Over the last few weeks I have spent a lot of time thinking about the events that have improved our financial situation. While I am a firm believer in small incremental changes over time, there are a few moves that stand out over the rest. Obviously, these aren’t a get rich quick scheme, but some actions have a bigger impact than others. Here are the 5 Best Money Moves we have made to date.
1. Student Loan Refinance
My student loans are, by far, the biggest financial mistake I have made. I put us in a $85,000 hole before we were married and initially didn’t have a plan to get out of it. When you get interest statements in the the mail totaling over $5,000 for the year, you take notice. Thankfully Mrs. AE overlooked my terrible choice and stuck with me.
After a few years, I finally got my act together and found a way to refinance my student loans. We will save over $3,000 in interest charges, along with a shorter payoff period. I had already paid my loan balance down to $44,000 before re-financing. If I would have done it right away the savings would be significantly higher.
I have been dreaming about the extra $1,000 a month once these loans are gone. Looking to significantly boost our savings rate.
The refinance was done through SoFi, the company was great to work with, if you have student loans go check them out. You can use this link to get $100 (I will be paid $100 as well).
You can read my full student loan story here – including my first attempt at refinancing
2. Personal Properties
I covered a lot of this in my recent Mortgage Refinance post. But I will break this down into two sections – our first home and the mortgage refinance.
By all the standard home buying financial metrics we failed on the purchase of our first home. Only 3.5% down, PMI, and the mortgage was over 35% of our combined salaries. Not a real wise decision.
The one thing we did do right, is buy at the right time in the right location. 2.25 years later we walked with over 25K in profit plus the equity we built. This wont always happen, but it shows that sometimes risks do pay off. Until we are FI, I will treat our primary residence as an investment.
I wont spend a lot of time on this since I recently did an entire post on the subject. But I have a feeling their are still people unnecessarily paying over 4% interest on their mortgage. Set the minimum amount of money on fire already – take action and refinance.
Look into a refinance ASAP if you haven’t if your rate is over 3.5%, you wont regret it
Our company put together a pretty generous Employee Stock Purchase Plan, I covered all of the details in my “Company Stock: Must Own or Hard Pass” post. To date we have made over $10,000 by participating in the plan over the last 5 years.
By checking a box and signing our name we were able to make a good amount of money. A lot of people don’t participate – the last number I heard was 41% participation. Sure, there are reasons to not participate in a plan like this. But if you trust the leadership and can review the quarterly earnings report the window you are at risk is pretty small. For us its 3 Months, some plans you can sell right away.
The original $10,000 has grown to a number I can’t even calculate. We use the money to make lump sum debt payments or pump up our Roth IRA accounts.
4. Tax Advantaged Accounts
For anyone in the US, taking advantage of tax advantaged accounts is a no brainer. There are to many benefits to ignore. We use our 401Ks and Roth IRAs currently.
Employer Match – We get about $2,000 per year from our employer match. Its actually below average, you could be leaving more than that on the table.
Tax Savings – This isn’t a 100% accurate, but we put over $16,000 a year into our 401Ks pre tax. If we paid 28% on that money it would be $4,400 more a year in income tax. I am all for keeping as much of our money as possible. We will be taxed when we withdraw, but we are assuming our incomes will be low enough to put us in a lower tax bracket.
Growth – I haven’t calculated out the growth on that $4,400 over the years, but based on other charts I have seen it will make a significant difference down the line.
A lot of people recommend maxing out your 401K before looking at a Roth, but I like to cover both ends of the Tax Advantaged accounts. Part of the reason is I was looking for a place to put money from financial windfalls, but I also like the idea of not paying taxes on investment gains.
The investment opportunities in a Roth IRA are also beneficial compared to our 401Ks. We have a lot more control to seek out great funds with low expense ratios or diversify into REITs if we want.
I obviously can’t calculate the savings on this – check back in 30 years.
5. Education and Action
This is the only move on the list that I can’t quantify, but has had the biggest impact by far. Learning how to improve our finances, and actually putting the ideas into practice has made all of the above possible.
Both parts are required to move the needle. Action without knowledge can be dangerous, knowledge without action is worthless.
Find your Financial Motivation and start making incremental tweaks to improve your situation. You don’t need to be a financial guru to create wealth. Simply finding ways to turn savings into investments in cheap funds will get you 80% of the way there.
There are a few other items I feel are worth mentioning that have made significant impacts in our financial life.
- Automation – This is key to our strategy, we automatically pay our self first every 2 weeks. If money is tight, start small and build it up over time. Initially the money is not that important, building out the saving habit is key early on.
- Transportation – We save over $3,500 per year on transportation costs by using Public Transportation.
I only want you to take one thing away from this post – we are not unique. Depending on your position you can use some or all of the above techniques to improve your financial situation. All you need is a little knowledge and a little action.
Some products that can help you:
Personal Capital: Personal Capital has a ton of great Free features, you can track your spending, net worth and even analyze your portfolio. It has top notch security and I am able to connect all of my accounts. Saves a ton of time!
Sofi – I saved a ton of money using SoFI for a Student Loan Refinance. They were great to work with, the process was super easy (compared to my previous refi) and I got a great rate. If you have student loans be sure to check them out.