This article is by staff writer Kristin Wong.

When I first started writing for Get Rich Slowly, I’d just become interested in my finances. While I’ve always been frugal, I started to realize there was much more to personal finance than finding ways to save money.

Here’s where I was, financially, at that time:

  • I was rebuilding my recently depleted emergency fund.

  • I had just started to earn more.

  • I was working hard for my money, but I had no idea how to make my money work for me. I still didn’t feel in control.

  • My boyfriend/partner was in debt. Sometimes, we fought about money. We keep our finances separate, but there are some goals for which both of us need to be on the same financial page.

A couple of years later, a lot has changed. Writing for this site has taught me a lot about money, and my finances have greatly improved as a result. I’ve now built a healthy emergency fund, started investing, and learned how to manage my income as a freelancer more effectively. For his part, my boyfriend has gotten out of debt, built an emergency fund, and is now researching index funds on his own. We ended up on the same financial page; all is well.

I’m lucky enough to be in the beginning of what J.D. calls the Third Stage of Personal Finance. My major financial goals have been met, and I’m now happily saving away — for what, I’m not sure.

Reaching the Third Stage

How did I get here? It was the boring, straightforward stuff:

  • Cutting back on my expenses and living frugally

  • Finding ways to earn more

  • Investing

  • Avoiding debt

But I was also lucky. I was lucky enough to be offered a great job that helped me reach my goals. And when I lost that job, I was lucky enough to have colleagues that helped me find other work.

The role of luck

I don’t ignore the role of luck in my life, but I do think luck is meaningless if you don’t take some kind of action. I would never have been offered that job if I didn’t a) bug my friend about it, b) have previous experience and c) do the required work.

Also, if I wasn’t in the right financial mindset, I could have just as easily squandered that money by inflating my lifestyle. In writing this piece, I asked my boyfriend if it was okay to talk about his experience getting out of debt and building an emergency fund.

“Sure. But I didn’t build anything. I just got lucky,” he said, referring to a hefty windfall he got earlier this year.

“What are you talking about? You work your ass off. You negotiated your salary and you’ve been saving like crazy!”

That was true, he said, but that windfall really helped get him started. “That’s when things turned around,” he told me.

But the thing is, if that windfall had come just a few years earlier, it would have been blown. In fact, when it came, he briefly considered using it as a down payment on a car — a really unnecessary expense right now. But, because he’s become committed to getting his finances in order, he decided to use the windfall to reach his money goals instead and he allocated the money to an emergency fund.

Luck definitely plays a role in our success; but most of the time, it still requires at least some action on our part.

Life in the Third Stage

One night, while visiting my parents, we went grocery shopping. My Dad happened upon some tiki torches, which he’d been looking to buy. “How much are they?” I asked. “I’m not sure,” he said, putting them in the cart.

Later, when we had a discussion about money, my Dad brought this up, saying this is what he loves most about being in the Third Stage. “I don’t have to fret over small purchases and decisions,” he told me. “If I want to buy something for the backyard, I can do it. And I don’t have to worry about whether or not I can swing it this month.”

My parents have come a long way. Back in the day, even an extra dollar spent would have hurt us, much less whatever he spent on those torches.

I feel more in control of my finances these days. When I was repaying my student loan, I felt in control of my debt, but I didn’t really feel in control of my finances. And when I got out of debt, moved to California (where I was barely making ends meet) and depleted my emergency fund, I definitely didn’t feel in control of my finances.

But now, I do. I’m not yet financially independent. But I feel like my money is working for me, instead of the other way around. Control and freedom are probably the best things about being in this stage.

But What’s Next?

I’m complaining about a damn good problem here, but the third stage is kind of boring. Right now, I don’t have any clear goals, aside from working toward financial independence. I’ve plateaued.

And there’s nothing wrong with sitting back and saving, but I’m a goal-oriented person. I like having tasks; I like striving for things. In the Second Stage, it was all about paying off debt, cutting back, building my funds and working to max retirement. It was challenging, and the answer to “what’s next?” came naturally.

The Third Stage is a little more stable, and the goals are a little less obvious. Here’s what’s next, for me, in the third stage:

  • Work on “multiple streams of income”

J.D. has written about this before, and so have many personal finance writers. My goal as a freelancer has been to diversify my client base. But I’d also like to find other, non-work-related ways to earn extra income.

  • Educate myself

Trying to find other sources of income means learning about how to do it. I want to learn how other people earn passive income and invest wisely in other endeavors.

  • Continue to save

J.D. wrote a great piece about starting an opportunity fund. This way, if some kind of investment opportunity should arise, I’d be prepared for it. I love this idea.

And I’m continuing to save for my future goals too, even though I’m not sure what they are. I don’t know what I want to do with my life in the next few years. Maybe start a family? Maybe move to another country? I really don’t know. But whatever it is, it will probably require money. So I want to be prepared to say “yes” to whatever sounds great at that time.

I also opened an SEP-IRA. As a self-employed person, this helps me sock away even more for retirement.

  • Give back

For me, being grateful for what I have makes me want to help others. In this stage, I’ve been looking for ways to give back, whether it’s time or money.

Plotwise, the Third Stage of finance isn’t terribly exciting. Control and freedom are wonderful feelings; but, as far as action, there aren’t many highs or lows in this stage. At least that’s what I’ve found so far.

And that’s kind of awesome, really. For once, I don’t have to worry about money. I don’t have to be scared that I’m not going to be able to make ends meet. Comfort is good. I’m immensely grateful for it.

But at the same time, I don’t want to get too comfortable. I don’t want to forget that there’s still work to be done. I want to keep my eye on the ultimate goal: financial independence.

What are you doing (or, what do you plan to do) during this stage of finance?

This article is about Basics, Investing, Savings

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This article is by staff writer William Cowie.

Twice a year, the Federal Reserve’s Chair gives what amounts to the “financial state of the union” address to Congress, and it’s a good thing for everyone concerned with their finances to take five minutes or so to find out what the Federal Reserve is seeing, thinking, and about to do.

Janet Yellen delivered her latest comments a week ago, and it may be worth your while to take a few seconds out to assess what she said, because the economy is approaching another inflection point.

Inflection point? Yes, if you look at the economy (any country’s economy) you know it goes up and down in a wave pattern. That pattern always has two inflection points: the top, when the economy turns down and good times turn to bad, and of course the bottom, when things turn up again and get better. The last inflection point we had came around 2008 to 2009, when the Great Recession officially bottomed out. In the past, the time between a bottom and the next top usually ranged between five and eight years. That means we’ve entered the window for the next inflection point, which will be a top, meaning the economy will turn down again soon. This is not an alarmist statement, but merely a recap of a long-term trend which has defied all attempts to interrupt it. This approaching inflection point gives us more cause than usual to pay attention to what the individual with the most influence over the economy has to say.

In order to obtain a proper perspective about what Yellen said, it is important to understand which beacons the Federal Reserve uses to navigate the great ship of the American economy. The “big three,” spelled out specifically in the Federal Reserve Act, are:

Growth and employment: The Fed was granted its vast powers by Congress with the proviso that its actions would promote healthy economic growth and full employment by the American people (which is important to officials who need to get elected every now and then).

The economy and employment have always been regarded as two faces of the same coin: Good economic growth creates good employment opportunities for all. In practice, though, they tend to be measured and addressed separately.

Economic growth is typically measured as growth in the GDP while employment is measured by its inverse number (unemployment). Neither measure is without its controversy, but it’s the best we have. And the Fed’s goal is to keep unemployment as close to 5 percent as it can get it and GDP at a positive number, somewhere between 3 and 5 percent.

Price stability: Price stability was the second condition Congress demanded in exchange for the franchise it gave the Federal Reserve Board to manage the economy. Many people have different opinions over the definition of inflation, how it is measured, and what level is ideal. Given all of the inexactitude, the Fed has publicly stated that its goal is to keep the personal consumption expenditures (PCE) price index (as defined and measured) as close to 2 percent as it can get it.

Interest rates: Maintaining moderate interest rates was the third mandate. Of the “big three” factors, this is “the driver.” In other words, the Fed usually sets interest rates at a level to help achieve the goals set for the other two.

In addition to the “big three,” the Fed also pays attention to home prices, given how important that is for people like us.

OK, enough with the theory.

So, what did she say?

Here’s the Fed’s take on the economic state of the union: (The detailed comments, if you want to get it from the horse’s mouth, can be found here.)

Growth: GDP growth was negative for the first quarter.

At this stage of the recovery, that is unusual, to say the least. Two quarters in a row of negative growth meet the technical definition of a recession. Nobody at the Fed thinks that’s going to happen, though, blaming the GDP reduction on “transitory factors” (probably the cold winter and a mild jab at the lawmakers’ sequestration policy).

Because the Fed doesn’t think those factors are going to repeat, they don’t think we’re at the brink of the next recession, and, most important, they’re not going to react, positively or negatively.

Employment: Unemployment is 6.1 percent, the lowest since the recession, and only 1.7 percent above the pre-recession low.

The Fed’s take is: Close, but no cigar … yet. Therefore, the Federal Reserve doesn’t think its job is done in this area, especially when you look at a broader measure of employment, i.e., labor force participation. The labor force participation rate captures the proportion of every age group that has a job. The Fed uses it to include those who have given up looking for a job, something the traditional unemployment rate can’t measure.

What concerns the Fed is that the U.S. labor force participation rate has not yet recovered from the Great Recession. Some may have argued that’s because of retiring baby boomers, but this Fed chart shows the disturbing drop in the participation of those 20 to 24 years of age:

You can see the rate of participation of younger workers bounced back after prior recessions, but it hasn’t lately. Chairwoman Yellen’s Fed has noticed this and it tempers any enthusiasm they may have had for the employment situation.

Inflation: Low (around 1.5 percent), but rising.

The Federal Reserve’s inflation target is 2 percent — and they have been concerned for a long time that inflation is, if anything, too low. That concern is fading as prices are beginning to rise, and they expect inflation to continue growing for the remainder of this year.

Therefore…

The Fed’s big kahunas — the Federal Open Market Committee, or FOMC — believe the recovery of the American economy is under way, but not where they want it to be. (The FOMC has eight scheduled meetings each year, and you can read the post-meeting statements here.) Because the economy has acquired some momentum of its own, they will continue weaning the economy from its “stimulus IV” gradually.

What is stimulus IV? Two things:

  • the amount of money they inject into the economy by buying pieces of paper from banks, and
  • interest rates

A while ago, they started “tapering” the asset purchases, meaning they’re pumping a little less money into the economy every month. That will continue.

And they will hold interest rates where they are now until “about” the third quarter of 2015. This is not new; Ben Bernanke introduced that timeline back when he was king, er, Fed Chair.

How does this affect you?

1. Now you know what the Fed is looking at: unemployment, GDP and inflation. Until unemployment gets close to 5 percent, GDP grows more than 5 percent, and inflation gets over 2 percent, things will probably continue as they are. When any of those things change, you will know before the rest of the population that the Fed will react by turning on the brakes.

2. Expect more growth in the U.S. economy. Most people agree this is one of the most anemic and unbalanced recoveries in recent memory, but it is still a recovery. Perhaps because it’s so slow, we can probably expect it to continue longer than ones in the past.

3. Expect improvements in your job situation. These times carry better prospects for promotions, raises and bonuses than for the past seven years or so. It’s probably a good time to push for those.

4. Expect the stock market to continue to rise, at least in the short term. Many people are getting nervous, because the stock market seems overvalued to them, but there is nothing in the immediate economic outlook to warrant “the big one.” (Of course, that has never stopped the market from behaving erratically, has it?)

5. Expect home prices to continue to rise, as people who lost their homes in the Great Recession re-qualify for mortgages, just in time to buy another one … as the market approaches its peak. Banks, too, have more money than in many years, and they are becoming ever more eager to palm off those loans to more people. It is probably not a good time to buy a home for the first time, to upgrade, or to refinance to “tap into that equity,” because the next correction isn’t that far into the future anymore.

Overall, the message seems to be: Keep on keeping on, or, as Young Mr. Grace always used to say on the British sitcom “Are You Being Served?”: “You’re all doing very well!”


This post is by staff writer Honey Smith.

Recently on GRS I’ve been exploring the concept of motivation. But what if you didn’t need to be motivated at all? What if you did what needed to be done automatically, without even thinking about it? You’ve probably heard a version of the saying before: We’re creatures of habit. But what are habits, exactly? How are they formed? Why are they important? And how can we form good habits (or break bad ones)?

Recently, I was listening to back episodes of the NPR program Fresh Air and came across a story on Charles Duhigg’s book “The Power of Habit.” Duhigg has also written about how to change your spending habits for GRS. According to Duhigg, one of the reasons that habits are so powerful is that they are governed by a completely different part of the brain than decision-making.

Why is this important? Because as has also been noted on GRS previously, making too many choices can result in decision fatigue and a loss of willpower. The more you can move your ability to complete desired activities over into the habit center of the brain (the basal ganglia), the more “room” is left in the decision-making center of the brain (the prefrontal cortex). In other words, if you can make an activity into a habit rather than a conscious decision, then you’re saving your willpower for when you really need it.

A quick review: The three steps of habit formation

In his GRS article, Duhigg explains that, while most people focus on the habit itself, “habit loops” are actually a three-part process. The first step consists of the reminder (also called the cue or trigger). This is what lets your brain know that it can activate autopilot.

The second step is the routine. This is what you actually do. However, for reasons that will become clear, it’s helpful to think of the routine in connection with the trigger. For example, you brush your teeth (after your shower). Or you buy a coffee (on your way to work). Or you have a glass of wine (with dinner).

The third step is the reward or reinforcement. This is where your brain decides that it’s satisfied with what just happened and that it will continue to act this way in the future because of it. You feel clean, you delay the start of your workday and get a caffeine rush, you relax at the end of the day, etc.

Forming good habits

The key to forming a habit, then, is ensuring that all three parts of the process are present. It’s not enough to focus on what you want to do/the habit itself. Additionally, since your willpower/motivation may crap out on you, they are insufficient for habit formation as well. You have to make sure that you’re providing yourself with both a trigger and a reward if you want a new habit to stick. One easy way to find a reminder is to piggyback on a habit you’ve already acquired and use that as the trigger for something else. Let’s say you’re a caffeine addict; you could check your Mint account while you drink your morning coffee. Another, similar way to find a trigger is to piggyback on something that always happens to you. For example, you get paid every other Friday, so you can make your extra student loan payment when your paycheck gets deposited, before you’ve had a chance to spend that money.

Finding a reward can be trickier. That’s one of the reasons that piggybacking on an existing habit may make things easier. If you check Mint while you drink your coffee, you’re using a reward your brain has already come to expect (caffeine) for another purpose. There are a couple of caveats when it comes to rewards. First, if your brain perceives the outcome of your routine as a punishment (making an extra student loan payment means you don’t have that money any more), then it will be harder for the habit to form. That’s why it’s so important to know what motivates you. It helps you pick the reward that you will most enjoy, thus encouraging habit formation.

Additionally, if you want to make something a habit, the reward for the activity can’t be a one-off moment years down the road. Knowing that in five years you’ll be debt-free isn’t going to help you create a habit. The reward has to be immediately experienced every time you complete the routine in order for the habit to stick. So in addition to picking a reward that you will enjoy, make sure it’s easy, sustainable, and won’t have any additional negative consequences. Eating a cake every time you pay a bill on time, for example, may encourage you to make your payments, but what good is that if you need to buy new pants every month?

Breaking bad habits

Breaking bad habits can be much simpler than forming new habits. Remember that habits depend upon triggers and rewards. This means that in order to change your routine, you need to remove at least one of those two steps. Removing the trigger is often the simplest way to break a habit. Do you find yourself shopping online after receiving a “daily deals” email? Unsubscribe from anything promotional, or even start a spam email account so that the deals are there when you want them but not triggering you when you don’t.

Identifying the reward your brain craves and finding another way to give yourself that reward may also help you break a habit, or at least modify the habit so it’s no longer financially destructive. For example, I had a bad habit of buying cookbooks and not trying enough recipes to justify the expense. Turns out if I enjoy admiring recipes slightly more than cooking them, the Pinterest strategy gives me the reward I crave without spending money to acquire Stuff. Habit broken!

Using habits as unconscious motivation

OK, because there’s a reward involved, maybe habits aren’t entirely motivation-free. But by spending a little conscious effort up front to move your actions to the back burner basal ganglia, you don’t have to think about those actions anymore. Seems to me if you can combine conscious and unconscious forms of motivation, you’re well on your way to success!

What habits do you have that help or hinder your ability to reach financial goals? What are your triggers? What rewards do you crave? Have you ever successfully created a new habit (or broken a bad one)?


This article is by editor Linda Vergon.

I think 2012 was the last time we “checked in” with readers to ask “How can we improve Get Rich Slowly?” Last week, we asked the Facebook readers what they thought, and we got some great comments. Jenny Fox wrote that “The personal stories are always good to read and you have excellent, thought-provoking articles, so carry on with that!”

A few people would like to get rich quickly, but at least 15 people agreed with Jason Dotson’s suggestion:

If only.

Some are still dealing with the crushing reality of poverty, and they don’t need stories about getting rich at all. They simply want to learn how to provide “… basic needs like enough food or enough for bills … a home to call our own.”

A lot of readers seem ready to invest but are unsure about how to get started, so they’d like stories that give an in-depth explanation about Roth IRAs or a 401(k). More than a few mentioned that they need information about how to analyze different investment options, and some would even find how to open an investment management account interesting.

Student loans are always on the minds of readers, but those inclined toward entrepreneurship want more out-of-the-box stories on how to create more income to balance out the articles that cover being frugal and saving. But in general, most everyone is just interested to learn how to make their money grow.

Beyond that, real estate investing, “tax stuff,” and interviews with people who got rich slowly made the list. Then some think a monthly reminder would be great, like “Don’t forget to budget for back-to-school items for the kids.” (Yep, Lisa Aberle’s on it already! Stay tuned…)

As J.D. Roth said in 2012 when he asked how we can improve:

“Basically, anything you can tell us about what you like about Get Rich Slowly — and what you don’t like — will help us build a better blog for the future. So, please leave a comment below to tell us how we can better help you.”

So readers, can you suggest an interesting topic or do you have a totally different idea about the site? What would you like to see? (And thank you. We’re really happy you’re here!)


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