Jacob Lumby teaches more than 80,000 monthly readers how to build lasting wealth and secure financial freedom on his site, Cashcowcouple.com. He is a Ph.D. candidate in financial planning and has completed the CFPA® exam.
We recently checked in with Jacob to learn more about his approach to personal finance, investing and tax management. Here’s what he had to say:
Tell us about your interest in personal finance. How did you become so passionate about money management?
Growing up, my family never had a lot of money. I remember personal finance being a stressful topic, so I began studying the topic. I wanted to find ways to cut expenses so that my family and I could live a more abundant life.
My interest in personal finance continued to grow, and I eventually began blogging while completing my Ph.D. in financial planning. Most of my time is now spent reading and writing about various money related topics.
What’s one of your biggest personal finance regrets? What would you have done differently in retrospect?
Like most people, I’ve made many money mistakes. One example was my decision to attend an expensive liberal arts college after graduating high school.Wealth Management Reviews
I graduated valedictorian of my high school class and had several academic scholarship offers. Instead of taking the full scholarship to my local State University, I decided to attend a small liberal arts college that was much more expensive. When visiting, I bought the whole sales pitch and was convinced that this college was “better” than my other choices.
I quickly learned and transferred from the small college to the State University after just one semester. Even then, my initial decision was quite costly. I spent more than $5,000 in that initial semester.
What is your definition of financial freedom?
The ability to make life decisions without worrying about financial constraints.
What’s your strategy or approach to achieving financial freedom for your family?
Achieving financial freedom requires enough income to cover all expenses. Typically, an investment portfolio produces the required income through a combination of interest, dividends and capital appreciation. As a result, individuals can design a life of freedom that does not require labor income.
The size of the portfolio determines the available income. As annual expenses increase, a larger portfolio is required to produce more income. As such, it’s much easier to achieve financial freedom by limiting expenses. If you can limit expenses while working, you can increase your savings rate and build a bigger portfolio.
Our approach is twofold. First, we try to be savvy shoppers, reducing our expenses and maintaining a very high savings rate. Second, we try to increase our income. In combination, this allows our savings rate to continue trending upward, allowing us to build a bigger portfolio each year.
What money management habits have you found are easiest to follow through on?
Because of my background, I enjoy shopping for deals and limiting our expenses. It’s second nature at this point.
Our investment strategy is extremely simple and easy to replicate. We own low-cost index funds, which are widely available at most brokerages. Numerous research findings have shown that index funds typically outperform actively managed funds net of taxes and fees.
What advice can you offer families interested in shoring up their finances on tax management?
The first and easiest way is through tax-sheltered retirement accounts. Contributing to a 401k, 403b, or IRA reduces your taxable income in the current year.
Second, make sure your investments are tax efficient. Corporate bonds produce interest, which is taxed as ordinary income. These bonds belong in tax sheltered accounts. Equities receive preferential tax treatment for long-term capital gains and qualified dividends, making them more suitable for a taxable account.
What are your favorite resources or tools for better managing and understanding taxes?
A qualified accountant is a valuable resource for individuals with a complicated tax situation. There are free resources available online or at your local library that provide educational materials for those interested in learning more about taxation.
For investors, robo-advisors like and Personal Capital provide sophisticated tax solutions at a very reasonable cost. These firms manage all of your investments and provide several advanced tax features, such as tax-loss harvesting, smart re-balancing and more.
What have been the best ways you’ve found to save money on taxes?
My number one solution is maximizing contributions to tax-sheltered retirement accounts. Vanessa and I are employed and have access to plans provided by our employers. We try to contribute the maximum amount allowed each year. Furthermore, we are business owners. This allows us to create a solo 401k plan that is used to further increase our annual savings.
What money management advice do you find yourself repeating to readers over and over again?
1. Track your income and expenses
2. Spend less than you earn
3. Invest your savings in stocks/bonds/real estate (preferably via low-cost index funds)