Last August 21, 2017 our house was bathed in complete darkness by the Solar Eclipse. After the eclipse, a storm rolled through our city with torrential rains that flooded nearby rivers and creeks and raised the level of the lake where I live by several extra feet of water. Since that date, we received more severe storms and rain. Each storm broke more and more branches from our trees, which proceeded to fall onto our yard. As we collected these limbs, a pile began behind our house and weeds began to grow in and around this pile. The result was the ugly mass of limbs, branches, leaves, and weeds that you see above.
Last weekend, I set the portable fire pit up in the yard and grabbed my limb trimmer. One by one, I pulled each branch from the pile, trimmed all smaller branches and made pile of large limbs in the grass. I started a small fire in the fire pit with twigs and leaves from the pile. Throughout the day I kept feeding the fire and gradually the huge tangled pile became smaller and smaller.
Once I had a sizeable pile of trimmed branches, I began using my hand saw. I started cutting the larger branches into lengths that would easily fit in the fire pit. Dr. SoS came out and said, “You are not going to cut all that wood today, are you?” By that point I really had not thought about it. I was just trying to clean up the pile. That comment, though, lit a FIRE inside me and I decided to cut all the wood.
I cleared a space and started stacking the wood. The next time Dr. SoS came back outside the pile of trimmed branches was gone and I was cutting one of the last few limbs. She commented that she could not believe that I made it through the entire pile. I did not stop there, but decided to go one step further.
I used my weed trimmer and cut down all the weeds. Then I filled a lawn and leaf bag with the downed weeds. I used a couple different rakes and worked the ground until all that remained was bare soil.
Afterward, I neatly stacked all the wood at one end of the barren earth.
I know what you are saying. Great job Mr. SoS. You cleaned a mess of branches and weeds in your back yard, but what in the heck does that have to do with finances? I am glad you asked. While working on this project, I did what I always do when completing tasks that do not require much of my mental energy. I thought about personal finances. Now I am going to share those thoughts with you dear reader.
The first thing I want to share with you is a term that Dr. SoS introduced to me when we were dating. She would call something like this big pile of branches a “tolerance”. It is something that is not necessarily harming you and you put up with it, but you know you should do something about it. We knew it was a bad idea to have all this wood right behind the house, but we also knew it would take time, effort, and energy to rid ourselves of this “tolerance”. Homeowners have plenty of tolerances. We put up with a loose doorknob, a squeaky hinge, a shade that refuses to shut all the way. Eventually, living with the tolerance is overshadowed by your desire to rid yourself of it and you end up taking care of it. Depending on your personality, this could take a day, a week, a month, or even years.
How does this relate to your finances? We put up with all kinds of tolerances that would take very little effort to improve our financial situation. Here are a few that came to mind while I was trimming branches and cutting wood.
How much are you currently earning in your savings account? The term for this is annual percentage yield (APY) which is the effective annual rate of return taking into account the effect of compounding interest. Take a moment and go to your bank’s web site. Look for the APY on a savings account. The national average is currently a measly 0.06%. This is not 6%, but 1/100th of that. I just checked the APY for a regular savings account with my credit union and it is 0.15%. If you put $100 in a savings account at the rate of 0.15% you would earn $0.15 or fifteen cents in interest in one year. Why is this a tolerance? It is a tolerance because you can do so much better. Savings is where you stash your liquid cash assets, but you should still generate income from that savings. I recommend checking your local credit union rates. The credit union we use has a High Yield Savings where you can earn 4% on the first $1,500 in the account by meeting some minor criteria. If you have $1,500 in a typical savings account you would earn a whopping $0.90 in one year. With the savings account at my credit union you would earn $2.50, but with the high-interest savings at my credit union you would earn $60! I do not know about you, but I will take $5 per month over less than $1 per year anytime. If you do not have a credit union near you that is so generous, I would recommend looking for a high-yield online savings account such as Synchrony Bank currently at 1.2%. The great thing about them is you can set up recurring deposits from your bank to regularly stash away money. I have several accounts where I do this. I have one for Gift Savings, one for Travel Savings, and one for Investment Savings. The pros with this account are that they have a wonderfully easy to navigate web site, setting up transfers is really easy, setting up multiple accounts is easy, and they regularly have near the highest savings rates. The only con is that it can sometimes take several days to transfer the money back into your account. I do not think of this as a bad thing because it prevents you from quickly spending money. I also use Personal Savings by American Express. The rate is not quite as high at 1.15%, but transfers are much faster. There are many online accounts out there, but your goal is to pick one and start putting your savings there to rid yourself of the low yield tolerance!
Bank Service Charges
Do you pay any fees to have your bank account? How much are they? Why do you pay them? There are so many “free” checking, savings, high-yield savings, and even investment accounts out there that have no minimums and no fees. Read through your bank statements and see if you pay any fees. They can be as little as $3 or as much as $30 or more depending on the account. If you are paying fees, ask your bank if they have a different account where you can put your money. I used to have a checking account that had a minimum balance requirement of $500. I signed up for the account to get a better interest rate on a used car loan. After I paid off the loan, I forgot about the minimum and the bank hit me with a fee. I called the bank, they adjusted the fee, and they changed my checking account to a “free checking” where there are no minimums and no fees. If your bank does not offer these types of accounts, it is time for a new bank!
If you pay any overdraft fees, this tolerance is more of a managing your money tolerance than anything. Some banks offer overdraft for free if you link your checking to a savings, but you are better off just spending less than you earn and managing the money than paying any fees.
Credit Card Finance Charges
Do you keep a balance on your credit cards and pay a monthly finance charge? How much do you pay? Let’s just say you pay $20 per month in finance charges. If you put that money in your high yield savings account at 1.2% APY you would be $241.55 wealthier at the end of the first year. If you are paying finance charges, it is time to stop using your credit cards and start paying them off. Your financial future depends on this fact. Not to mention that once you have your credit cards paid off they stop being tolerances and start being earning vehicles for you. In my last Net Worth post I shared that we currently have $576.29 that the credit cards owe us! You can easily do the same, so get those credit cards paid off!
There are so many tolerances in personal finance that I could keep writing for hours. I bet with little effort you can think of some you have. When was the last time you checked to see if you could lower your cable bill, your mobile phone bill, or any other bill for a service that you pay? They are all tolerances! Now is the time to take care of them.
As I was cleaning up the pile behind my house, it occurred to me that this mess of branches is not wholly unlike many people’s personal finances or financial situation. What about you? Are your finances a mess of limbs or a neatly trimmed and stacked set of firewood? If you have a mess on your hands, the first step is understanding the mess. I would recommend starting with your Net Worth. You can easily do this with a sheet of paper. Make a list of all that you own and all that you owe and calculate where you stand.
Just like I had to make a decision to get rid of the pile of limbs, you need to make a plan to rid yourself of financial tolerances. Stop paying fees. Spend less than you earn. Save your money. Begin investing. The list is endless, but all it takes is a little effort and desire and you can turn tolerances into wealth just as I turned a mess of branches and weeds into a nice tidy stack of firewood.
Now get out there and build your FIRE (Financially Independent Retire Early)!