recommend listening to it (especially since we are in the perfect time of year to take advantage of this!).

The 5/24 rule

There’s an important caveat for folks who are going the Chase travel rewards route: Chase has a rule they call 5/24, which means you cannot open more than five Chase credit cards in a 24-month period.

While it may make sense to cycle through cards every few years to maximize your ability to earn points, it’s important to keep track of how many you have and when you opened each.

Best practices for using credit cards for travel rewards

While using credit cards for travel rewards is amazing, there are some best practices to keep in mind.

1. Pay off your card in full each month

This is a big one if you’re trying to keep your credit score high—which you should be doing if you want to keep qualifying for high-reward credit cards.

2. Don’t overbuy just to reach your minimum spend

The only way to truly make your credit cards work for you is if you only use them for purchases you’d already be making. Don’t go out and buy a new wardrobe just to meet your $3k minimum spend: It defeats the purpose of achieving truly “free” travel.

3. Instead, look for creative ways to meet your minimum spend

This was a huge one for us. Rather than buying stuff we didn’t need to meet the magical sign-up bonus spending threshold, we got creative. My favorite way to meet my minimum spend is by paying estimated taxes with credit cards. There is always a fee for doing so—about 2%—but it’s money I have to spend anyway and it allows me to get sign-up bonuses quickly.

Spoiler alert: Credit card points are tax-free

One excellent perk of cashing in on credit card points is that they are tax-free. So, the minute you cash in your rewards, you’re getting that amount tax-free.

Say you earn 200,000 points in a year. When it comes time to book your travel, you’ll get close to the equivalent of $2,000 in flights without having to pay a dime on that “income.”

Travel & FI: Can you really work toward FI while prioritizing travel?

Hell yes. In fact, I think yearly travel helps ready your mind and body for your post-FI lifestyle (see Rose + Jeff).

Before I started working toward FI, I took “mini-retirements” by working really hard, saving up a stack of cash, and moving across the globe for as long as I could until I ran out of money. While I don’t recommend this approach, it did instill in me a ferocious travel bug that I’m not willing to set aside while I save and invest diligently on my way to FI.

Travel rewards are my golden ticket to continue to travel while pursuing FI.

Not only am I finding creative ways to travel for (almost) free, but I’m also reminding myself how valuable and enriching international travel can be.

The post Intro to FI Series: All About Travel Rewards (and How to Travel the World for Free) appeared first on A Way to FI.

Our credit scores, for better or worse, are a glimpse into our perceived responsibility as an adult. Whether you want to buy a car, rent an apartment, or get a new job, your credit score could be the determining factor.

This article is going to dig into credit scores: Specifically, the factors that influence them and how to raise them. I’ll also tell you how I raised my score from the mid-600s to 800+ in just a few month’s time.

But first, let’s discuss why a good credit score helps you on your path to financial independence.

Do credit scores matter for financial independence?

Short answer: Hell yes they matter. For the longest time, I avoided getting credit cards. I thought that through avoidance, I’d be saving myself from debt and turmoil.

Turns out, I was not doing myself any favors through avoidance.

A high credit score will help you reach FI for several reasons. Let’s look at a few.

Lower interest rates on big purchases

While one of the tenets of financial independence is avoiding large purchases, there are assets that many of us want and need in our lives. Purchasing a car, buying a home, and even renting an apartment all depend on a high credit score.

Not only does your approval hinge on your credit score, but it can also determine what interest rate you will pay.

Access to money-saving lines of credit

One of my most exciting discoveries on this path to FI is travel hacking. Credit card rewards can lead to incredible savings on travel, and having a higher credit score will allow you to qualify for high-value cards that can rack up enough points for trips around the world.

I’ll do a post later on about how my husband and I are traveling for (almost) free these days thanks to credit card rewards.

R.E.S.P.E.C.T.

I definitely have some qualms with the weight that credit scores carry in our adult lives, but a higher score will earn you more respect when it comes time to rent a house or apply for a job. While not every landlord or employer will check your credit score, it can be a major red flag if you have a score that’s below average.

Before we dig into the factors that influence your score, let’s look at what constitutes a “good” or “bad” score.

What’s considered a “good” credit score?

Credit scores range from 300 to 850, and the majority of people sit somewhere in the 650-800 range.

Here’s how Equifax breaks it down:

• 800 to 850: Excellent.
• 740 to 799: Very good.
• 670 to 739: Good.
• 580 to 669: Fair.
• 300 to 579: Poor.

Okay, here we go.

The big players: credit score factors you need to know about

There are several major factors that influence your credit score, and they carry different weight. I’ll break them down into three categories: Low, medium, and high impact. We’ll start with the heavy hitters first.

High impact: Payment history

Payment history is one of the largest factors that influence your credit score. Even one missed payment can make a huge dent in an otherwise healthy score. Here are some important notes on how missed payments hurt your score (from Credit Karma):

1. A single 30- or 60-day missed payment is easier to recover from, but will still create a big drop in your credit score.
2. A 90-day missed payment will be more damaging and could fully disqualify you from some loans.
3. After 90 days, missed payments can be sent to collection agencies.

If you’ve missed some payments, don’t despair; I’ll include some tips on how to offset this later on.

High impact: Credit utilization

Credit utilization is another high-impact factor for your credit score. Credit utilization is the percentage of credit you’re using of your overall credit availability. For example, if you have a limit of $15,000 (based on all your credit lines added together) and you have used $4,500 spread between your credit lines, your credit utilization will be 30%.

Here are some things to remember with credit utilization:

1. Keep your usage as low as possible—ideally under 30%. I aim for zero, paying off all my cards each week. Contrary to what you may have been told, you do not need any credit card debt to build credit.
2. Credit usage on each individual card is most impactful, but your overall usage is also important. So, if we were to take the example above, say you have three credit cards, each with a $5,000 limit. If you max out one of those cards but keep the others at zero, your credit will still be negatively impacted by the 100% usage on a single card. However, if you were to spread that $5,000 among the five cards, the overall negative impact on your credit will be less significant.

There are some easy ways to improve this area of your credit, which I’ll explain more below.

High impact: Derogatory marks

Derogatory marks are about as bad as they sound—these refer to any debt that has been sent to collectors or public records such as bankruptcies or tax liens. It’s best to avoid these at all costs because they can stay on your credit report for seven to 10 years.

However, derogatory marks aren’t necessarily the kiss of death they may seem.

I have a confession: I had a derogatory mark on my credit that made a massive impact on my credit score, but I successfully had it removed. More on that later.

Medium impact: Age of credit

The age of your oldest credit line has a medium impact on your credit score. There are some important takeaways to consider here.

1. Keep your oldest lines of credit open, even if you aren’t using them. However, don’t let them sit unused in your old wallet for too long: Creditors can close dormant accounts. One way to keep old cards alive is to dedicate them to a certain cause, such as fuel or groceries. Just remember to pay it off each month…
2. Paying off large loans can cause your credit to drop because it means you’re losing an old line of credit. This happened to me when I finally paid off my student loans. It was my oldest line of credit (18 years) but when I made my last payment, I was disappointed to see a ding in my credit afterwards. This is pretty easy to recover, but keep in mind that it can happen. Pay off your loans anyway, even if means you’ll lose a couple of points.

Low impact: Total accounts

The total number of accounts you have open is another factor on your credit, albeit a lower impact one. While there’s no perfect amount of credit lines to have open, it’s good to have some diversity (think: credit cards, student loans, a mortgage).

Similar to the credit age, when you pay off a loan and it drops off your report, you may see a couple of drops in your score.

Low impact: Hard credit inquiries (aka “hard pull”)

Whenever a new creditor does a “hard pull” or makes a hard inquiry on your credit, you will see a couple of points drop. It’s a temporary drop and typically is recovered within three months.

If you know you’re going to make a large purchase in the coming months such as a house or a large car loan, avoid hard pulls in the previous nine to 12 months. They can stay on your report for up to two years, but their effects are diminished after awhile.

Keep in mind that there are also “soft pulls” which allow potential creditors or landlords to view your report without making a hard inquiry. If you are applying for an apartment and know that the landlord will be checking your credit score, you can request that they make a soft pull rather than a hard one to avoid any damaging effects on your score.

Similarly, if you’re buying a house in the coming year and want to shop around for mortgages, be sure that potential lenders are making soft pulls rather than hard ones until you choose the lender you know you want to work with.

How to improve your credit score

If this is overwhelming so far, hopefully this section will help distill some information for you to start improving your score. I’ll go through each high-impact factor and provide some advice on how to help you raise a sinking score.

Payment history: The saturation effect on your credit score

Missing payments can wreak havoc on your credit score. Fortunately, I’m going to tell you about a great way to turn it around.

If you’ve had some missed payments, the first thing to do is ensure your cards are all set to automatic payments. This is the best way to avoid another missed payment in the future, and will help you get started on the right foot with recovering your score.

Next, work on opening new lines of credit. While I wouldn’t recommend rushing out and opening five new credit cards, start with one or two and then set up automatic payments on those.

Eventually, the number of on-time payments will start to saturate your credit score in a positive way.

For example, say you opened a card in 2015. By 2020, you’d have a credit history of five years, and in that five years, you had 60 months of payments on one line of credit (5 years x 12 billing cycles = 60). And say that you missed seven payments during that time. That’s a considerable amount of missed payments; about 12%.

Let’s look at the following scenario, assuming you opened two new cards in 2020 to help offset your missed payments.

• Credit card #1: Opened in 2015. Total of 7 years or 84 billing cycles
• Credit card #2: Opened in 2020. Total of 2 years or 24 billing cycles
• Credit card #3: Opened in 2020. Total of 2 years or 24 billing cycles
• By 2022, a total of 7 years or 132 billing cycles

So at the end of seven years and 132 billing cycles, those seven missed payments will only account for 5% of your payment history. Over time, that saturation effect will help reduce the impact of those earlier missed payments and your score will rise.

Credit utilization: Pay off your card often and raise your limit

There are two primary ways to improve your credit utilization. First, paying off your card in full as often as possible (before the end of your billing cycle) will keep your usage low. I pay all my cards off weekly which keeps my utilization at about 0%.

The second way to keep your utilization low is by raising your credit limit but keeping your spending the same. Many times, a simple request to your creditor will be enough to raise your limit.

The trick is, don’t spend any extra money on that card. If your spending stays the same but your overall credit limit rises, your usage rate will shrink and voila, more points for that score.

Derogatory marks: The power of a letter on your credit score

Derogatory marks can be one of the hardest factors to positively influence. They are highly impactful on your score, and as mentioned above, can take almost a decade to clear.

But all is not lost if you have a derogatory mark. Here’s how I raised my score from the mid-600s to over 800 with a simple letter.

Student loans: Missed payments, delinquencies, deferments, oh my!

When I was in my early 20s, I took out student loans to pay for school. They weren’t astronomical, but they allowed me to study without having to work full-time.

By the time I left university, my loans hovered around $20,000. I vacillated between paying the minimum amount due and putting them in economic hardship deferment, typically while I was travelling and not working.

Most of my loans were Perkins and federal student loans. I had two Perkins loans from two different universities; one was from Western Washington University and the other, the University of Washington.

At some point, my loans from the UW were transferred to Mohela, a student loan servicing company. I still paid off my Perkins loan from WWU, and those were my two primary student loans payments.

Fast-forward to mid-2021. I was $500 away from making my last student loan payment, when I finally did a deep dive into my own credit.

WTF is up with my credit score?

I’d been confused because my credit score just seemed to keep falling, despite not having any credit card debt. When I finally took a closer look at my score, I was horrified to find a had a derogatory mark on my credit and almost a year’s worth of missed payments.

Here’s what happened: I thought all of my UW loans were consolidated into my Mohela account, but that wasn’t the case. My Perkins loan from UW for $1,000 that wasn’t rolled into Mohela, and it had been sitting in purgatory ever since it went back into repayment in 2019. There were over a dozen missed payments, and the loan was now sitting in collections.

I was horrified. I went through every correspondence I could find, and it took quite a few phone calls before I finally got someone on the phone who could help me. As it turned out, there was very little I could do to rehabilitate the loan. Because it was in collections, it was out of their hands, so I thought.

My Hail Mary

I made one last attempt at making things right by emailing the University of Washington. Below is my letter.

And it worked.

A wonderful man named Brian responded saying that due to some errors on their end, they were willing remove the derogatory mark and correct my missed payments.

Now, I know this is a unique situation, but I’m sharing it to offer hope to those of you who are dealing with a similar scenario. Getting my credit score corrected took a lot of effort, but it helped me raise my score by over 100 points almost overnight.

How much energy should you put into raising your credit score?

It can be a harsh reality check to do a deep dive into your credit score, especially if it’s sub-par. I recommend focusing on one high-impact area at a time to help improve your score.

Keep in mind that if you don’t have any big purchases or moves coming up, this is a great time to work on improving your score.

A note of warning: Be realistic about what cards you apply for because if you apply for a high-value card like Chase Sapphire Preferred and get denied, this will suck a few points out of your score and leave you empty-handed. (This happened to me four years ago, but I’m happy to report I qualified for the Sapphire last year after some serious credit score rehabbing.)

I’m happy to answer any questions you may have about credit scores; leave comments below and I’ll do my best to help.

The post All About Your Credit Score (AKA your adult report card) appeared first on A Way to FI.

Debt can feel shameful, embarrassing, and impossible to manage. In this guide, I’ll lay out some tips and strategies for eliminating your debt and moving on with your financial life.

Take stock of your debt

This can be a brutal awakening for some. I know that when I was in the depths of my debt, I consciously avoided checking my balances because they caused me so much anxiety.

This obviously did nothing to help eliminate my debt, but it was very effective in making me even more stressed out.

At the height of my debt, my partner and I were living out of the van we’d just spent our life savings to build. We were living off my (meager) income as a writer and making the minimum payments on about a half dozen different credit cards and my student loans.

It was a temporary situation as we knew we’d eventually settle somewhere and go back to having two incomes, but at the time it was the best we could do with the resources we had. It was a conscious choice to let the debt accumulate while we frolicked through the west on a six-month climbing trip, but it took its toll on my credit score.

When we finally settled in Boulder and sold our van, we made it our first priority to get rid of our debt.

Here’s what worked for us.

Make a list of each credit card, its balance, and interest rate

This was the real come-to-Jesus moment for us, and one that was equal parts stressful and empowering.

Here’s an example of the spreadsheet I made to help me make sense of it all:

As you can see, the total we owned was nearing $13,000, and that wasn’t even including the $10,000 I still owed on my student loans.

Prioritize paying off the cards with the largest interest first

As you can see in the example above, Wayfair had the highest interest rate at 28.49%. The total balance owed was relatively low at $472, so we took that one out in one fell swoop.

Next, we tackled Lowe’s, which had an interest rate of 26.99% and a balance of $830.

With those two out of the way, we then set our sights on our Home Depot card and Key Bank loan, with roughly the same cadence.

Pay the rest off as soon as you possibly can

This is where some of the challenges arose: While we had gotten rid of the worst cards/credit accounts first, we still had a decent amount of debt to chew through. We were paying as much as possible based on our financial requirements at the time, but by no means did we get out from under our debt quickly.

The crux for us was in our spending: Rather than choosing to buy things or go out to dinner, we looked at paying off our debt like we were buying our financial freedom. I knew how much debt would hold us back, and didn’t want to live in that reality.

Now, our debt wasn’t astronomical: At its worst, it was close to $25,000 with my student loans added in.

But with this strategy, we paid our debt off in less than six months.

What about student loan debt?

Now, this is a tricky one.

I was fortunate that I didn’t have staggering student loan debt as do many of my peers, and my husband Callan has no student loan debt. Once my credit cards and loans were paid off, student loan debt was the next hurdle. I would put upwards of $500 a month into my repayment, a strategy that was pretty painful at the time but paid off immensely.

If you’re in a situation in which student loan debt is in the hundreds of thousands, even sinking $1,000 a month isn’t going to make a sizeable dent in your balance.

I’d recommend putting as much energy as you have into finding ways to access debt forgiveness.

This article has some great options such as teacher loan forgiveness, public service loan forgiveness, and others.

Where am I now?

Right now, I have zero credit card debt. Here’s what I chose to do with each of those cards after eliminating my balances:

• Home Depot: I chose to hold onto this card, partly because I’d had it longer than the others and wanted to keep it on my credit history. Plus, my husband is a carpenter, which means never-ending projects.
• Wayfair: I closed this account. It had a huge interest rate, and I don’t buy from this site often enough to justify it.
• Barclay: I kept this credit card open, again for the credit history. I have one expense that I pay with it each month to keep it active: Netflix. It’s set to auto-pay, so I don’t have to think about it.
• Lowes: I closed this account, because we shop at Home Depot more often, and the interest rate was quite high (nearly 27%).
• KeyBank: I kept this account open, again for credit history. I try to use it every once in awhile to keep it active.
• BECU (Credit Union): This was a small personal loan I took out to help pay for our van build-out. Once I paid it off in full, the account automatically closed.
• Best Buy: I closed this account because I don’t shop often at Best Buy, and the account hadn’t been open long enough for it to make an impact on my credit history.

Nowadays, I have a totally different line-up of credit. I’m not fully debt-free, however: I have roughly $2,000 left on a car lease (which you can read more about in this budgeting article).

Current lines of credit

My current credit cards/lines of credit:

• Chase Sapphire: I use this card for all of my expenses, aside from rent and a few utilities. I tend to pay it off weekly to keep my credit utilization low.
• Chase United Explorer: I recently got this card and am using it all the time right now to hit the minimum spend to get the rewards.
• Barclay: As described above, I only pay for Netflix with this card.
• KeyBank: I hardly use this card but keep it for credit history.
• Car lease: This will be paid off in May 2023.

I keep my credit utilization as low as possible to keep my credit score high, which means I essentially finish each billing period with a zero balance. (We’ll dig into credit scores in a later article!)

How to think about debt

If you’re riding the line between managing sizeable debt while also investing your savings, I want to challenge you to rethink your strategy.

Holding onto debt is a net-negative. It’s a financially soul-sucking, credit score-wrecking, HUGE headache that doesn’t get better with time.

Before you get too excited about tossing all that extra coin into your retirement accounts, get real about your debt. If you’re faced with credit card debt, eliminate that first. Car and house payments are more manageable, as are student loans, but tackling credit card debt should be your first order of business.

As Mr. Money Mustache says, “Your debt is an emergency.” Treat it like one.

Think of investing as the REWARD you get for eliminating debt. Your money will start making you money, which is a beautiful transition from dealing with high credit card interest rates.

Being debt-free is the first stage of financial independence.

Featured photo by Alice Pasqual on Unsplash

The post Intro to FI Series: Managing Debt appeared first on A Way to FI.

That’s why this post is dedicated to the uber-newbies out there. I’m going to share how I do my investing each month through my Fidelity account.

Step 1: Open an account with an investing company

There are plenty of options here, but some of the heavy-hitters include Fidelity, Vanguard, and Schwab. I personally use Fidelity, but I also think Vanguard is an excellent choice for its customer-owned operation model.

Because it’s my personal investing platform, these instructions will be all focused on opening an account with Fidelity.

So, first step; click the orange “Open an Account” button and get rolling.

Then, a pop-up will appear asking you what type of account you want to open. If this is your first rodeo, a Roth IRA will be your best option, as long as you earn less than $144k per year. If you earn over $144k a year (fist bump), select Traditional IRA.

More on Roth IRAs in a moment, but for now, let’s keep going.

The account creation process will lead you through a few steps, including adding your personal information and creating a username and password. Once you’ve successfully opened a Roth IRA account, you’ll be ready to transfer money into your account.

(If you run into any issues while setting up your account, Fidelity has pretty top-notch customer service that can walk you through it.)

Step 2: Link your bank (and set up automatic contributions for your investments)

You’re in! Now you need to start adding some money to your Roth IRA account.

The easiest way to do this is to connect your primary bank account to your Roth IRA. To do this, open your Roth account (located on the lefthand side of the screen), and then click “Contribute to this IRA.”

You’ll be prompted to move money from a drop-down list of options. Click “Link a bank to a Fidelity account,” and proceed to add your banking details.

At this point, I think it’s highly beneficial to set up automatic contributions to your Roth IRA. Note that there’s a $6,000 yearly limit for Roth IRA contributions, so it may make sense for you to spread that out over a year. While the cadence of adding money to your account is up to you, it’s often in your best interest to max out this puppy each year.

Step 3: Choose (and make) your investments

This is a crucial step, and one that I’ve heard horror stories about. While adding money to your Roth IRA is great, if you don’t invest any of it, you’re essentially just letting it sit in purgatory. Don’t let this happen! I schedule my investments the minute I schedule money transfers so I don’t forget to invest.

Once you have a nice wad of cash sitting in your shiny new Roth IRA account, click on the “Trade” button on the top lefthand side of the screen.

Next, you’ll be prompted with a trading menu as shown below.

Here, you have options. I choose to invest in IVV (shout out to Jeff for the recommendation!), which is an index fund. It’s important to do your own research here, but as J.L. Collins says, index funds are for people who want the best possible investing results.

Then, you want to select “Buy,” “Dollars,” and “Market,” and choose an amount—ideally, the amount you just transferred from your bank account. Here, I’ve entered $500 as an example.

Then, hit “Preview Order” to ensure everything looks correct, and finalize. Note that you can only trade between 9:30 am and 4 pm ET.

Step 4: Invest regularly, ideally with as much of your income as possible

As someone who is trying to quickly catch up on my FI savings, I’m contributing about 50% of my income each month to my investment accounts. Here is how my investments break down:

Roth IRA

This is an excellent retirement account for everyone to own as long as you don’t exceed the income max ($144k per year in 2022). By contributing post-tax income, you’re allowing money in this account to grow tax-free. There are plenty of other handy things to know about Roth IRAs; this HerMoney article is a great resource.

I max out my Roth IRA each year and invest in IVV index funds.

Roth 401(k)

A 401(k) is a retirement savings account offered by many employers, often with a matching contribution of around 4%. My company does this, so I take advantage of it by maxing out my contribution in each paycheck.

My 401(k) is managed through a company called The Standard, but I’m able to choose my investments. I invest in Schwab’s SWPPX, their S&P 500 Index Fund.

A quick note on Roth vs. Traditional 401(k)s: I chose to open a Roth 401(k) because I want to contribute post-tax to my account. While a Traditional 401(k) would allow me to skip out on paying taxes when I contribute, I’d rather pay taxes on today’s tax rates than take a gamble at what those rates may be when I choose to start withdrawing.

I’ll be hitting the max contribution level for this retirement account, which is $20,500 for 2022.

SEP IRA

As someone who has a side-hustle, I also qualify for a SEP IRA. This is a great account for all the freelancers out there to open; it has a high contribution limit ($61k for 2022), and can mimic a 401(k).

After maxing out both my 401(k) and Roth IRA, I split the remainder of my investments between my SEP IRA account and I Bonds.

Series I Bonds

I Bonds are a bit of a dark horse at the moment but are a great option for folks who want to diversify between stocks and bonds. While there are a number of bond options out there, I chose I Bonds because they have a relatively high return rate of 9.62% through October 2022.

The downside of investing in I Bonds is navigating the Treasury Direct website. It’s old and cumbersome, but worth setting up if you want to take advantage of the high return rate.

Keeping track of investments

Once you have your investments happening on a regular basis, it’s wise to come up with a system that allows you to track everything.

A simple spreadsheet will probably do the trick for most. Better yet, include it in your budgeting app like I do, with contribution “buckets” set aside each month. It reminds me to invest and keeps me honest.

Ride it out, even when things look rocky

One of the biggest pieces of wisdom J.L. Collins likes to impart is this: Ride the wave of the down markets. Collins often refers to the “relentless upward march” of the stock market, as a fantastic reminder that things will bounce back.

The post Intro to FI Series: How to Start Investing appeared first on A Way to FI.

One of the beautiful parts of financial independence is that it looks different for everyone—aside from one constant: budgeting.

Reaching FI is far more than increasing your income (although it certainly helps). Getting to financial independence is about knowing your spending habits intimately and practicing some hard-won discipline.

We’re going to dig deeper into what it looks like to trim your expenses—even those that are unavoidable. But first, a note about tracking spending.

Budgeting is the first step to achieving financial independence

In my early adulthood, I probably only checked my bank account a few times a month. I’d make sure I had enough money to pay my bills, and just floated on a vague knowledge of what was in there.

Budgeting back then meant having just enough to cover my living costs and lifestyle. Savings wasn’t a factor, and investing was mysterious and complicated and risky, or so I thought. 

It turns out it was my lifestyle that was risky. I was always teetering on the edge of being broke, and it kept me from succeeding as a young professional earning a decent salary.

Knowledge is power 

It wasn’t until my late 20s that I realized I wasn’t doing myself any favors by hiding from my bank account. While I didn’t start really saving and investing until my mid-30s, I began taking a more strategic approach and carefully calculating what I needed to get by. 

More often than not, my big savings goals were around travel and adventure. I had short-term goals that were fairly easy to achieve. This allowed me to take extended trips around the world with little worry about earning.

Taking it to the next level: budgeting apps

I began using budgeting apps two years ago because I suddenly had a large savings goal in mind: buying a house. So, my husband and I started squirreling money away each month.

While I hadn’t yet discovered the power of investing, my budgeting app (YNAB) helped me understand my spending habits. I was able to categorize my spending into major buckets such as monthly bills (broken down into categories such as rent, utilities, insurance, etc) and consistent expenses (fuel, groceries, dining out, etc). 

This was a major turning point in my financial life. I felt a level of clarity I’d been missing; a daily snapshot of my spending habits. I now categorize transactions regularly through YNAB’s app on my phone which helps me stay on top of my budget.

Unleashing the power of tracking spending 

The exciting part of this came last year when I started my deep dive into financial independence. 

I realized that my knack for frugality could be my superpower when it comes to achieving financial independence.

Eventually, I added a new category in my budgeting app: Savings. I allocated nearly 50% of our monthly income into these savings goals, split between our house savings and investments. 

Taking control of my spending gave me a level of confidence that’s both vital and empowering for my path to FI.

The big three: Housing, food, transportation

These three expenses often cut the deepest gauge into our savings rates, but it doesn’t have to be that way. Read on for tips on how to hack each while continuing to track spending.

Housing hacks

We all need a roof over our heads, but what does that look like for you? Are you paying rent or mortgage that takes such a sizeable chunk out of your income that you can’t fathom raising your savings rate without some serious financial consequences?

One great way to reduce your mortgage or rent is by getting a roommate. This may not be for everyone, but it has the potential to halve your monthly payments.

If you own your home, you might want to consider geoarbitrage, which means moving (or traveling) to a place with a lower cost of living than your current home. Jeff and Rose are pros at this approach, which you’ll learn about more in another post. 

And finally, if you’re living in a high-cost area that doesn’t seem to be getting any cheaper anytime soon, you might want to think about moving to a lower-cost area. With so many folks able to work remotely these days, it’s worth taking a hard look at your current expenses and comparing housing prices in other parts of your state or the country where your dollar will stretch.

Food

Even for the more savvy FI-ers out there, food is a massive expense. It’s often the second biggest expense after housing costs and can spiral out of control quickly if you’re eating out often.

• Learn to cook. One easy way to cut your food costs down is by choosing to eat at home instead of dining out. Beyond the obvious health benefits, it costs a fraction of what a typical meal out costs.
• Make a plan. Making a food plan each week can lower your grocery bills considerably. In our household, we plan just three or four meals per week, assuming that each will feed us twice. That frees us up from cooking half the night, and often means we’re shopping for fewer overall ingredients.
• Set a budget. If you know you’re a chronic over-spender on food, set a solid budget for yourself. Figure out how much you want to spend per week, and do your best to stick within that range. Having a goal can help you make some hard decisions when you’re eyeing up that $15 jar of almond butter (I’m lookin’ at you, Jeff).

Transportation 

While I’d like to tell you that you should get rid of your car and commit to bike riding and public transportation, that would be disingenuous.

I love driving, and I can’t quite imagine a scenario where I’d be completely fine without a vehicle at my disposal. 

Two years ago I decided to lease a vehicle: In true Boulderite fashion, I leased a 2020 Subaru Outback—by far the nicest, newest car I’d ever driven. It was the best choice for me at the time with its low downpayment and manageable monthly payments.

However, if I could make the same choice today, I wouldn’t choose to lease because I’ve committed to sinking nearly $15,000 into a car that I don’t own.

Instead, I’d follow the car-buying advice of the financially independent and buy a used vehicle, likely for less than $10,000.

Cars are a status symbol, and breaking away from new or luxury car ownership is an important step for folks on their FI journey. 

My lease is up next year, and while used car prices are outrageous at the time of this writing, I’m hoping to find something used and affordable.

Oh, and I’ll also dust off my bike to save on gas money. (More on biking in a future article!)

A minimalist approach

Once you start tracking spending and investing and realize that your money can make money, buying material goods starts to make very little sense.

One thing my husband and I have started doing is instigating a “no-spend month” every few months. This helps us reign in unnecessary purchases and usually helps us squirrel away almost $1,000 extra that month. 

You can also spend some time paring down your possessions. Once you stop buying so many items, you begin to realize how much junk you’ve accumulated. Take a hard look at what’s surrounding you at home, and consider selling what doesn’t spark some sense of joy.

The 90/90 rule

A great concept to keep in mind is the 90/90 rule when you’re considering what to clean out: Make a pledge to get rid of things you haven’t used in 90 days, and that you don’t plan on using in the next 90 days. 

Dropping the excess baggage

A beautiful thing happens when you start reducing your spending and letting go of excess belongings: You gain clarity about what really matters. You’re free to focus on your true goals and life values, minus the commodities. 

This is the first taste of financial independence.

The post Intro to FI Series: Budgeting appeared first on A Way to FI.

Early iterations of financial independence

I got my first job at 15; I worked in an ice cream store with my best friends. We set our own schedule. We consumed a lot of free ice cream.

I bought my first car at 16, set up car payments and used my part-time job to pay for it. 

This was my first taste of financial independence. 

I no longer had to ask my parents for money; I used my part-time job to buy concert tickets, new clothes, fuel, and lunches out with friends.

It was liberating to use my money however I wanted, void of parental judgment and with the pride of knowing I’d earned every cent on my own.

My “mini-retirements”

Fast-forward 10 years: I’m living in Seattle, finishing up my degree in journalism, and working three jobs to help pay for my impending travels overseas. 

At this phase in my life, I once again tasted a form of financial independence. I thought I’d cracked the code: I’d work my ass off for up to a year, often working two or three jobs and saving almost every cent. I’d then quit my jobs, buy a plane ticket for Thailand, Kenya, or wherever was next on the map, and disappear for months or years.

I called these voyages my “mini-retirements,” insisting to anyone who asked that I’d much rather have this kind of freedom in my 20s and early 30s than work a full-time job for 40 years only to retire in my 60s with zero energy to explore.

If this wasn’t financial independence, what was? I didn’t mind working hard so I could take months off, and I always knew I’d be able to get a new job when I needed one. 

This pattern repeated itself every few years for the majority of my early adulthood, until quite recently.

My financial reckoning: Learning about the FIRE (financial independence, retire early) movement

Before I started thinking seriously about my own path to financial independence, my only concept of retiring early was in reference to tech bros who raked in six figures for breakfast. 

I clearly remember the moment the concept of real financial independence finally sunk in. It came during a time of financial reckoning. 

I’d just moved to my new home in the Colorado Front Range after several years of moving back and forth between the U.S. and New Zealand and living in a van for six months with my husband, Callan. 

I felt settled for the first time in years. Maybe for the first time in my entire adult life.

I came across a podcast called HerMoney by Jean Chatzky. While I’d often felt that I was just financially literate enough to get by, this podcast showed me how much I’d been missing.

I instantly became a sponge for all things financial literacy.

The first episode I listened to was about Roth IRAs. Until that moment, I’d never heard of one. I was 36 at the time.

The podcast also introduced me to FIRE: Financial Independence, Retire Early. I learned about investing, about budgeting, and about frugality (something I was already pretty damn good at). 

Putting the lessons of financial independence into practice

Not long after my financial literacy deep-dive, my husband and I treated our close friends Rose and Jeff to dinner. We knew they were investing-savvy and wanted to pick their brains. 

(At this point I should point out that my husband, Callan, is from New Zealand. His knowledge of investing in American stocks was similar to mine, which is to say, little to no understanding of how it all worked.)

That night after dinner, we cracked open my laptop and they helped me set up my first investment account, a Roth IRA. 

This was a massive turning point for me. 

It was like being allowed into a gated community. A secret club. A pathway to actual wealth and financial freedom.

I poured every extra cent we had into our individual Roth accounts until we maxed them out for the year. I then fortunately landed a new job in which I could start investing in a 401(k).

My FI resources 

Throughout these first few months, I read a few books that were pivotal for me in my journey.

First, Rose lent me The Simple Path to Wealth by J.L. Collins. This was my foray into index funds. I was relieved to learn that the best investors are those who take the “boring” path of ignoring the daily ebb and flow of the market and instead investing in slow-and-steady, low-cost index funds. 

Another book I found helpful was Your Money or Your Life by Joseph R. Dominguez and Vicki Robin. This introduced me to the concept of the wall chart: I now track my income and expenses each month to help me understand my overall spending habits.

Other helpful reads include The Index Card by Helaine Olen and The Millionaire Next Door by Thomas J. Stanley. There are similar themes throughout these books, which I’m using as my journey-to-FI foundation.

(Check out our resources page for more inspiration!)

1. Frugality above all else

One common theme that I felt echoed throughout these resources is the power of frugality. And at the heart of frugality is the concept of minimalism. 

While it may seem intuitively easier to reach financial independence by earning a high income, lower-income individuals can reach FI by learning to live frugally and investing as much money as possible.

2. Invest as much as possible

What once felt like a confusing and elite club is now something relatable and achievable. Investing—once I figured out how to open an account—is far easier than I thought. I now invest between 50 and 60% of my income each month into my investment accounts.

3. Don’t be a hero

I absolutely love the advice of investing gurus: It’s not TIMING the market that matters, it’s TIME IN the market. Unless you’re a clairvoyant, don’t pick stocks. Index funds are boring and reliable, which is exactly what you want if you’re on the journey to FI.

My current path to financial independence

Now that I understand how it’s done, I’m eager to catch up. My husband and I are aiming to be financially independent in 10 years; by our mid- to late-40s. How will we achieve this?

1. Continue investing at least 50% of our income each year.

Our investments pan out as follows: We max out both our Roth IRAs each year, and I max out my 401(k) through my employer. I then split the rest between a SEP IRA (I’m also self-employed through a side-hustle) and I-Bonds (which currently have a 9.67% payout rate). 

2. Avoid debt 

I paid off my student loan the same month I started saving for retirement, and Callan doesn’t have any student debt. We have a leased car at the moment which goes through early 2023. I plan to buy a used car for $10k or less at the end of my car lease to avoid taking on car payments.

3. Live that frugal life

I’ve become a committed budgeter since embarking on this FI journey. While we make exceptions for travel and our outdoor pursuits (climbing and skiing), we hardly spend money other than for basics: rent, utility bills, fuel, and food. 

Hurry up and wait

I’m an impatient yet driven person, which makes this journey to FI a little painstaking at times. Our wealth-building is a slow but steady process, and one that’s both exciting and goal-oriented for my husband and me. 

I’m excited to see how A Way to FI helps unite folks who are here to learn and share knowledge. 

Join our Facebook group (A Way to FI) to ask questions, collect resources, and share wins. 

The post Meghan’s Path to FI appeared first on A Way to FI.