Category Archives: Guest Posts

What Stage of Financial Change Are You In?

If you choose to pursue financial independence and an early retirement, you will need to reject many of the popular, preconceived mindsets and behaviors that you’ve been taught about your relationship with money.

Over the past two decades, the average age at retirement has been increasing. Studies predict the average age of retirement for Millennials may reach 75 due to the growing costs of rent and prevalence of student loan debt.

The good news?

You don’t need to follow the same financial path as your peers (no matter what generation you were born in).

The “bad” news?

To reach retirement earlier than your peers, you will need to handle your money in a different way as well.

Pursuing financial independence will require self-education, practice, and persistence. You may or may not have the support of your friends, co-workers, and even family members… but you will need to make financial changes in your own life regardless of their own money habits.

In this post, you’ll learn more about the five stages behind every major life change, how these stages apply to your personal finances, and how you can use this model to stay committed on your journey toward financial independence.

The 5 Stages of Financial Change

In the academic world, the stages of change are more formally recognized as the “transtheoretical model of behavior change.”

This model was first proposed by psychology professors in 1977. The model is often applied to health-related changes, such as quitting smoking, starting a new exercise or diet plan, and managing anxiety and depression.

Here are the five stages:

    1. Precontemplation (not ready to change)
    2. Contemplation (considering change)
    3. Preparation (getting ready for the change)
    4. Action (making the change)
    5. Maintenance (reinforcing the change)

While you typically progress sequentially through the first four stages, it’s possible to “backslide” and revert to an earlier stage if maintenance is unsuccessful (breaking your diet during the holidays, for example).

This model not only applies to physical behavior changes but can also be applied to belief changes or decision-making as well.

Let’s take at how you may journey throughout these stages as you make significant changes in your financial habits.

Precontemplation

During the precontemplation stage, an individual is not seriously considering making a change. In fact, they may not realize that a change is necessary at all.

In the context of a health-related issue, a person in the precontemplation stage may assume they are totally healthy – perhaps unaware that their high cholesterol or blood sugar may already have them on a trajectory for a heart attack or diabetes down the road.

If you have just started your professional career, you may find yourself in the precontemplation stage of your retirement planning.

Perhaps you are contributing a small percentage of your 401k toward retirement each month. What you may not realize is that contributing just 5% of your salary is going to place you squarely in the “retire at 75” club.

To move out of the precontemplation stage may require a “financial epiphany.” This could be saving up to buy a house, preparing to have a child, or earning a salary for the first time. At this point, you’ll realize it’s time to make peace with your financial past so you can reach your goals.

Contemplation

The same year that psychology professors created the “model of behavior change,” film director Woody Allen was attributed in the New York Times for his popular quote, “Showing up is 80 percent of life.”

Just by “showing up” to read this post, you may have already progressed out of precontemplation into the next stage of behavior change: contemplation (surprise!).

During the contemplation stage, an individual is aware of their problematic behavior but are still weighing the pros and cons of change: Can I make time to exercise without hurting my career? Will my friends support me in my decision to quit smoking or drinking?

In a stage of financial contemplation, an individual may be considering their financial goals and the associated trade-offs.

  • Should we be focused on saving up a down payment for a home or paying down student loans instead?
  • Is it worth the inconvenience of downsizing our home or moving in with roommates to save additional money?
  • Can we commit to meal prepping for a few hours each Sunday night to reduce spending on lunch during the work week?

Preparation

An individual in the preparation stage has determined the pros of change outweigh the cons. At this stage, they may start performing research, creating a plan, or making small steps toward their improved for behavior.

If you are someone who wants to lose weight, your preparation might be purchasing a healthy cookbook, grocery shopping for nutritious foods, or signing up for a gym membership.

Many times, it’s tempting to skip from the contemplation stage directly into action (which we’ll discuss below). It’s important to spend time in the preparation stage to lay a framework for success.

You may have to remove barriers from your financial goals as well. This could involve learning more about debt payoff strategies, calculating your net worth to understand your current situation, or building a solid budget that organizes your finances.

Action

In this stage, individuals begin to actively change their behavior. This decision is often one of the shortest stages of change – most of the effort is either exerted in (1) building motivation during the contemplation the stage, or (2) maintaining and reinforcing change.

If quitting smoking is your health-related behavioral change, then the action stage would be the first few weeks of cessation. The behavior change requires consistent, active effort to make. You may be using aggressive strategies like substituting a new behavior in its place, rewarding yourself for the proper behavior, and avoiding any scenarios that trigger the old behavior.

There are many ways to take action and improve your personal finances. You may start scheduling recurring payments on your debt, setting aside an additional portion of your income with direct deposit, or creating a budget to keep yourself living within your means.

Maintenance

In a successful behavioral change, the maintenance stage will have the longest duration. The goal of the maintenance stage is to reinforce the new behavior to minimize the chances of a relapse. With time, the new behavior will become second nature.

It is not uncommon for individuals to relapse back to a previous stage. A successful behavior change will depend on how an individual responds to this situation:

Do you prepare yourself to eat healthily by going grocery shopping and planning your upcoming meals – or do you tell yourself that you’ll try again next New Year’s?

Financial independence is a long-term objective that requires maintenance as well. You may have to dip into your emergency fund to cover an unexpected expense. You might splurge and make an impulse purchase that falls outside your budget.

It’s important to avoid letting one setback justify additional bad behavior. Even if you aren’t perfect with your money, you can find ways to improve your finances each and every day.

How can you maintain your positive personal finance habits to minimize the impact of a setback?

  • Continue learning new financial principles with personal finance blogs and books
  • Surround yourself with like-minded individuals who share your goals and values
  • Be publicly accountable for your goals by sharing them with family and friends
  • Automate your behaviors with recurring transfers, payments, and direct deposits

Conclusion

To do something spectacular with your personal finances, you will need to adopt different beliefs and behaviors about money that may be different than your peers.

You can make this financial change easier by understanding the how the “stages of change” model applies to you and your personal finances, assessing your current status in the model, and finding ways to reinforce the right behaviors until our reach your goal.

No matter how long you’ve been focused on your personal finances – whether you’re just contemplating your goals or maintaining your progress – there are strategies you can use to make good financial behavior easier.

How do you stay committed to maintaining the positive financial changes in your life? 

Author Bio:

Aaron is a lifelong entrepreneur and internet marketer who started Personal Finance for Beginners to share experiences and insights from his own financial journey as he pays down student loan debt, sticks to a deliberate budget, and saves and invests for the future. You can find him at Personal Finance for Beginners or on Twitter @PFforBeginners.

Basic Economic Concepts for Consumers

Gone are the days when you just use to go out and shop with very little knowledge of what you are having, we use to have our faith on the salesperson but now, now there is a significant shift in our course of actions.

Modern customers know that the person guiding them about a particular product is getting paid to do what he does, he has to sell their product no matter what and here where people start to question that whether the product is worth buying?

Customers now are more familiar with their power than before and like to know about the dynamics of the product even without leaving home. Several reviews are there on the websites to help the people to make better judgments.

Following are the three concepts that I believe every consumer must be aware of for better economic understanding.

SCARCITY

As a human our needs are endless, one day we may be crying over no food at all, but another day when we have bread we would ask for eggs. The next day we would have eggs and bread, but we would find the milk missing, and this will continue until our own end. The list is never-ending, you may think it would end but it would not, that is how we human work.

The gap between our limited resources and our endless wants is known to be scarcity. Scarcity requires people to list down their needs and wants separately and then to figure out how to satisfy their needs first and only then their wants. British economist Lionel Robbins defined scarcity as

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

There is nothing free in this world. Take breathing as an example, we take breathing as free of cost but give it a good thought. We breathe in this air of industrial revolution with so many poisonous gases all around. These gases expose us to so many diseases that make us end up in a hospital bed, and we all are familiar with the bills that are charged by hospitals. So we end up paying for breathing too. Now as we understand that air is not free also, the government has another thing to invest into with the limited money to invest in. Here is where the government has to decide which thing should be given preference regarding investment.

DEMAND AND SUPPLY

The market works with this phenomena; demand and supply is the key to be found, and you have a properly functioning system to yourself. But make no mistake, a constant check and evaluation is a must.

What happens is manufacturers determine what their products’ demand is and then only they could know how much supply is needed. And the slight shift in the change of the supply can make a drastic difference to your product.

For instance, if you are the monopoly in rice manufacturing or as a group all you rice manufacturers decide to supply lesser rice for a period this will make your price boom in days as people will sense scarcity. But if one of you sells there product with the same or cheaper price than the traffic of customers from rest of the companies will flow your way hence, more demand for you more supply for them.

As shown in the figure, the increase in demand increases the supply and price and the decrease in demand decrease the supply and price

MARGINAL UTILITY

Marginal utility is one of the core concepts in economics because it helps the economist to determine the demand people have and supply producers have to make. The negative marginal utility is when the consumption of a product decreases, and the positive marginal utility is when the consumption of a product is increased.

This concept helps the economists to determine what things and ways people get happy and satisfied and how that affects their decisions for buying any commodity.

Economists also came up with the law of diminishing marginal utility. This phenomenon claims that the first unit of a product holds more utility for the consumer than the second one, like, when we feel thirsty and have a glass of water, we feel satisfied, the next unit of consumption gives us satisfaction but not as the first unit did. And if we keep on drinking, the pleasure will only turn into displeasure.

Economists’ claims that every individual wants to reach the highest level of satisfaction to get the total utility to make their purchase worth it but total utility differ from product to product and person to person.

For instance, maybe a shampoo brand is perfect for me, it makes my hair look good, but when I bought it for my daughter, she ended up with frizzy hair all day. Here I may love that brand but she did not. This is how different our demands can be.

Author Bio: Sarah Smith has been a personal finance author for the last five years. She is also an independent and very passionate finance and investment advisor. She regularly posts at www.personalincome.org.

How to get Started with Airbnb

I am very excited about today’s post.  This is a guest post from my new friend Cubert from AbandonedCubicle.com.  In this post, Cubert shares how he is planning on retiring at age 46 and to abandon his cubicle for good.  As a more passive investor, this post has provided me with great insight into real estate investing as well as an introduction to what is required to operate an Airbnb business.  I hope you enjoy it and find it as educational as I did.

How to get Started with Airbnb

For those of you who don’t know my story, here’s a little primer. I go by the pseudonym Cubert to keep a little anonymity on my blog, AbandonedCubicle.com. I’ve been a student of early retirement since the fall of 2014.

Around that time I discovered that it is possible to retire early with very little actual sacrifice and much to gain. That’s a good thing. See, we’d had our first kids – twins – just a year earlier. If life wasn’t crazy enough with work, the home front changes pushed us over the line.

I’m now within a year and a half of ending my cubical days for good. I’ll be 46, which is nowhere near as exciting as others who’ve reached that milestone in their 30s. But then, I have no regrets. And honestly, who can complain about being done working for the man a good 15 or 20 years before Fidelity says you should?

My Plan

It’s interesting how life-changes sometimes come in bunches. Within a span of two years, we started a real estate rental business, changed jobs, had twins, and then locked in on early retirement. Whew. Makes my head spin just thinking about it!

The real estate rental business turned out to be crucial in our wealth building progress. We definitely went out on a limb, but with the help of a good friend already in the business, I had enough confidence to buy our first rental – a short sale single family house.

We weren’t flush with cash. I had to take out a home equity line of credit on our primary residence to afford the down payment. Once we closed, the list of improvements grew to a tally of almost $5,000. Man, what had we gotten ourselves in to?!?

Long story short – this first house got rented out within two months of closing. Rent checks started flowing in. We closed on our second rental just six months later, right around the time we welcomed our twins into the world. Rentals three and four followed in 2015 and 2016.

Ultimately, each of our four long-term rentals have paid off handsomely. Thanks to a strong market here in Minneapolis, we can command good rents. Plus, the tenants we attract have been great to work with. Never a late payment, and often they’ll put their own money into small improvements. We clear about $500 in net profit per house, per month.

1 Our First Rental – “Rental A”

How Airbnb Came into the Picture

In 2017, the pickins were slim. The housing market had really taken off in the Twin Cities. Houses that once sold for $100,000 were now going for $150,000. In my quest for our fifth rental, I kept running into windmills. Cash-on-cash returns just weren’t adding up on the overpriced dumps that were available.

About ready to give up, we visited my folks in Charlevoix, Michigan last August. I was perusing the local paper and decided to take a peek at the real estate listings on the back page. I noticed a condo for sale in the same development where my parent’s spend their summers. It was bare bones, with zero updates since having been built in 2005.

I figured, at $125,000 list price, what could it hurt to have a look? This area is a great summertime destination. A new vacation rental option started to dance around in my head.

What is Airbnb?

For those uninitiated (which included yours truly until a few years back), from Wikipedia:

Airbnb is an American company which hosts an online marketplace and hospitality service, for people to lease or rent short-term lodging including vacation rentals, apartment rentals, homestays, hostel beds, or hotel rooms. The company does not own any lodging; it is a broker which receives percentage service fees from both guests and hosts in conjunction with every booking. In January 2018 the company had over 3,000,000 lodging listings in 65,000 cities and 191 countries.

For a company that started nine years ago, that’s a pretty impressive number of lodgings. How long did it take Hilton to build that many rooms? All Airbnb’s founders had to do was harness the Internet, create the marketplace, and take their 3% cut from each booking. Genius.

As we worked through the offer process and closing on the condo this past fall, I was also digging into my research. We’d stayed at a couple of Airbnbs, but we sure as heck hadn’t hosted any. A few helpful sources: Pinterest (see Financial Panther) and a very helpful book called “Get Paid for Your Pad” by Jasper Ribbers and Huzefa Kapadia.

The Easy Parts

Setting up your digs, whether it’s a spare room in your house, or a wholly furnished separate dwelling is pretty straightforward on Airbnb’s interface. I give them credit for creating a highly intuitive experience for hosts.

I will warn, however, that there are a LOT of variables that come with hosting. You don’t just set your nightly price, upload a bunch of pics and wait (and hope!) Nope. You’ve got to figure out check-in, check-out times. You need to create a house manual.

There’s more. Do you want to set a strict or flexible cancellation policy? Do you want to include a security deposit? How much will you charge guests for cleaning? This is where that handy book “Get Paid…” was a real life-saver.

1 So many variables to set!

Once you do get everything all set up, there’s a certain amount of apprehension that sets in. You have ZERO ratings. Who in their right mind would rent from you? This is why it’s super important to channel your inner marketing skills.

Study this sh*t out of your area Airbnb market. Use the best photos. Make sure your prices are strategically set to account for seasonality and local events. Even after you think you’ve got a handle on everything, be prepared to wait patiently.

I’ve got four whole bookings set for the next 9 months. Once reviews (hopefully 5 stars) start coming in, I’m certain the bookings will ramp up.

The Hard Parts

Then, there’s getting a place ready for prime time. In our case, we had purchased a really solid condominium unit that was not much over 10 years old. As they say with houses, “the bones were good.”

That said, the place was used as a Coast Guard rental. The carpet was original, and the walls were beaten up all to hell. There certainly weren’t any improvements that I could see during that first walk through. All original fixtures, and a lot of wear and tear.

Before…

The bottom line is you’ll likely need to put in some good ol’ fashioned elbow grease to get your property ready for vacation rental use. A LOT of elbow grease. Remember, these types of rentals have to be fully furnished (unlike long-term rentals, where tenants furnish the space.)

After…

Conclusion

I’m really enjoying the journey to my early retirement. Over the past three-plus years of the countdown, I’ve come to appreciate all the trouble I can get into outside of a cubicle. Working on homes and managing properties gets me out of a seated-all-day position. I get to produce something tangible.

We’ll see how the Airbnb Experiment goes. I’m optimistic about its potential, but I’m still learning and researching as much as I can before the high season hits this summer. Just this week, I’ve opted to fire up a listing on VRBO.com. Marketing through more than a single channel is never a bad idea.

I’ll leave you with one last bit of advice: More than anything, I’ve learned that early retirement is simply a means to an end. It should never be just an escape from a bad situation. Instead, “early retirement” is best when you use it as a launch pad for big ideas, projects, and hustles that align with your passion. Endless vacations get a little stale after a while.