Monthly Archives: January 2017

The Essential for Financial Health

Why is it that a few four-letter words have given thousands of perfectly good four-letter words such a bad rap? It doesn’t seem fair does it? I took it upon myself to give them a break. Make a habit of putting these eight words into use, and your finances will be stronger than ever. They won’t offend anybody. You can even say them in front of your parents. How great is that?

Why eight? Well, I was reading an article about how we can be pretty hardheaded when it comes to making changes. The author suggested sometimes we need to get hit over the head with a (figurative) two-by-four to get a message. Multiply two by four and you get eight.

Essential Four-Letter Words

  1. Plan: It’s time to outgrow impulse spending. If you’ve got some exciting goals, and I hope you do, planning before spending will make those goals happen sooner. Whether it’s clothes, groceries or basic household matter, make a list before you head out to spend. You’ll get everything you need and you’ll be less likely to end up with three jumbo jars of peanut butter in the cupboard.
  2. Cook: Sure you’re busy, you’re tired. You come home and the last thing you feel like doing is cooking a meal from scratch. I get that. Take baby steps and make it fun. When you’ve got a little downtime, check out a few online cookbooks and find a new recipe to try. There are millions of recipes that don’t take long, don’t need many ingredients and make great leftovers. Aim for eating one less meal out and cooking one more meal each week.
  3. Swap: Tired of wearing the same scarves and belts over and over? Tempted to go out and buy a bunch of new ones? Host a swap party instead. Start simple. Invite a few friends to each bring five accessories they’re willing to give up for a while and exchange. It can be temporary or permanent – you decide. Everyone will feel like they got something new to freshen up their wardrobes but nobody spent a dime. This doesn’t have to be just clothing either. Sporting goods, furnishings, kitchen items, tools and electronic gadgets are great candidates for swap sessions.
  4. Safe: Do what you need to do to keep what you’ve got. If all your electronic accounts still use the same password you’ve had since seventh grade, it’s time to change. No matter how fond you are of CheetosRgr8t you need to come up with something new and tougher to crack. Don’t use just use one password either. Set up different passwords for different accounts.
  5. Save: You know I was going to put this in here, right? I am sure you are already saving, so bump up your saving percentage by 1%. Go ahead, you’ll be glad you did. Little increases add up to big results. (For more, see: 5 Painless Ways to Save More Money.)
  6. Roth: Start now. Open a Roth IRA and set up automatic transfers from your checking or savings account into it. You will be so glad you did. I promise. Ever wonder why it’s a Roth? That’s because the legislation was introduced by Senator Roth of Delaware. Just think, if you ran for Congress you could introduce a bill and have something named for you for ever after. Pretty cool.
  7. Debt: Yes, this can be a good four-letter word. If you’ve got debt of any sort, the good news is you are building a credit history. Make sure it’s a good one by paying your bills on time. At some point or another, you need to have a credit history in order to qualify for (more) debt. I know, that sounds a little strange but if you want to buy a house someday, you get a better rate if you’ve got a higher credit score. The score is based on how well you’ve done in the past with paying off debt so show those financial institutions you’ve got it together.
  8. Give: Almost all the healthiest, wealthiest folks all give time, money or both to help make the world a better place. If you haven’t done this before try it, you’ll like it. Start giving just a little bit and you’ll be hooked. And if you’re already a giver pat yourself on the back and keep on keepin’ on.

Take these eight four-letter words and make them a part of your life. You will be in a stronger financial place than you are right now. Want to learn more? Read Coin, a great four-letter word and a book that is guaranteed to make you the very picture of perfect financial health.

These Ten Habits Will Help You Reach A Financial Freedom

Achieving financial freedom is a dream for most people, but few make the dream become reality. The following are 10 key habits that help pave the way.

1. Set Life Goals

A general desire for “financial freedom” is too vague of a goal. What does it mean to you? Write down how much you should have in your bank account, what the lifestyle entails and at what age this should be achieved. The more specific your goals, the higher the likelihood of achieving them. Then, count backwards to the current age and establish financial mileposts at regular intervals. Write it all down neatly, and put the goal sheet at the very beginning of your financial binder.

2. Make a Budget

Making a monthly household budget, and sticking to it, is the best way to ensure all bills are paid and savings are on track. It is also a monthly routine that reinforces your goals and bolsters resolve against the temptation to splurge.

3. Pay Off Credit Cards in Full

Credit cards and similar high-interest consumer loans are toxic to wealth-building. Make it a point to pay off the full balance each month, and cancel all cards, save for one or two. Student loans, mortgages and similar loans typically have much lower interest rates, making them less of an emergency to pay off.

4. Create Automatic Savings

Pay yourself first. Enroll in your employer’s retirement plan and make full use of any matching-contribution benefit. It is also wise to have an automatic withdrawal for an emergency fund, with at least two to three months’ living expenses, that can be tapped for unexpected expenses and an automatic contribution to a brokerage account or similar account. Ideally, the money should be pulled the same day you receive your paycheck so it never even touches your hands, avoiding temptation entirely.

5. Ignore the Joneses

A braggart neighbor showing off a new car or his latest smartphone is no reason to do the same. Smile politely, nod, and take comfort knowing your reward is coming tenfold in the future.

6. Watch the Credit

A person’s credit score determines what rate is offered when buying a new car or refinancing a home. It also impacts seemingly unrelated things, such as car insurance and life insurance premiums. The reasoning is a person with reckless financial habits is also likely to be reckless in other aspects of life such as driving and drinking. This is why it is important to get a credit report at regular intervals to ensure there are no erroneous black marks ruining your good name.

7. Negotiate

Many Americans are hesitant to negotiate for goods and services, worrying it makes them seem cheap. Overcome this cultural handicap and you could save thousands each year. Small businesses, in particular, tend to be open to negotiation, where buying in bulk or repeat business can open the door to good discounts.

8. Continuous Education

Review all applicable changes in the tax laws each year to ensure all adjustments and deductions are maximized. Keep up with financial news and developments in the stock market, and do not hesitate to adjust your investment portfolio accordingly. Knowledge is also the best defense against those who prey on unsophisticated investors to turn a quick buck.

9. Proper Maintenance

Taking good care of property makes everything from cars and lawn mowers to shoes and clothes last longer. Since the cost of maintenance is a fraction of the cost of replacement, it is an investment not to be missed.

10. Exercise and Eat Right

The principle of proper maintenance also applies to the body. Some companies have limited sick days, making it a notable loss of income once those days are used up. Obesity and ailments make insurance premiums skyrocket, and poor health may force earlier retirement with lower monthly income.

News Is Investing $25 a Month Worth It

Any time you move money from your checking account to another account, whether it’s an individual retirement account (IRA), investing in stocks, mutual funds or savings account, you’re making an important step toward a financially secure future.

But what if you only have $25 a month to invest? Can you still secure your financial future? Or is it better to put it into a savings account until it’s large enough to counteract fees? This article will explain how to the evaluate fees involved in small investments.

How to Translate Fees Into a Percentage of a $25 Investment

Saving $25 a month will total $300 in a year, not including any interest. A $40 fee on an investment account equals more than 13.33% of your investment. Thus, this $25 investment would have to earn more than $40 in a year just for you to break even. This means that if the fee was taken out at year’s end, you would have to earn a 27% return on your money to break even. Why 27% instead of 13%? The reason is because your money grows steadily, and you earn interest on the amount you have in your account. For example, after one month you’ve invested $25, after two months you’ve invested $50, and so on. As your account grows, the principal on which the investment earns interest grows.

Therefore whether a fee is charged for buying stocks or mutual funds, maintaining or opening an IRA, or a savings account where your savings isn’t higher than the minimum balance, you have to consider whether the fee offsets the benefits of your investment. The easiest way to figure out if your fee is too high for your investment is to calculate how much money is necessary in interest or profit earned to offset fees. For instance, if you invest $25 per month, $3 equals 1% of your yearly total of $300 invested. Divide any fee by $3 to figure out the percentage you would have to earn to overcome the cost of having the account.

If you are investing a different amount, multiply your monthly investment by 12. Then, divide the result by 100. This tells you what 1% of your investment is.

Investing Directly With Mutual Funds Companies

Cut the amount of fees you incur by setting up an investment account directly with mutual fund companies. You can contact mutual fund companies through their websites or by phone and avoid the fees charged by brokerage firms or financial advisors. This is a good choice when you don’t have much money to manage.

A pitfall of investing small amounts through this investment avenue is that you are subject to losses. It is similar to investing in stock in that your principal can decrease, or even be lost, based on how the stocks or bonds in your diversified fund rise and fall. Therefore, make sure the amount you invest regularly, for example $25, isn’t money that you will need in the next two or three years.

Paying Off Debt

An alternative to traditional investing avenues is to invest in decreasing your debt load. For instance, you could add $25 to the minimum monthly payments you currently make on your credit card, which charges you a 12.9% interest rate. By doing this, you save roughly $3.23 per year for every $25 you pay off. When your debt is gone, you’ll be able to put more money into long-term investments and you won’t have to worry about a small fee eating up all your profits because your earnings will more than make up for the fee charge.

Decreasing Your Mortgage Balance

If your home is tied to a 30-year, $150,000 mortgage loan with a fixed rate of 6%, sending in an extra $25 per month with your mortgage payment will cut approximately two years off your mortgage repayment term. There are two reasons for this:

  • You’re paying down your principal. For every $25 you pay off, that’s $25 dollars less you owe on your mortgage.
  • The amount of interest you pay on the amount of principal you pay off is eliminated for the rest of the term of the loan.

For example, suppose that you have a balance of $148,000 on your 30-year home loan after your first payment, and you decide to send in an extra $25 this month. You now have a mortgage balance of $147,775. The $25 you just paid off will save you $143.59 over the life of your 30-year mortgage at a fixed 6% interest rate.

As a bonus, you’re essentially saving for retirement by helping to insure that you won’t have to make mortgage payments after you retire if you stay in the same home.

The Bottom Line

Putting aside $25 a month to invest in a savings account, mutual fund or individual retirement account is a worthwhile venture. However, pay extra attention to make sure profits counteract fees. Also, consider alternatives, such as reducing your credit card debt or amount owed on your mortgage loan, that will allow you to invest larger amounts in the future.

Tips Save More Money to Reduce Financial Stress

I’ve long held the position that even though we live in one of the wealthiest, most financially blessed countries ever, as a society, we also live a life of serious financial stress. I often joke that it’s probably less stressful to live in the rainforests of South America, hunting and gathering, than to live in our modern, tech-savvy society, paycheck to paycheck. A lot of this stress stems from the fact that, as a society, we just don’t save money very well. According to a past Marketwatch article, almost 69% of Americans have less than $1000 saved. That is an astonishing amount of us that are basically one paycheck away from homelessness, or at least raiding our retirement funds in case of an emergency.

Why Americans Have a Hard Time Saving Money

There is a plethora of reasons behind our insufficient savings habits, such as a lack of discipline and making bad financial decisions. Maybe, it is simply that good jobs and hourly rates just don’t exist anymore for the lower and middle class (which I would argue as a legitimate factor). We can even rationalize that the value of the dollar doesn’t go as far as it used to, therefore, neither will our paychecks. Regardless of the validity of these arguments, our financial habits have a direct impact on our ability to save and our overall financial well-being, regardless of the inflation rate or our income level.

How to Alleviate Financial Stress

If you find yourself significantly stressed out over money, there are several adjustments that can be made to alleviate that pressure and simplify your life. But it does require discipline and sacrifice, and a willingness to live with less. For example:

  1. Flip the “whip” – Many of us cannot legitimately afford the car parked in our garage; it’s possible we can’t afford the house it’s parked in either. If your car payment exceeds 15% of your monthly net income, not gross (we live off the net), then it’s time to consider downsizing or getting rid of your vehicle. I have done this before myself, and although it’s unpleasant, it’s better than living in stress and worry. Maybe 15% doesn’t sound like much, but if your mortgage or rent is near the recommended limit of 28-30% per month, almost half of your net income is being consumed by rent and a vehicle. The change is worth it. Alternative transportation could be used for the short term if available, such as public transportation, occasional ride-sharing with Uber or Lyft, and even carpooling to work. Assuming your car is not upside-down in value and you are diligent in saving in other areas, it shouldn’t take too long to buy a used, older car outright, completely eliminating a car payment. (For related reading, see: Options for When You Can No Longer Afford Your Car.)
  2. No cable – In my opinion, cable service is one of the biggest wastes of money. In the average household of three to four TVs, cable and internet services can run $200 per month or more. I recommend having only internet and purchasing a streaming device with no recurring monthly cost. These “sticks” allow you to stream movies or purchase programs or apps. I have recently done this myself, and eliminating cable alone is saving me close to $1500 per year. (For related reading, see: Alternatives to Cable TV.)
  3. Gym membership – these can easily cost $600-800 per year, depending upon how swanky the establishment and package that was chosen. With YouTube and DVDs, it’s so easy to get a quality workout at home without having a ton of money worked out of your wallet. Eliminate the membership, not the exercise.
  4. Side hustle – I have always been a huge proponent of a side hustle, or part-time gig. During my transition of leaving corporate America to go independent, I also had a part-time job while I built my practice. Even if you have a stable job or career and feel you could save more, find a good side hustle. Do something you enjoy and make some extra cash while doing it.

If you are feeling the monetary strain, downsizing your car, getting rid of cable and the gym membership, and finding a side hustle can have a dramatic impact on your budget. It takes a bit of courage, but one can transition from living check-to-check to having a net surplus per month, depending upon your situation. If you are having debt and/or budgetary concerns and you want to make some positive changes but are not sure where to start, reach out to a qualified financial advisor. If you change nothing, then nothing changes!