The First 6 Steps to Financial Health, How Much Real Estate Earns, and More

Read Time: 4-minutes

Happy Saturday,

Here is this week’s edition of 6-Point Saturday — financial insights to help you make smarter money decisions.

Table of Contents*

• Point #1 — 1 Decision Removes 100’s of Others

• Point #2 — The First 6 Steps to Financial Health

• Point #3 — A Home-Buying Cautionary Tale

• Point #4 — Real Estate Returns

• Point #5 — Quotes of the Week

• Point #6 — My Question of the Week

*Clickable in the online version.

Point #1 — 1 Decision Removes 100’s of Others

New York Times bestselling author Tim Ferriss shared this timeless lesson back in 2020:

Before seeing this idea years ago, I’d typically look at my “To-Do” list and pick a task by leaning on its degree importance, urgency, and other factors.

But also identifying decisions that remove hundreds (or thousands) of others is, of course, highly effective.

This certainly applies to our finances as well:

• Use Target Date Funds: Rather than worry about rebalancing your portfolio each year, you can buy a target date fund that automatically rebalances for you. You pick your target retirement year, and the fund invests in more conservative investments over time as your risk tolerance decreases approaching retirement. One decision removes many others.

• Decide on a Spending Plan: Design a Spending Plan, for example, a 50/30/20 split: 50% to your Needs, 30% to your Wants, and 20% to anything & everything else you’d like. Rather than needing to re-evaluate your priorities with each & every potential Amazon purchase, you can buy whatever you’re considering with no hesitation since you know, for instance, that your savings are taken care of.

• Decide on an “Unexpected Income” Game plan: When you get an unexpected tax refund, bonus, or commission, you’ve already decided to put 90% toward paying off your credit card balance and 10% to splurge on whatever you’d like. Similar to making a Spending Plan, you don’t have to make many smaller decisions, weighing your priorities, on what to do with your mini-windfall.

And one of the most effective ways to apply this to your finances?

Pick a sound formula, a series of steps that get you started on the path to financial freedom (we’ll explore one in the next Point).

So, that 1 decision today removes 100s of decisions tomorrow.

Point #2 — The First 6 Steps to Financial Health

The world of personal finance is a mile wide and a mile deep…

Even for seemingly “simple” ideas, the rabbit holes you can go down are quite surprising (the number of factors you could consider, for example, between investing in a Roth IRA versus a Traditional are pretty incredible).

The good news?

Most people don’t need all the details to get started.

You just need to make 1 decision, that makes a lot of sense—and that eliminates decision paralysis.

If you’re “just” beginning your journey of getting your finances in shape, here’s a series 6 steps you might consider that removes a lot of smaller decisions (& hours of research):

1. Make a Starter Emergency Fund: Open up a dedicated savings account for a starter emergency fund, or as I like to call them, a Stability Fund. Enough to fund your largest insurance deductible (the amount you pay before your insurance kicks in). Usually this is your health insurance and may be a couple thousand dollars. Don’t worry if you don’t have a lot of money to save initially—Simply get started to build the habit.

2. Get Your Employer Match: After you’ve got a Starter Emergency Fund, check with your employer to see if they offer a retirement plan match. A match is an amount an employer will contribute to your retirement plan after you’ve made a contribution. The match may be described as something like 50% matching your first 6% of pay. This is a great way to kickstart your retirement savings.

3. Attack High-Interest Debt: With some Stability Savings and “free” money in the form of a match, now it’s time to get aggressive with your high-interest debt. Credit cards have 20%+ interest rates, which makes it tough to build wealth. So, make a list of your cards, balances, interest rates, and minimums. Pick either the Snowball or Avalanche strategy:

   • Snowball = pay off the lowest balance first, while making minimums on your other cards. Then move to the next lowest balance. This builds momentum.

   • Avalanche is starting with the card with the highest interest rate while making minimums on your other cards. Avalanche can lower your overall interest paid.

     Pick whichever appeals to you most to get started. Other non-mortgage debt above around 6% interest rates you could consider as high-interest, too (this partially depends on your risk tolerance).

4. Build a Full Emergency Fund: Now’s the time to build a complete emergency fund. If you are single or in a single-income household, you could target 6-months of living expenses. 6-months as well for those with irregular incomes and/or less stable industries. Dual-income households could target 3-months.

5. Consider a Health Savings Account: Health Savings Accounts are what’s called “triple-tax-advantaged.” That means you get a tax deduction, tax-deferral, and no taxes when used for qualified expenses. These plans require a high-deductible health plan, so you need to consider your healthcare needs to check whether it’s an overall good fit.

6. Look at “Roth Optimizing”: If you are in a particularly low or high income tax year, you could consider contributing to a Roth IRA or Traditional IRA respectively. This allows you to boost your retirement savings while maximizing tax benefits.

Point #3 — A Home-Buying Cautionary Tale

The Wall Street Journal profiled a cautionary tale ($) this week that, unfortunately, many new homebuyers may read as all-too relatable. First, some backstory:

Can you spot all the factors in the snippets below that made the purchase appealing…and those that could have been more heavily considered?

What factors made the home appealing?

• His friends were buying homes

• He liked the idea of not having a roommate

• Fear of missing out (FOMO) on low interest rates

What did he overlook?

• Maintenance costs (expect 1%+ of home value, annually)

• Unexpected expenses (sewage issue)

• Whether work-from home would be temporary

Think of all the decisions, money, and headaches he could have saved by making a single-better decision.

A pretty solid rule-of-thumb to do this?

Take a step back and re-evaluate if you ever feel rushed.

Most sound decisions tend to come from a place of power. On your own time table.

Not from acting on “FOMO.”

Point #4 — Real Estate Returns

One of the factors to consider when deciding to buy a home, of course, is how real estate typically performs. So, it’s worth looking at real estate’s historical returns versus other investment classes, like index funds.

From 1992 to 2024, the S&P 500 index had an average annual return of 10.39% (including dividends), while the U.S. housing market grew about 5.5%.

Using another timeframe, this chart shows the results of investing $100 in 1970 in real estate versus other assets.

People tend to view real estate as this “holy grail” of an asset class. But, as you can see, the S&P 500 has outperformed real estate—at least on an returns-basis.

To be fair, stocks tend to be more volatile and other factors are important to consider as well (risk tolerance, diversification, tax benefits, liquidity, & goals).

The bottom line: It pays to be realistic & have appropriate expectations around one of the biggest purchases we make in life.

Point #5 — Quotes of the Week

Continuing the “finding decisions that eliminate many other decisions” theme, which of these is your favorite?

Point #6 — My Question of the Week

Reply to let me know! I read every response.

Thanks for reading — I hope you found a helpful idea or two.

I’ll see you next Saturday with more.

Have a great weekend,

Benjamin Daniel, CFP®
Founder, Money Wisdom

P.S. Want to take control of your money, stop stressing about your expenses, & feel confident about your financial future? There are 2 ways I can help you:

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Disclaimer:

This material is not investment or tax advice. No responsibility for loss occasioned to any person or corporate body acting or refraining to act as a result of reading this material can be accepted by the publisher.

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