Money Management

Graham Stephan says he practices financial minimalism and doesn’t spend money. Find out what he really means and how you could do the same. 

In addition to being a successful real estate agent, investor, and YouTuber, Graham Stephan calls himself a financial minimalist. Even though he earns a very high income, he’s also extremely frugal. So frugal, in fact, that Stephan recently published a video where he said he doesn’t spend money.

That might sound ridiculous at first. Just about every adult spends money, so when someone claims they don’t, it’s going to raise some eyebrows. In Stephan’s case, it’s not entirely true, but there is an interesting explanation behind it.

Graham Stephan’s investments cover his cost of living

First things first, Stephan has bills and spends money on them, just like anyone else. As he explains in his video, he uses the proceeds from his investments to pay for all his expenses. He never spends more money than his investments make, so his passive income covers his cost of living.

The way he has achieved that is a two-part process. First, Stephan has built up a large portfolio of investments to generate passive income.

He says that his first rental property generated about $30 per day. After thinking about what bills he could cover with that money, he decided that he wanted to invest more money in income-producing assets that could pay for the rest of his expenses. While Stephan got his start with real estate, investing in stocks is another way to do this.

Stephan also keeps his expenses to a minimum, but not just for the typical reasons like being able to save more. He lives frugally because he knows that the less he spends, the less money he needs invested to fund his lifestyle.

Thanks to his investments, Stephan is in a favorable position financially. He never needs to dip into his bank accounts or even his personal income to pay for anything. He funds his whole life using what he makes on his investments, giving him the freedom to do whatever he wants.

Working toward financial independence

Financial independence, the point where your investments cover your living expenses, is a smart goal. Stephan’s far from the only one who has made it a part of his life. There’s an entire movement around it, known as FIRE, which is short for “financial independence, retire early.”

The FIRE movement recommends maximizing income, minimizing expenses, and investing heavily, exactly like Stephan has done. Now, these are all sound financial decisions. The key is figuring out how far you want to take each one, so you can build for the future without wrecking your quality of life in the present.

Stephan is an extreme case, which he himself has said. He’s in the top 1% in terms of income, reportedly making $6 million in 2021. He also doesn’t spend extravagantly. Those two factors helped him reach financial independence at a young age (he’s 33).

It’s definitely worthwhile to follow Stephan’s approach, although you don’t need to follow it to the extent that he does. Here are some good ways to get started:

Set aside at least 15% to 20% of your income for savings and investments.Invest in the stock market. One of the easiest ways to do this is through index funds.Look for areas where you can be more frugal. You don’t need to cut back everywhere, but try being more selective about how you spend your money.

Stephan says that money gives you options, and he’s right about that. Financial independence is financial freedom. If you manage your money well, you can get to the same place as Stephan, where your investments cover your bills.

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Automation can be incredibly helpful in streamlining our lives, but it’s important to recognize the potential hazards. Read on to learn more. 

Technology has made our lives easier in many ways. One way it has made things more convenient is by allowing us to autopay our bills. No more worrying about accidentally missing deadlines or getting charged late fees! While autopaying bills may seem like an easy call, there are some cases where it may not be the best option.

Utility bills

Autopaying your utility bills — like gas, water, and electricity — can save you a lot of time and hassle. However, it may not always be the best option. When you autopay your utility bills, there is a chance that you may not be aware of any spikes in usage.

This can cause you to be unaware of how much you are really spending each month. Moreover, autopay can make it difficult to dispute incorrect charges, cancel services, or switch providers if you’re not satisfied with the quality, price, or customer service you’re receiving.

Take a second look at your bill before you pay to make sure you are not overpaying. Review your utility bills every month, track your usage, compare prices, and negotiate discounts or payment plans if necessary.

Subscription bills

Autopay can be a convenient way to enjoy your favorite streaming services, gym memberships, or magazine subscriptions without having to remember to pay every month. However, autopay can also lead to overspending, especially if you forget about your subscriptions.

Many companies offer free trials or discounts to new customers in hopes they sign up and forget about it, causing you to continually pay for services that you no longer use.

Additionally, autopay can make it difficult to cancel your subscriptions or dispute incorrect charges. Review your subscriptions and cancel or renegotiate the ones that don’t meet your needs or expectations.

Credit card bills

Autopay can be a useful tool to avoid late fees, interest charges, or credit score drops if you forget to pay your credit card bill on time. However, autopay can also lead to overpaying, especially if you have a high credit limit, a low balance, or multiple credit cards with different due dates.

Autopay can make it harder to monitor your spending, detect fraudulent charges, or dispute billing errors. Some criminals charge small amounts on stolen credit cards, hoping it goes unnoticed.

Set up email or text alerts for transactions and due dates, monitor your balance and transactions regularly, and pay manually if you can afford to, or even pay weekly or biweekly to reduce your interest.

In addition, if you have a balance that you cannot pay off in full each month, autopaying a set amount instead of the full balance can be detrimental. It can cause you to rack up unnecessary fees and interest charges. Instead, make a habit of checking your account and then pay off any balance due in full.

If you don’t have enough money in your account

But before you sign up for autopay on any bill, consider this: If you are living paycheck to paycheck, you can be hit with overdraft fees or late fees if you don’t have sufficient funds in your account.

Before you make a payment such as rent or a car payment, make sure you have enough money in your checking account and double-check your payment schedule and amount, as well as your budget. Opting for autopay can be a useful tool for managing bills, but it shouldn’t be used as an excuse to be careless with your personal finances.

Autopay can be an invaluable tool to save time and avoid penalties or fees. However, it’s not a one-size-fits-all solution, and it has some risks and disadvantages that you should be aware of. By reviewing your bills every month, tracking your usage and spending, and negotiating payment options when needed, you can stay on top of your bills and avoid the pitfalls of autopay. Remember to balance convenience with control, and choose the best payment method for each bill based on your preferences, needs, and circumstances.

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An adjustable-rate mortgage leaves you subject to changing loan payments over time. Read on to learn more. 

Signing a fixed-rate mortgage loan is a great way to ensure that your monthly payments will be nice and predictable in the course of paying off your home. If you sign a 30-year fixed mortgage at 6%, for example, you know that’s the rate you’ll pay on your loan until your home is paid off, unless you refinance it. That could make it easier to work your monthly housing payments into your budget.

But you don’t have to lock yourself into a fixed-rate mortgage. There’s also the option to borrow via an adjustable-rate mortgage, or ARM. Doing so has its pros and cons, though, so it’s important to know what those entail.

How an ARM works

When you sign up for an ARM, your loan is subject to an initial interest rate that stays in place for a period of time. Your rate then has the potential to adjust at certain intervals, depending on the term of your loan.

A 5/1 ARM, for example, will have you paying the same mortgage rate for five years (that’s what the “5” stands for). From there, your loan’s interest rate can adjust once a year (which is what the “1” stands for).

The upside of a 5/1 ARM

You’ll often snag a lower interest rate initially on a 5/1 ARM than on a 30-year fixed mortgage. Case in point: Zillow says that the average rate on a 30-year fixed mortgage today is 6.48%. Meanwhile, the average 5-year ARM rate is 6.33%. So there’s the potential for a little bit of savings by going with an ARM.

The downside of a 5/1 ARM

Any time you sign an ARM, there’s a chance that your loan’s interest rate will climb over time, leaving you with more expensive monthly payments. Granted, that’s not guaranteed to happen, and it’s possible that your loan’s interest rate could go down over time, depending on market conditions.

The problem is, you don’t know what’s going to happen. So you’re taking a risk when you sign an ARM, because you could end up stuck with costly payments that are a struggle for you to afford.

Is an ARM right for you?

An ARM could be a good idea if you’re not planning to stay in your home for very long — such as, if you’re buying a starter home — and you expect to move before the interest rate on your mortgage has the potential to change. Otherwise, you’ll need to accept the fact that your loan might start costing you more over time.

It also really only makes sense to sign an ARM when the difference between that and a fixed-rate loan is substantial. If the difference in interest rates is minimal, the small amount of savings probably isn’t worth the risk.

Let’s say you sign a 30-year fixed $200,000 mortgage at 6.48%. That will leave you with a monthly principal and interest payment of $1,262.

Meanwhile, with a 5-year ARM at 6.33%, you’re looking at a monthly payment of $1,243 for your first five years. That’s a monthly savings of $19 and a yearly savings of $228. And over a five-year period, it’s a total savings of $1,140.

All told, that minimal amount of savings is probably not worth the risk of an ARM, because your payments could start rising after five years. On the other hand, if you were looking at savings of more like $100 a month with an ARM, that would more easily make the case for one.

All told, ARMs have their advantages, but they come with risk. Be sure that risk is worth taking on before making your choice.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zillow Group. The Motley Fool has a disclosure policy.

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Costco is known for offering discounts on a wide range of products — even pet insurance. Learn why it’s worth considering. 

Pets are more than just animals, they are family members. That’s why they deserve the best care possible, even when they get sick or hurt. But veterinary care bills can be very expensive, and not everyone has the means to pay for them out of pocket. That’s where pet insurance comes in. Pet insurance can help cover the cost of unexpected vet bills, so you can rest easy knowing that your furry friend will always have access to the medical care they need. But is pet insurance at Costco a good option?

Costco members save through Figo Pet Insurance

Costco partners with a pet insurance provider called Figo to offer pet insurance to its members. Figo is a well-established pet insurance company that has been around since 2012. One of the biggest pros of getting pet insurance at Costco is the cost.

Costco members can save up to 15% on their pet insurance premiums. Executive Members also get the $15 enrollment fee waived.

What does Figo cover?

Figo offers several plans for its members, including common illnesses, accidents and emergencies, wellness and preventive care, and more. This means that pet owners can choose the plan that best fits their budget and their pet’s needs.

One of Figo’s perks is its Pet Cloud Live Vet feature. Members get free 24/7 direct access to a licensed veterinarian. Pet owners can also use the app to connect with other pet owners, find pet parks, pet daycare centers, keep track of a pet’s medical records, and more.

Figo states that most claims close in just 2.6 working days. Figo is also one of the few pet insurers with a 100% reimbursement option. Most plans cap coverage at 90%. Figo will reimburse 100% of your eligible expenses once you meet your deductible and up to your annual benefit.

How much does Figo cost?

The cost of pet insurance depends on many variables, such as the type of pet, breed, sex, age, location, annual coverage limit, and the deductible. Average premium costs can vary from $20 to $50 a month.

For a 12-week female puppy, here are the costs for the different plans that Figo offers. Costco members get an additional 15% from these prices according to a quote:

MOST POPULAR PLAN: $47.52 /month

Figo pays 80% of approved vet medical costs up to $10,000 per year after you pay a $250 deductible.

HIGHER COVERAGE: $53.61 /month

Figo pays 90% of approved vet medical costs with no annual coverage cap after you pay a $500 deductible.

VALUE PLUS: $17.88 /month

Figo pays 70% of approved vet medical costs up to $5,000 per year after you pay a $750 deductible.

Figo also offers customized plans based on your budget. In addition, Figo offers Powerup Plans that cover vet exam fees and routine wellness coverage.

Vet Exam Fees: An additional $3.65/mo.

Coverage for vet exam fees for accidents and illnesses, including telehealth consultations. Does not provide coverage for annual wellness exams or preventive care.

Wellness: An additional $9.50/mo.

Routine care coverage, including dental, can be added to any plan to help pay for vaccinations, spay/neuter, bloodwork, heartworm preventive, and more. Coverage amounts based on benefit schedule.

Members can also get a 5% discount when adding multiple pets.

Figo only covers cats and dogs

While Figo pet insurance has much to offer pet owners seeking coverage for their furry friends, it’s important to note that the coverage is limited to only cats and dogs. Unfortunately, this means that other types of pets, such as birds, hamsters, or reptiles, will not be covered under this insurer.

Additionally, Figo, like all pet insurance companies, has some exclusions and limitations in its coverage, so it’s important to read the fine print and understand exactly what is and isn’t covered.

Despite these drawbacks, Figo’s comprehensive plans for cats and dogs are impressive, as it offers accident and illness coverage, as well as routine care coverage options. Figo also has an easy-to-use app for submitting claims and accessing vital information on your pet’s health. Overall, Figo provides excellent coverage, but pet owners of non-traditional pets should seek coverage elsewhere.

Overall, getting pet insurance at Costco can be a good option for pet owners who want affordable coverage with a reputable provider. The discounts and coverage options offered by Figo can make pet insurance more accessible for many families. However, it’s important to weigh the pros and cons before making a decision and to do your research to ensure that you’re getting the best coverage possible for your furry friend. By investing in pet insurance, you can give your pet the care they deserve without sacrificing your financial stability.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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You don’t need to own dozens of individual stocks to diversify. Read on to learn more. 

You’ll often hear that diversification is important to any investment portfolio. Branching out nicely could set the stage for growing a lot of wealth over time. It could also help you minimize losses in the event of a stock market slump — something many long-term investors are more than familiar with.

Now you could diversify your portfolio by investing in dozens of stocks across a range of market sectors. But believe it or not, it’s actually possible to assemble a diversified portfolio with just one investment.

When you invest in the broad market

Some investors prefer to load their brokerage accounts with ETFs instead of individual stocks. When you buy shares of an ETF, what you’re doing is getting a collection of stocks with a single purchase.

Now there are different types of ETFs you can choose to put your money into. But if your goal is to diversify your portfolio, you may want to focus on S&P 500 ETFs.

The S&P 500 is a market index that consists of the 500 largest publicly traded companies. Often, the S&P 500 is used as a benchmark to determine how well or poorly the stock market is doing on a whole. So if you buy shares of an ETF that invests in that index, you’re branching out quite nicely.

Of course, you may be wondering how well your portfolio might fare financially if you load up on S&P 500 ETFs. To that end, you should know that over the past 50 years, the S&P 500 index has rewarded investors with an average annual 10% return before inflation.

This doesn’t mean that every year has been a stellar one for the S&P 500 over the past half-century. In fact, there were plenty of years when the index lost money, and plenty of it.

But all told, the S&P 500 has generated a 10% yearly return on average. So chances are, if you buy shares of an S&P 500 ETF and hold them for many years, you’ll get to enjoy a similar return in your portfolio.

To that end, let’s say you put $250 a month into an S&P 500 ETF over a 40-year time period. At an average annual 10% return, you’re looking at a portfolio worth over $1.3 million. Talk about a lot of money.

It’s okay to fall back on S&P 500 ETFs

If you put all of your money into an S&P 500 ETF, you’re not going to beat the broad market. To do that, you’ll need to invest in different companies individually and hope that their performance outpaces the stock market on a whole.

But if you’re happy with the idea of a 10% return on your money over time, then it pays to rely on S&P 500 ETFs to branch out in your portfolio. And that way, you won’t have to sink too much time into diversifying your holdings and worry that you’re choosing the wrong individual stocks along the way.

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CDs provide a higher rate of return than a typical savings account, but there are tradeoffs. Find out here how much to put into them. 

Certificates of deposit (CDs) come with FDIC insurance, so there’s essentially no risk to your money. And they tend to provide a higher interest rate than even a high-yield savings account

When you buy a CD, you’ll agree to keep your money invested for a period of time in exchange for getting that higher interest payment. Unfortunately, if you take your money out early, you get hit with a penalty.

CDs are not a liquid investment, as you’re tying up cash you can’t easily take out. Plus, they typically don’t provide the opportunity to earn the same generous returns you can get in the stock market. So you’ll need to think carefully about what role (if any) they will play in your financial life.

Specifically, here’s how you can decide how much money to put into a CD.

What is the minimum deposit required to invest?

Some CDs do not have minimum deposit requirements, but many do. For example, you may be required to deposit $1,000 or more to gain access to many CDs.

If you have a particular CD you want to invest in (perhaps because it offers a generous rate of return for a relatively short time commitment), you will need to invest enough to gain access to it based on its deposit minimum.

Making sure you fulfill the minimum requirement will help you decide exactly how much to invest.

What is your goal in buying a CD?

You should not put your emergency fund into a CD because you are going to need to be able to access that money if something goes wrong. You don’t want to trap your emergency money and then get stuck deciding whether to incur the penalties that would come with early withdrawal or go into debt to cover the emergency costs.

If you are setting aside money for specific goals that have a long time horizon, such as saving for retirement, then you probably also don’t want to put much of it into a CD. You can earn a better rate of return by investing in the stock market for the long term (especially if you buy something safe like an S&P 500 index fund). If you have a long investing timeline, you can minimize the risk of buying stocks. Even if you buy at a bad time and your share prices fall, the cyclical nature of the economy means they should eventually rise again.

If you have some mid-range goals you’re saving for, you won’t need the money for a few months or even a year or so, but you don’t want to risk buying stocks and potentially having to leave your money tied up for a few years until a market recovery, then a CD may be a good place for it.

So, how much is right for you to invest?

By considering your goals for your money and how much you need to get your desired CD, you can decide how much money you should put into this type of asset. No matter what your decision, though, remember that if you want to avoid risk, you should make sure you keep your investment below the $250,000 FDIC insurance limit.

By considering these issues, you can decide what portion of your funds is best suited to a CD, so you can make the choice that’s right for you.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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