The Cash Cow Guide to

Personal Financial Planning

Welcome to our website. This page will help you understand why we provide so much valuable content for free and explain how to use the content to improve your financial life.

After getting married in 2013, Vanessa and I (Jacob) were $25,000 in debt, working with a combined annual income of approximately $50,000.

At the time, Vanessa was working full-time in the auto insurance business and I was providing professional tutoring services to undergraduate students pursuing medical school.

Both of our jobs were fine, but we were feeling increasingly stressed and worried about our debt, so we began reading personal finance content and discussing possible ways to improve our situation.

Instead of tiptoeing around the problem, we decided to make major lifestyle changes. In one year, we eliminated 100% of our debt, purchased a mobile home with cash, and began saving more than 50% of every paycheck.

With our newly found financial freedom, I was able to change careers. My favorite part about tutoring was simplifying complex topics to help my students learn and retain the most important information. I decided to build upon that experience by accepting a University teaching position and enrolling in a financial planning doctoral program.

As I began teaching and studying every aspect of personal financial planning, I had three important realizations:

  1. The internet is full of ridiculous, incorrect financial recommendations.
  2. Incorrect information is harming thousands of people who are struggling to get out of debt and achieve financial freedom.
  3. I'm passionate about personal financial planning and have a unique ability to gather, understand, and convey complex financial topics.

To address these issues, Vanessa and I launched this website and began sharing the strategies that allowed us to transform our financial life. Over time, our community has grown to include almost 100,000 visitors each month. There are now a multitude of resources available on this site, with more being added all the time.

To help you find the resources most relevant to your situation, the remainder of this page is divided into sections that represent a personal financial plan. You can begin by starting at the top, or you can jump around to individual sections of interest.

Step 1:

Assess your financial situation

Step 2:

Create a financial plan

Step 3:

Automate the basics

Step 4:

Protect your assets

Step 5:

Eliminate your debt

Step 6:

Improve your credit

Step 7:

Build wealth

Step 8:

Enjoy life

Step 1: Assess your financial situation

Before making important financial decisions, you need to understand your existing financial situation. This information will allow you to measure and evaluate your financial progress over time.

You can start by calculating your net worth, which is a snapshot of your current assets and liabilities. By tracking your net worth over time, you can determine if your financial decisions are helping or harming your financial progress.

Most financial decisions will increase or decrease your net worth. For example, if you spend more money than you make, you will likely acquire debt (a liability), which will decrease your net worth. If you spend less money than you earn, you can save the difference (increasing your assets) or eliminate existing debt (decreasing your liabilities), both of which will increase your net worth.

For this reason, it's important to track your income and expenses on a regular basis. There are a variety of budgeting methods available today, all of which are designed to help you direct your spending. Your chosen method isn't that important. What's important is managing your income and expenses to improve your available cash flow.

  • Total Income - Total Expenses = Available Cash Flow

This simple equation is the key to building a better financial life. Sufficient cash flow will allow you to eliminate debt, obtain insurance coverage, improve your human capital, and build wealth.

Vanessa and I use Personal Capital to track our net worth, income, and expenses in real-time (see my review). After securely connecting your financial accounts, the free software updates and creates easy-to-read graphs to help you understand your financial situation. Personal Capital also includes a bill payment feature that can assist you in automating your finances (step 3 below).

Step 2: Create a financial plan

Once you understand your current situation, you can begin thinking about your plans for the future. To help you get started, I've written a detailed guide on setting and achieving financial goals.

Don't overlook or underestimate the importance of this step. Thinking about and internalizing your goals will provide the motivation necessary to accomplish those goals. Once you understand that your money can be used to improve your life, the goal-setting process becomes meaningful.

To illustrate the importance of planning, consider our situation. In our first year of marriage, Vanessa and I set a goal to eliminate all of our debt. We changed our entire lifestyle and accomplished that goal in 10 months. We then set our hearts on financial freedom, which remains our highest financial priority.

What about you? Have you taken the time to think about the relationship between your money and your life?

Step 3: Automate the basics

Before doing anything else, you should automate a few financial tasks that are universally important.

To establish an automated financial system, you need a low-cost checking and savings account. Your paycheck should be deposited directly into your checking account. You can then create automated transfers from your checking account to pay your bills and create a pool of savings.

We prefer to use cash back or travel credit cards for all purchases. We use whichever card offers the most rewards at our chosen merchant. For example, we are using the Discover It card this quarter to receive 5% cash back at all restaurants. Discover is also offering to double all cash back earned in the first year of card ownership, effectively providing us 10% cash back.

Although we use credit cards for purchases, we never carry a balance or pay interest charges. We create an automatic transfer from our checking account to pay each credit card balance in full each month. You can replicate this process easily through your credit card issuers online banking interface.

Credit cards aside, everyone needs a pool of money that is easily accessible, sometimes called an emergency fund. This pool of money can help keep you out of debt during a period of financial distress. For example, if you lose your job or need to pay for unforeseen expenses.

Most financial planners recommend that you save 3-6 months of living expenses in a high-yield savings account for this purpose. If your income and employment are both stable, you can probably maintain a smaller emergency fund. If your income fluctuates (or you might leave your job), you might consider saving more than six months of expenses.

Step 4: Protect your assets

Once you have an automated bill payment system and a pool of savings set aside, you should verify your existing insurance coverage.

All monthly insurance premiums will reduce your available cash flow, but the insurance coverage will protect your financial assets and ensure that an unforeseen event can't destroy your accumulated net worth.

Some forms of insurance, including auto insurance and health insurance, are legally required. You might also need home insurance or renter's insurance, depending on your living situation. You can shop around at various providers to find the lowest monthly premium for a given level of coverage.

If you are wealthy, or if you're single, life insurance probably isn't necessary. But if you have dependents who rely on your income, you should consider term life insurance. Because of recent technology developments, shopping for life insurance has become a more bearable task. PolicyGenius allows you to compare dozens of life insurers using one short application. Or, Haven Life offers a term life insurance policy with simplified underwriting, which means that you can begin coverage without a medical exam.

Step 5: Eliminate Debt

After securing basic insurance coverage, the next step is eliminating your debt.

To minimize the amount of interest that you pay, you should eliminate debt with the highest interest rate first. Alternatively, you can use the debt snowball approach to eliminate your smallest debts first. For a detailed discussion, see the information and free resources in my debt-elimination guide.

The worst type of debt is high-interest credit card debt, which is why I've written a detailed guide on eliminating credit card debt.

Instead of paying double-digit interest rates, you can transfer your existing debt balance using a balance-transfer. Many credit cards offer 0% interest for 12-24 months on all balance transfers, allowing you to make payments without incurring interest. The only downside is that some (not all) of these cards charge a 3% balance transfer fee. If you need longer than 24 months to repay the debt, you can consider a debt consolidation loan. These loans carry a higher interest rate than balance transfers but offer a longer repayment period of 3-7 years.

Outside of credit card debt, many people struggle with student loan debt. There are a variety of student loan repayment plans to consider, but the only way to reduce the interest rate on your debt is by refinancing your student loans.

The other most common debts include auto loans and home mortgages. You might consider avoiding any auto loans because automobiles are depreciating assets. When you finance an automobile purchase, you are paying interest on the loan, and the vehicle itself will depreciate over time. It's a lose-lose situation.

If you are a homeowner, you likely have a mortgage. The first thing you can do is ensure that your interest rate is competitive. If you obtained the mortgage years ago when interest rates were higher, you can refinance your mortgage at any time. Because interest rates have been very low since 2009, now is a good time to consider a refinance.

Step 6: Improve your credit

When you apply for any loan or line of credit (credit card, auto loan, home mortgage, etc.), lenders use your credit score and credit report to predict your trustworthiness as a borrower. Your credit profile determines the interest rate that the lender is willing to offer you.

But it's not just lenders who are interested in your credit profile. Insurance companies are using credit to predict risk, and a poor credit profile often means higher monthly premiums. Potential employers and landlords will review your credit profile to determine how responsible you are. Cellular providers and utility companies will force you to pay an opening deposit if you have poor credit.

In all of these scenarios, businesses are using your credit profile as a proxy for your character. Whether you agree or disagree with that decision, your credit profile is of increasing importance in the 21st century.

If you are starting from scratch, the easiest way to build credit is by obtaining a secured credit card and establishing a credit-builder installment loan.

Step 7: Build Wealth

At this point, your financial situation should be drastically different. You are tracking your income and expenses, working toward your financial goals, and increasing your net worth. You have necessary insurance coverage, an emergency fund, and far less debt.

Now it's time to put your money to work. As you begin saving a portion of your income, you should think about investing those resources. You can invest in yourself through an educational program that is expected to increase your future earnings, or you can build wealth by investing in financial assets like stocks and bonds.

If you would like to invest in financial assets to grow your savings, there are numerous solutions available. Beginner investors can get started using a managed investing solution like Wealthfront or Betterment. Both services will create and manage your entire investment portfolio in exchange for a 0.25% annual fee (Wealthfront will manage $15,000 free of charge). Beyond creating a customized, diversified portfolio comprised of stocks and bonds, these firms offer automatic rebalancing, tax-loss harvesting, and a slew of other features at no additional cost. The only downside is that these companies are unable to manage 401(k) plans. If you need help managing the investments in your retirement account, Blooom can assist.

Real estate investors should check out Fundrise. Unlike most real estate investments that require an extensive and ongoing amount of effort (rental properties or fix-and-flip investments), Fundrise offers a diversified real estate portfolio that is managed by a team of experts. Most importantly, Fundrise has delivered an average annual investment return of approximately 11% since 2014 (net of fees).

All of the solutions outlined above are passive solutions that require very little ongoing effort on your behalf. But there are other solutions designed for active investors. M1 Finance allows investors to create a customized portfolio using up to 1,000 stocks or ETFs. The combination of securities can be modified at any time without any trading commissions. Or, Motif Investing will allow you to trade up to 30 stocks or ETFs for a flat $9.95.

Step 8: Enjoy life

After completing the steps in this money management guide, your financial situation will improve and many of your money-related stressors will disappear.

Don't forget to celebrate each small victory along the way. It's a journey, and one day you will look back and realize how all of your hard work ultimately led to a better life.