Radical Personal Finance

You can’t go from broke to rich in a single step. There’s no magic fairy who will suddenly transform your financial life for you. You have to do it yourself.

But you can work your way through a path that leads to financial independence and complete abundance. That path has stages and you should celebrate your progress at every stage!

In today's show, I share with you my ideas regarding the stages of financial independence. I believe this is a useful roadmap to help you navigate from where you are to total Financial Abundance.

Stage 0: Financial Dependence

Stage 1: Financial Solvency

Stage 2: Financial Stability

Stage 3: Debt Freedom

Stage 4: Financial Security

Stage 5: Financial Independence

Stage 6: Financial Freedom

Stage 7: Financial Abundance

My challenge to you is to take these stages, understand where you are, and lay out the numbers of your own situation. How much do you need to be financially stable? What's your number for financial independence? Financial freedom?

Write it down clearly for yourself and then keep working on it!

Enjoy the show,

Joshua

Links:

• Here is the new page on the website: http://radicalpersonalfinance.com/finance-topics/stages-of-financial-independence/
• Become a Patron of Radical Personal Finance! http://radicalpersonalfinance.com/patron

At long last, we enter into the oft-requested topic of life insurance! Today's show is an introduction to the economic basis and justification for life insurance and it's also an outline of some of the uses of life insurance for individuals and families. (We'll cover business uses another day.)

You also get the joy of a bit of a sales pitch on why I love life insurance planning so much. It's truly an incredible financial product.

Life insurance is founded on the economic value that each of us provide to others and on our moral obligation to provide for our dependents.

Because each of us has an economic value that can be estimated, we can come up with some formulas to understand how much life insurance is appropriate.

The three major approaches to determining an appropriate amount of life insurance are:

1. Human life value approach
2. Needs analysis approach
3. Rule of thumb approach (most popular is the multiple of income approach)

The best of these methods is the needs analysis approach. It balances the need for precision and the need for simplicity quite effectively.

Life insurance can have many uses for individuals and families:

• Immediate funds:
  • Cash to meet daily living needs
  • Cash to pay expenses associated with death
  • Cash for emergencies, repairs, or replacements
• Ongoing income:
  • Spouse
  • Children
  • Parents
  • Nondependents
• Funds to pay debts
• Funds for death taxes
• Funds for dependents' education
• Funds for trusts
• Funds for charities
• Funds for gifts
• Funds to supplement retirement income
• Funds for home health care or nursing home care
• Funds to transfer assets to a younger generation
• Funds to discreetly provide for confidential needs

Enjoy the show!

Joshua

• Support Radical Personal Finance! http://radicalpersonalfinance.com/patron

Retirement planning is at the core of the financial planning profession. But, it's a very complex subject and it's tough to wrap your head around the process.

I've invited Roger Whitney, CFP®, CIMA®, CPWA®, AIF®, financial advisor and host of the Retirement Answer Man Podcast on the show today to chat about retirement from his perspective.

Roger specializes in working with retirees and prospective retirees in a formal financial planning capacity. I think you'll be intrigued by some of his perspectives.

Show topics include:

• Roger's path through the financial planning profession
• How to create a retirement plan
• How to plan for retirement when you don't have enough money
• What to do if you can't retire...or simply don't want to
• The impact of podcasting on Roger's financial planning practice

Enjoy!

Joshua

• Roger's "Retirement Answer Man" podcast: http://www.rogerwhitney.com/
• Support Radical Personal Finance! http://radicalpersonalfinance.com/patron

One of the challenges of personal finance math is the relevance of a particular scale. Sometimes you can get a massive benefit by switching to a different scale.

One famous example is the daily latte. $4 for a latte sounds about right in today's world. But if you do it every day, it adds up. To fully appreciate the impact of the seemingly small expenditure you can change the scale from daily to annual.

$4/day x 5 days per week x 52 weeks per year is $1,040/year spent on coffee. That's a lot of money!

If you're scared that I'm trying to take away your latte, don't be. I'm not! But I do want you to use and apply that tactic to the actual numbers from your financial life.

In today's show:

• Updates from my canceling the show last week so I could launch the new website! It still needs plenty of work (especially for me to go back through and properly categorize all of the past episodes) but it's functional!
• Why we need to convert to a different scale to appreciate the meaning of a number.
• Why we have problems understanding very large numbers.
• Why we have problems understanding compound interest.
• Converting from annual/monthly numbers into daily numbers.
• Converting from daily/weekly/monthly numbers into annual numbers.
• How to create factors to quickly convert numbers to a 10-year number for both one-time epenses and ongoing expenses.
• Stretching to a 40-year time period and a lifetime time period.
• Using the financial independence math based upon the 4% rule. (Multiply monthly numbers by 300 and annual numbers by 25 to know how much you need to have saved.)
• How I apply this concept to my income as well.

Enjoy the show!

Joshua

Links:

• Support the show financially! http://.radicalpersonalfinance.com/patron

I've got a double problem this week that is keeping me from releasing shows:

1. No internet at my house.
2. Launching the new site.

So, I'm releasing a couple of interviews that have been recorded with me in the past.

This one is very good. Rob is a great interviewer and he was able to get very in-depth.

This show has an in-depth discussion of the benefits and problems of financial advisors.

Rob was also able to pull some pretty personal stuff out of me from my past!

Joshua

Links:

• The original post on Rob's site: http://www.doughroller.net/personal-finance/interview-of-joshua-sheats-cfp-of-radical-personal-finance/
• Subscribe to Rob's show: http://www.doughroller.net/thepodcast/
• Support RPF on Patreon: http://radicalpersonalfinance.com/patron

I'm not able to record a normal show today, so I'm releasing a copy of an interview I conducted with Nick Loper from Side Hustle Nation.

This interview was released on February 19, 2015 on Nick's show, just in time for tax-time!

This show is a good overview of some general tax tips:

• When and why you should incorporate your business, and why most beginning side hustlers should NOT.
• How to set up a business name even as a sole proprietor.
• The types of expenses you can deduct as a side hustler.
• 3 overlooked tax savings opportunities that will get your gears turning.
• How to audit-proof your side hustle.
• A free business idea for people who get a kick out of helping people save money.

Enjoy!

Joshua

Links:

• The original post on Nick's site: http://www.sidehustlenation.com/tax-saving-tips-for-side-hustlers/
• Subscribe to Nick's show is you're interested in more ideas on making money on the side: http://www.sidehustlenation.com/itunes
• Support Radical Personal Finance on Patreon: http://radicalpersonalfinance.com/patron

My guest today is a veteran of financial reporting. Fred Gabriel has spent the last 17 years reporting on the financial advice industry. He began his career as a mutual fund reporter and progressed to be named the editor of Investment News in 2012.

I spoke with Fred at the Technology Tools for Today Conference and we focused our conversation on the changing landscape of financial advice. Due to the nature of his job, Fred has a front-row seat on all of the changes happening in the industry.

The interview focuses primarily on the investment advice industry but does have ideas and content which can be applied to other industries. Topics include:

• History of the investment industry and the changing appearance of financial advisory firms.
• The changing role of marketing for financial services businesses.
• The transition from large investment firm marketing to individual financial advisor marketing.
• How large firms can appeal to millenial advisors.
• How trusted are financial advisors?
• How advisors can build more trust with the general public.
• The marketing of commission-based financial advice, fee-based financial advice, and fee-only financial advice.
• The increasing transparency of the marketplace.

Enjoy the interview!

Joshua

Links:

• Fred's recent articles on Investment News: http://www.investmentnews.com/staff/fgabriel
• Support Radical Personal Finance: http://www.radicalpersonalfinance.com/patron

On Monday, I released the show on new cars vs used cars. It became clear to me while doing that show that I really needed to do an in-depth discussion of the concept of Opportunity Cost.

If you understand Opportunity Cost you can easily help people to make better decisions.

All of us make decisions based on what we value. Every transaction is based on each party involved preferring what the other has more than what he/she has.

Good decision making is largely based on simply understanding all of the options that each of us has, considering the various scenarios, and then choosing which scenario is most ideal for our circumstances.

In today's show I add some serious meat to this idea with a bunch of pertinent examples:

• Car-buying options
• College options
• Housing options
• Eating and moving options
• Options on where we live
• Family options
• And more!

At the end of the day, you control your own life. Consider your decisions carefully and simply make the decision that is best for you.

Joshua

Links:

• Support the show on Patreon: http://radicalpersonalfinance.com/patron
• Russ Robert's article on Opportunity Cost: http://www.econlib.org/library/Columns/y2007/Robertsopportunitycost.html
• 100 Countries or an SUV: http://chrisguillebeau.com/100-countries-or-an-suv/

I've brought you some shows on the concept of advancing your career by attending industry conferences.

But what about getting a double bonus by organizing the conference yourself? That way you get all the benefits you would get from attending but you get the added bonus of becoming an industry leader.

Plus, perhaps you can make some money on the event!

My guest today is Philip "PT" Taylor, founder of http://ptmoney.com/ and http://finconexpo.com/. PT started working as a CPA, transitioned to full-time financial blogger, and ultimately created one of the most well-loved financial conferences: FinCon.

The interview is a complete discussion of:

• PT's personal finance story and his journey out of debt.
• How he transitioned from working as a CPA to working as a full-time blogger.
• Where the idea for the Financial Blogger's Conference (FinCon) came from.
• How he financed the initial transition.
• How much money he made in the early years and the most recent year.

Enjoy the discussion!

Joshua

Links:

• PT's website: http://ptmoney.com/
• Details for a ticket to FinCon: http://finconexpo.com/
• Details of PT's first year of self-employment: http://ptmoney.com/self-employment-a-year-later/
• Support Radical Personal Finance: http://radicalpersonalfinance.com/patron

Ahhh, the great debate over cars! Should I buy new or should I buy used?

In reality, the answer is simple:

• What are the needs and wants you're trying to satisfy?
• Which option meets those needs for the lowest total, lifetime cost?

Choose the option that fits best.

But, of course, there are as many ways to answer those questions as there are people in the world.

Regardless of the decision you make, here are some ideas for you to consider to lower the total cost and enhance your results:

• The thought process for choosing a used car vs. a new car is no different than the decision applied to any other item that you own. We should consider new vs. used for every item that we buy. Cars are a bit unique though because of their relatively high purchase price and also because we have such an easily accessed and abundant used car market.
• We have an incredible used car market in the USA because:
  • Tons of people regularly buy new cars while their old cars have lots of useful life left. If the supply weren't so plentiful, the recommendation to "buy used" would be more difficult to implement.
  • Vehicles are built to a high quality with a long potential life span.
  • Most vehicles are lightly used. Long highway miles on paved roads don't take a huge toll on a vehicle. If you were in a different situation, it would be different.
• For most people, the highest cost of car ownership is depreciation.
• Depreciation is calculated like this: Initial Purchase Price - Residual Value When Sold = Depreciation (your actual cost)
• To make an intelligent buying decision, carefully consider your actual needs and wants and consider the options that will fit those needs and wants.
• Think carefully about your opportunity cost. If you can save $10,000 of total cost over the lifespan of ownership, what could you spend that money on? For example, would you rather have a cheaper car and a motorcycle or just a more expensive car? Would you rather have a cheaper car and an extra $500,000 in 40 years or just have a more expensive car? The decision is up to you.
• Consider all of the costs of ownership:
  • Depreciation expense
  • Fuel/energy costs
  • Downtime expenses (in case of repair)
  • Financing costs
  • Maintenance/repair costs
  • Insurance costs
  • Other expenses (parking spots, garage space, car wash expense, etc.)
• There are ways to mitigate each of these categories of expenses. The best situation is to find an optimized approach in each category.
• Since the biggest consideration between used and new is depreciation, here are some ideas to minimize depreciation:
  • Buy a less costly vehicle. (20% depreciation on a $40,000 vehicle is a loss of $8,000 in one year. 20% depreciation on a $20,000 vehicle is a loss of $4,000 in one year.)
  • Get an up-front deal. (Buy the same vehicle but buy it at a more opportune time for less. Be out of sync with the general marketplace.)
  • Buy a vehicle that depreciates at a slower rate. (Look for a unique segment where you can use a vehicle that maintains its value more than the general market.)
  • Take better care of your specific vehicle so that it depreciates more slowly.
  • Keep your vehicle for longer. (No matter whether you buy used or new, just keep your vehicle for longer so that the impact of depreciation is lessened.)
• If you want to give a shot at havine a one-car household isntead of a two-car household, consider supplementing for your transportation needs with Uber or Lyft.

Enjoy the show!

Joshua

• Support the show! http://radicalpersonalfinance.com/patron