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Building Black Wealth Insights Study – U.S. Bank

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The racial wealth gap constrains the U.S. economy as a whole, resulting in $1-1.5 trillion in lost economic output and a 4-6% drag on America’s GDP.

The racial wealth gap in America is not just a ‘Black problem.’ It’s a problem that effects all Americans and is an ‘all of us’ challenge to remedy, according to U.S. Bank. “Extreme disparities and their persistent harm reach into every American’s future. We can all be energized by the opportunity to provide the tools of financial prosperity for Black families and other historically disadvantaged members of the American fabric because those benefits will be felt throughout our entire country. By working to close the racial wealth gap, we’re creating economic prosperity – more jobs, economic vitality – it’s better for business, for families and for communities. The racial wealth gap must be closed if we are to achieve our full potential as a nation,” says Greg Cunningham, SEVP, Chief Diversity Officer U.S. Bank

Building wealth and achieving financial security is a primary aspiration for most, but many communities, especially the African American community, face distinct systematic challenges in reaching these goals. And, the financial industry has an important role to play in eliminating the barriers and closing the racial wealth gap.

While everyone has a unique definition of financial security, it’s often defined as having peace of mind that their income is enough to cover both expected and unforeseen expenses.

U.S. Bank’s Building Black Wealth Insights Study attempts to understanding the needs, goals and challenges of the Black community. This research highlights many steps the financial industry must pursue to better serve the Black community, according to Gunjan Kedia, Vice Chairman, U.S. Bank Wealth Management and Investment Services.

In the United States, Black households hold significantly less wealth than white households, and over the last several decades, that gap continued to grow.2 While there has been some improvement, the net wealth of the average Black family today is less than 15 percent of that of a white family.1

The overall conclusion is that more work needs to be done to narrow the wealth gap; in fact, a 2018 analysis published by the Federal Reserve Bank of Minneapolis posited, “no progress has been made in reducing income and wealth inequalities between Black and white households over the past 70 years.”3

Also, according to the Q2 2021 Bureau of Labor Statistics report, the median weekly earnings for Black men were $877, or 78.7 percent of the median for white men ($1,115).4

It may come as no surprise, then, that our survey found Black affluent respondents feel they are at a disadvantage compared to rest of the population. Nearly twice as many Black affluent individuals as Hispanic individuals in the survey stated they had been treated differently by the financial services industry due to their race – and nearly four times as many compared to Asian and white individuals.

Despite these barriers, we found that Black affluent individuals are more likely than non-Black (white, Hispanic and Asian) affluent respondents to:

  • Have clearly defined financial goals.
  • Have a strong financial plan that helps guide their decisions.
  • Believe they are better at managing their finances than their parents.
  • Be more comfortable discussing money matters freely with friends and family.

U.S. financial institutions must acknowledge that they played a historical role in creating and sustaining present and persistent gaps in wealth by race and ethnicity. According to the Federal Reserve’s 2019 report, there is an 8:1 gap in wealth between white and Black families, and a 5:1 gap in wealth between white and Hispanic families.1 Financial institutions must not only acknowledges this history, but be willing to leverage the unique skills and expertise of its they possess to build wealth in African American communities and help close those gaps.

U.S. financial institutions must make a commitment to address this persistent racial wealth gap.

To help build wealth, banks and financial institutions must reduce actual and perceived barriers to their services, and redefine how they intend to serve the special needs of racially diverse communities. They must make a commitment to support businesses owned by people of color, help individuals and communities of color advance economically, and enhance career opportunities for employees and prospective employees

It must start by banks and financial institutions listening to and learning from their diverse customers and communities. “We are starting with the Black community, because that is where the wealth gap is greatest. We’ll continue to listen and learn in order to take steps to support lasting change,” explains Mark Jordahl, President U.S. Bank Wealth Management.

Despite the historical and current barriers faced by Black individuals, there are abundant opportunities by banks and financial institutions to cl,ose the wealth gap. And,
there is still much that industry leaders can do to support Black affluent individuals – and Black individuals at all economic levels. A few thought starters, according to U.S. Bank, are:

  • Advisor training – Ensure employees at all levels are trained to recognize their own individual biases and to treat all individuals with fairness – whether they’re greeting someone at a bank counter or considering approval for a loan product.
  • Advisor awareness – Acknowledge that working with a financial advisor may be uncomfortable for someone doing it for the first time or someone who has had a prior negative encounter. Consider how words and actions can impact an experience and commit to training client-facing advisors to enhance the client experience, especially for those from different backgrounds.
  • Diverse advisors – Know that representation matters. Expand hiring and retention efforts to ensure diversity doesn’t just occur at entry-level positions, but through all levels of client-facing roles and leadership.
  • Tailored advice – As with any customer, avoid making assumptions about financial goals and ensure financial planning advice takes into consideration the priorities of the individual or family. Examples may include ensuring current lifestyle needs are met, helping the next generation and leaving a legacy. Make real estatepart of the conversation and ensure fair mortgage lending.

https://www.usbank.com/dam/documents/pdf/wealth-management/perspectives/building-black-wealth.pdf

References:

  1. https://www.usbank.com/dam/documents/pdf/wealth-management/perspectives/building-black-wealth.pdf

Black History Month Demographic Profile: African Americans

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46.8 million people live in the U.S. who identified as African American in 2019. The African American population has grown by more than 10 million since 2000. Pew Research

In 2019, there were 40.6 million African Americans residing in the United States, which represents 12.8 percent of the total population. African Americans are the second largest minority population in the United States, following the Hispanic/Latino population.

In 2019, the majority of African Americans lived in the South (58.7 percent of the black U.S. population), while 35.8 percent of the non-Hispanic white population lived in the South. The ten states with the largest African American population in 2019 were Texas, Georgia, Florida, New York, North Carolina, California, Maryland, Illinois, Virginia, Louisiana.

Educational Attainment: It is well-known that Black households hold significantly less wealth than white households in the United States. In 2019, 87.2 percent of African Americans had earned at least a high school diploma, as compared to 93.3 percent of the non-Hispanic white population. 22.6 percent of African Americans had a bachelor’s degree or higher, as compared with 36.9 percent of non-Hispanic whites. More black women than black men had earned at least a bachelor’s degree (25.0 percent compared with 19.7 percent), while among non-Hispanic whites, a higher proportion of women than men had earned a bachelor’s degree or higher (37.3 percent and 36.5 percent, respectively). 8.6 percent of African Americans have a graduate or advanced professional degree, as compared to 14.3 percent of the non-Hispanic white population.

Income and Wealth: Building wealth and achieving financial security are
primary financial aspirations, but many in the African American community face
distinct challenges in reaching these goals. According to the Federal Reserve’s 2019 report, there is an 8:1 gap in wealth between white andBlack families, and a 5:1 gap in wealth between white and Hispanic families.

According to the U.S. Census Bureau in 2019, the average African American median household income was $43,771 in comparison to $71,664 for non-Hispanic white households. In 2019, the U.S. Census Bureau reported that 21.2 percent of African Americans in comparison to 9.0 percent of non-Hispanic whites were living at the poverty level. In 2019, the unemployment rate for African Americans was twice that of non-Hispanic whites (7.7 percent and 3.7 percent, respectively).

In the 2019, African American families’ median and mean wealth is less than 15 percent that of White families, at $24,100 and $142,500, respectively. White families have median and mean family wealth: $188,200 and $983,400, respectively.

The mumbers show that Aftican American families have considerably less wealth than White families. “We [African Americans] have to be equipped with the knowledge to transform the income we make into wealth we can keep. Your money has to start working for you if you want to build wealth,” says J.D. Smith, a Chicago-based Wealth Coach.

The stock market has been one of the greatest generators of wealth in the last decade plus. Yet, no matter the level of education and hard work that has been put in by African Americans, many have not been able to take advantage of stocks to build wealth.

“Wealth flows through us, not to us,” says Smith. “We are constantly transferring money from one institution to another. We go to school and have to take on additional jobs to fund our education and overall living expenses. Money typically goes from our jobs to the education system. And this pattern doesn’t stop after graduation. When we get into the workforce, money often flows from our jobs to pay hefty mortgage and student debt payments to keep up with the lifestyles of our colleagues. We need to allocate more money toward investing if we want to build wealth.”

Health and Life Expectancy: According to Census Bureau projections, the 2020 life expectancies at birth for blacks are 77.0 years, with 79.8 years for women, and 74.0 years for men. For non-Hispanic whites the projected life expectancies are 80.6 years, with 82.7 years for women, and 78.4 years for men. The death rate for African Americans is generally higher than whites for heart diseases, stroke, cancer, asthma, influenza and pneumonia, diabetes, HIV/AIDS, and homicide.

In 2019, suicide was the second leading cause of death for blacks or African Americans, ages 15 to 24. The overall suicide rate for African Americans was 60 percent lower than that of the non-Hispanic white population, in 2018.

Poverty level affects mental health status. Black or African Americans living below the poverty level, as compared to those over twice the poverty level, are twice as likely to report serious psychological distress.

References:

  1. https://www.minorityhealth.hhs.gov/omh/browse.aspx
  2. https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm
  3. https://www.blackenterprise.com/african-american-wealth-zero-2053/
  4. https://www.minorityhealth.hhs.gov/omh/browse.aspx
  5. http://federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicityin-the-2019-survey-of-consumer-finances-20200928.htm

 

Prioritize Your Happiness

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Prioritize. Spend on the things and on the activities that make you the happiest.

Most people spend their lives sacrificing their own happiness either because of career pursuits or chasing riches. You fail to realize how important it is to value your own happiness and taking care of yourself.

As a result, you unconsciously stumble into a busy and fast paced lifestyle. And, there never seems to be enough time to do the important things you really want, like exercising, hanging out with friends, or attending a wealth seminar. Yet, with so much already on your plate, how can you fit it all in?

In Work Less, Live More (Nolo Press, 2007), Bob Clyatt argues that you can make time for fun stuff. The secret, he says, is prioritizing:

“Imagine you have an empty jar, a collection of a few large rocks, and several handfuls of gravel. Your task is to put all the large and small rocks into the jar. One approach would be to pile all the gravel first, but doing so would leave room for only one or two of the large rocks; you wouldn’t get everything to fit. Switch your approach and put the large rocks in first, and you’ll find that the gravel will all fit nicely around the empty space. If a bit of gravel doesn’t fit at the end, you’ve not lost much.

Let too many little things take priority, and there never seems to be time for the big things. Consider the Big Rocks to be really important things you want to accomplish in life, the things that define you. Get the big things in first, work on the right projects and priorities, and let the little stuff fit in around the edges. Let your Big Rocks be non-negotiable priorities in your weekly calendar—and learn to say “no” when other things begin to intrude. Then fit those other things in where you can.

So if exercising makes you happy, schedule your exercise—and then fit the rest of your life around them. Don’t ignore your obligations, but make the stuff you have to do fit around the stuff you want to do, not the other way around.”

What you buy matters too in making you happy. You are happier when you use your money to buy experiences rather than things and when you use your money to help others. So the next time you are feeling down, buy a trip to the spa or donate to a charity.

Thus, your happiness lies in things that you love to so. Therefore, it is important to find time to do all the activities that bring joy to your life. You must prioritize taking time out of your day to spend time on your favorite activities and hobbies that makes you feel refreshed and content.

Bottomline, each day is a new opportunity for you to choose to live a life filled with purpose and happiness. You must consciously and intentionally prioritize to be happy on a daily basis. Otherwise, it’s easy to get stuck in a rut for months or even years.

“Putting yourself first is not selfish. Quite the opposite. You must put your happiness and health first before you can be of use to anyone else.” ~Simon Sinek

References:

  1. https://www.oreilly.com/library/view/your-money-the/9780596809430/ch01.html
  2. https://www.beingguru.com/2019/04/prioritize-your-happiness/

Guide to Medicare Enrollment

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At age 65, you’re eligible to enroll in Medicare and reap some benefits from a program you’ve contributed during your pre-retirement years. But, getting the most out of Medicare can be daunting. 

It’s important to understand your options and the rules that apply. For instance, missing your enrollment date may mean penalties or even higher premiums for the rest of your life. At the same time, you don’t want to pay for additional coverage you don’t need, especially if you’re still working.

If you are receiving Social Security, you are automatically enrolled in Medicare Parts A and B (known as Original Medicare) at 65. You’ll receive a Medicare card two or three months before your birthday, and coverage starts on the first day of your birthday month.

  • Part A covers hospitalization and usually comes with no premiums, assuming you or your spouse paid into Medicare while working.
  • Part B, which covers medical services, does require premiums, but you have the option of withdrawing if you wish.

If you aren’t yet receiving Social Security, you will need to apply for Medicare during one of the designated annual enrollment periods. Your initial enrollment period lasts for seven months, beginning three months before the month in which you turn 65. To help avoid a potential gap in coverage, consider enrolling during the three months prior to your 65th birthday.

If you’re still working and covered at age 65, you should consider enrolling in Part A anyway, as it is generally premium-free and may cover some expenses not included in your employer’s health plan.

Premiums for Part B may be higher because of your income, so it may be wise to delay enrollment in Part B until after you retire as long as you work for a company with 20 or more employees.

If your company has fewer than 20 employees, consider enrolling in Part B as well because Medicare is considered your primary insurance. You can enroll without penalty at any time during the eight months after you stop working or your employee health coverage ends.

If you miss that window, you may be subject to penalties that, in the case of Part B, could last as long as you remain covered. (For insights on what you can consider doing if you lose your health-care benefits before you turn 65.

Additional coverage includes Part C, known as Medicare Advantage. It includes plans administered by private companies such as health maintenance organizations and preferred provider organizations. They offer the benefits of Parts A and B, and often include such additional benefits as vision, hearing and dental coverage.

Costs for Part C plans vary according to the insurer. Some plans may require referrals or restrict you to doctors in a network, and you must already have Parts A and B in order to enroll. Another consideration: Some plans may limit their coverage to a certain geographic area, so if you anticipate traveling a great deal or relocating, Medicare Advantage might not be for you.

And, Part D offers prescription drug coverage for both brand-name and generic prescription drugs. You must be enrolled in Medicare to enroll in a Part D plan, which you purchase from a private insurer. Although premiums, deductibles and copays vary by plan, federal law limits your annual out-of-pocket costs for prescription drugs. Before enrolling in Part D, check whether you’re already covered for prescription drugs under a Part C Medicare Advantage plan. You may not need it. And if you decide later on that you need additional coverage or want to change your existing plan, you can do so during designated enrollment periods.

There are services that are not covered by Medicare. Original Medicare (Parts A and B) won’t cover copays, coinsurance or deductibles, nor will it cover medical care when you travel outside the United States. Some services, such as long-term care, acupuncture and cosmetic surgery, also aren’t covered. Some of these services are likely to be covered if you enroll in a Part C plan. Long-term care, however, is not among them.

As an alternative to Part C, you may supplement Original Medicare with Medicare Supplement Insurance, also known as Medigap. Plans providing such coverage follow strict federal and state standards, and costs vary by policy and insurer.

To buy a Medigap policy, you must be enrolled in both Parts A and B. To guarantee availability, you must sign up within six months of enrolling in Part B.

If you have TRICARE (health care program for active-duty and retired service members and their families), you generally must enroll in Part A and Part B when you’re first eligible to keep your TRICARE coverage. However, if you’re an active-duty service member or an active-duty family member, you don’t have to enroll in Part B to keep your TRICARE coverage.

Most people with TRICARE entitled to Part A must have Part B to keep TRICARE drug benefits. If you have TRICARE, you don’t need to join a Medicare drug plan. However, if you do, your Medicare drug plan pays first, and TRICARE pays second.

If you join a Medicare Advantage Plan with drug coverage, your Medicare Advantage Plan and TRICARE may coordinate their benefits if your Medicare Advantage Plan network pharmacy is also a TRICARE network pharmacy. Otherwise, you can file your own claim to get paid back for your out-of-pocket costs. For more information, visit tricare.mil, or call the TRICARE Pharmacy Program at 1-877-363-1303.

To learn more, the official Medicare site, medicare.gov, offers detailed information on signing up; the specifics of Parts A, B, C and D; costs associated with Medicare; penalties for missing enrollment; and other important issues. Go to the site’s “Find Health & Drugs Plans” section to sort through and compare the plans available in your region.

References:

  1. https://www.medicare.gov/sites/default/files/2020-12/10050-Medicare-and-You_0.pdf
  2. https://www.ml.com/articles/your-guide-to-medicare-5-key-questions-answered.html
  3. https://www.medicare.gov
  4. https://tricare.mil

Investing rules of the road – Edward Jones

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While investors know there are risks in investing, what investors do not fully appreciate is that there are greater risks in not investing.

In December 2020, American households were holding about $16 trillion in cash – more than three times as much as at the beginning of 2000, according to the Federal Reserve. Having this much cash on the sidelines can be risky for investors, especially during periods of high inflation.

By not investing, you will not achieve your long-term financial goals to build wealth and attain financial freedom. Ultimately, it’s important to remember the reasons why you’re investing and to fully understand the risks of not investing.

Your investment goals are as unique as the route you take to reach them. But regardless of your course, investment firm Edward Jones believes the following 10 investing “rules of the road” can help you in the long term get where you want to be.

1. Develop your strategy

You need to determine and clearly write down your long-term goals, investment time frame and comfort level with risk – before devising an investment strategy. The more you can outline what you are trying to achieve, the better you can tailor your strategy and develop your plan.

Use market declines and automatic investing to your advantage: Edward Jones recommends a disciplined approach. Consider investing a set amount every month, regardless of what the market is doing, to help take emotions out of the equation. Interestingly, this strategy can help turn market declines into opportunities.

2. Understand the risk

As a rule, the higher the return potential, the more risk you’ll have to accept. To determine what makes sense for you, your financial advisor will want to know:

  • What is your comfort level with risk? Understanding this can help him or her determine how you may react to market ups and downs over time.
  • How much risk are you able to take? The amount of time you have to invest plays an important role in determining how much risk you’re able to take.
  • How much risk do you need to take? Your financial advisor will want to determine the return, and therefore the risk, that may be necessary to reach your long-term goals.

Taking an appropriate amount of market risk may be necessary because it’s difficult to meet long- term goals with only short-term investments.

3. Diversify for a solid foundation

Your portfolio’s foundation is your asset allocation, or how your investments are diversified among stocks, bonds, cash, international and other investments. Your mix should align with your goals and comfort with risk.

Edward Jones recommends having some of your portfolio invested in fixed-income and international investments, because historically a more balanced portfolio experienced a higher likelihood of a positive return over time and helped reduce any potential declines. Ultimately, your specific mix of stocks and bonds will be driven primarily by your goals, your risk tolerance and the time until you need the income in retirement.

4. Stick with quality

Of all the factors to consider when investing, Edward Jones believes quality is one of the most important. It’s also one of the most overlooked. Although it may be tempting to buy a popular investment, it may not fit with the rest of your portfolio, and it may be riskier than you expect. If it sounds too good to be true, it probably is.

5. Invest for the long term

Despite stories of fortunes made on one or two trades, most successful individual investors make their money over time, not overnight. One of the biggest mistakes you can make is trying to “time” the markets.

Typically, market declines aren’t what derail your strategies; it’s our reactions to those declines. While stocks certainly can be volatile short term, the long-term trend for stocks has been positive – the longer your time horizon, the higher the likelihood of achieving a positive annual return.

6. Set realistic expectations

First, you’ll need to determine the return you’re trying to achieve – which should be the return you need to reach your goals. Then you can base your expectations on your asset allocation, the market environment, and your investment time frame.

7. Maintain your balance

Your portfolio’s mix could drift from its initial objectives from time to time. You can rebalance to reduce areas where your investments are overweight or add to areas where they are underweight. By rebalancing on a regular basis, you can help ensure your portfolio remains aligned with your objectives and on track to reach your long-term goals.

8. Prepare for the unexpected

Unforeseen events could derail what you’re working so hard to achieve. By preparing for the unexpected and building a strategy to address it, you’ll be better positioned to handle the inevitable bumps along the way.

9. Focus on what you can control

Every investment is the present value of future cash flow. Everything Money

You can’t control market fluctuations, the economy, or the political environment. Instead, you should base your decisions on time-tested investment principles, which include:

  • Diversifying your portfolio
  • Owning quality investments
  • Maintaining a long-term perspective
  • Buy with a margin of safety

Any time you go through periods of market fluctuations, it’s important to remember why you’re investing – to reach a financial goal. And if retirement is that goal, the bottom line is one word: cash flow.

10. Review your strategy regularly

The one constant you can expect is change. That’s why it’s so important that you review your strategy on a regular basis.

To regularly review your strategy and make the adjustments you need, you can have a clearer picture of where you stand and what you need to do to help reach your goals.

Ultimately, it’s important to remember the reasons why you’re investing and to fully understand the risks of not investing. The potential risk of not investing is that you do not retire on your terms. Instead, you risk retiring either later than you have planned or with a potentially reduced lifestyle.

The key is finding balance – not too much investment risk, while ensuring you have enough growth potential to reach your long-term financial and retirement goals.

References:

  1. https://www.edwardjones.com/sites/default/files/acquiadam/2021-11/RES-7558-A.pdf
  2. https://www.edwardjones.com/us-en/market-news-insights/personal-finance/investing-strategies/investing-rules

There is a difference between money and wealth.

Does Bill Gates have a lot of money?

The answer is no. What Bill Gates has is a lot of wealth, which is determined by his net worth (the difference between his assets and his liabilities). Bill Gates does not have $76 billion in cash.

Money is the medium that buyers give sellers in exchange for goods and services.

His wealth is measured by net worth; his assets include his Microsoft stock and his 22-bedroom home in Washington State, which is valued at over $150 million. He cannot take his house or his Microsoft stock to McDonald’s and buy a cheeseburger with it, but he could take a $10 bill there to buy one.

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“Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos into order, confusion into clarity…It turns problems into gifts, failures into success, the unexpected into perfect timing, and mistakes into important events. Gratitude makes sense of our past, brings peace for today and creates a vision for tomorrow.”

Melodie Beattie, Author of ‘Co-dependant No More’

Fear of Higher Interest Rates Ending Technology Stocks Growth

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Technology stocks have been the driving force behind the longest-running bull market in history.

The technology sector is vast, comprising gadget makers, software developers, wireless providers, streaming services, semiconductor companies, and cloud computing providers, to name just a few, according to Motley Fool. Any company that sells a product or service heavily infused with technology likely belongs to the tech sector.

And, the pandemic has been mostly positive for the tech industry. Companies like Amazon have thrived as consumers shifted hard toward e-commerce. Additionally, companies like Microsoft have also done well, buoyed by demand for collaboration software, devices, gaming, and cloud computing services as people spend more time at home.

Many of the most valuable companies in the world are technology companies.

Growth stocks have outperformed for 12 years and counting. Since the end of the Great Recession in 2009, growth stocks have been a driving force on Wall Street. Many of the most valuable companies in the world, like Apple and Microsoft, are technology companies.

Historically low lending interest rates and the Federal Reserve’s ongoing quantitative easing measures have created a pool of abundant cheap capital that fast-paced businesses have used to expand operations and investors have used to fuel the longest running bull market.

Technology stocks have been a key component of the market’s rising trend. Since the financial markets collapsed, demand for consumer electronics and related products and services has caused the tech sector to far outperform every other segment. 

However, revenue growth is starting to slow, although the delta variant surge may drive consumers away from stores once again. The economic dynamics favoring technology’s 12 year growth are changing.

Inflation is running rampant, and the Federal Reserve has indicated it’s become more hawkish on fighting it, indicating as many as three interest rate hikes may be in the cards calendar year 2022, effectively ending its loose money policy. Higher interest rates hurt growth stocks because growth stocks intrinsic value is based on the value of their future earnings. And, those future earnings are not worth as much if interest rates go up.

To best analyze tech stocks, first determine if the company is profitable or not.

For mature tech companies that produce profits, the price-to-earnings ratio is a useful metric. Divide stock price by per-share earnings and you get a multiple that tells you how highly the market values the company’s current earnings. The higher the multiple, the more value the market is placing on future earnings growth.

Many tech companies aren’t profitable, so the price-to-earnings ratio can’t be used evaluate them.

Revenue growth matters more for these younger companies.

If you’re investing in something unproven, you want to make sure it has solid revenue growth.

For unprofitable tech companies, it’s important that the bottom line be moving from losses toward profits.

As a company grows, it should become more efficient, especially when it comes to the sales and managing expenses. If it’s not, or if spending is growing as a percentage of revenue, that could indicate something is wrong.

Ultimately, a good tech stock is one that trades at a reasonable valuation given its growth prospects.

Accurately figuring out those growth prospects is the hard part. If you expect earnings to skyrocket in the coming years, paying a premium for the stock can make sense. But if you’re wrong about those growth prospects, your investment may not work out.

Thus, investing in technology stocks can be risky, but you can reduce your risk by investing only when you feel confident their growth prospects justify their often lofty price to earnings valuations.

References:

  1. https://www.fool.com/investing/2022/01/20/2-top-tech-stocks-ready-for-a-bull-run/
  2. https://www.fool.com/auth/authenticate/
  3. https://www.fool.com/investing/stock-market/market-sectors/information-technology/

Don’t get financial advice from NFL stars

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When it comes to financial investing, investors should not rely on advice from professional athletes who promote crypto-currencies or currency trading platforms.

In November 2021, cryptocurrency market prices were skyrocketing to new heights and Bitcoin was one of the red-hot. Concurrently, two well-known NFL football players, Green Bay Packers quarterback Aaron Rodgers and Los Angeles Rams wideout Odell Beckham Jr., stated that they would accept a portion of their 2021 salaries in the cryptocurrency during a month when Bitcoin hit an all-time high of $68,906 per coin. 

As often happens with volatile currencies and investments, Bitcoin market price has crashed from that November peak to a nearly 52 percent dive, reaching a January bottom of $33,076.

If ever there were a case of buyer beware with the products athletes endorse, this would be it. Most especially when that “product” is actually a volatile form of currency that can cost investors massive sums of money.

The sad fact is that the vast majority of people don’t truly understand how cryptocurrency works. And that group also includes most professional athletes who have advisers paid to guide their investments, as well as agents who find commercial opportunities to endorse products like Bitcoin.

It’s been assumed that athlete such as Odell Beckham Jr. has take a substantial financial hit in pay with Bitcoin.

It was reported by Darren Rovell that Beckham’s entire salary is now worth only $413,000 USD equivalent in Bitcoin as opposed to the $750,000 USD guaranteed by the LA Rams football team, excluding taxes. Once federal and state taxes are factored in, Beckham is projected to make around $35,000.

References:

  1. https://www.yahoo.com/lifestyle/odell-beckham-jr-suffers-major-085440249.html
  2. https://www.msn.com/en-us/sports/nfl/bitcoin-s-recent-crash-is-a-reminder-don-t-get-your-financial-advice-from-nfl-stars/ar-AAT8kiG

Financial Freedom

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“It’s the ability to live and maintain the lifestyle which you desire without having to work or rely on anyone for money.” T Harv Eker

Financial Peace guru Dave Ramsey proclaims that “Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them.”

It’s about having complete control over your finances which is the fruit of hard work, sacrifice and time. And, as a result, all of that effort and planning was well worth it!

Nevertheless, reaching financial freedom may be challenging but not impossible. It also may seem complicated, but in just a straightforward calculation, you can easily estimate of how much money you’ll need to be financially free.

What is financial freedom? Financial freedom is the ability to live the remainder of your life without outside help, working if you choose, but doing so only if you desire. It’s the ability to have the things you want and need, despite any occurrence other than the most catastrophic of outside circumstance.

To calculate your Financial Freedom Number, the total amount of money required to give you a sufficient income to cover your living expenses for the rest of your life

Step 1: Calculate Your Spending

Know how much you are spending each year. If you’ve done a financial analysis (net worth and cash flow), created a budget, and monitored your cash flow, then you’re ahead.

Take your monthly budget and multiply that amount by 12. Make sure you include periodic expenses such as annual premiums and dues or quarterly bills. Also include continued monthly contributions into accounts like your emergency fund, vacation clubs, car maintenance, etc.

Add all these together to get your Yearly Spending Total.

Keep in mind the lower the spending total, the lower the amount of money you’ll need to become financially independent. Learn how to lower your monthly household expenses and determine the difference between needs and wants.

Step 2: Choose Your Safe Withdrawal Rate

The safe withdrawal rate (also referred to as SWR) is a conservative method that retirees use to determine how much money can be withdrawn from accounts each year without running out of money for the rest of their lives.

The safe withdrawal rate method instructs financially independent people to take out a small percentage between 3-4% of their investment portfolios to mitigate worst-case scenarios. This withdrawal percentage is from the Trinity Study.

The Trinity Study found the 4% rule applies through all market ups and downs. By making sure you do not withdraw more than 4% of your initial investments each year, your assets should last for the rest of your life.

Step 3: Calculate Your Financial Independence (FI) Number

Your FI number is your Yearly Spending Total divided by your Safe Withdrawal Rate.

To find the amount of money you’ll need to be financially independent, take your Yearly Spending Total and divide it by your SWR.

For example:

  • Yearly Spending: $40,000
  • Safe Withdrawal Rate: 4%

Financial Independence Number = Yearly Spending / SWR

  • $40,000 / 0.04 = $1,000,000

Who becomes financially free? According to most financial advisors, compulsive savers and discipline investors tend to become financially free since:

  • They live on and spend less they earn.
  • They organize their time, energy and money efficiently in ways conducive to building wealth.
  • They have a strong belief that gaining financial freedom and independence is far more important than displaying high social status and financial symbols.
  • Their parents did not keep on helping them financially.
  • They have a keen insight to recognize financial and wealth building opportunities.

Net worth is the most important number in personal finance and represents your financial scorecard. Your net worth includes your investments, but it also includes other assets that might not generate income for you. Net Worth can be defined to mean:

  • Income (earned or passive)
  • Savings
  • Investing to grow and to put your money to work for you)
  • Simple and more frugal lifestyle

Financial freedom means different things to different people, and different people need vastly different amounts of wealth to feel financially free.

Maybe financial freedom means being debt-free, or having more time to spend with your family, or being able to quit corporate America, or having $5,000 a month in passive income, or making enough money to work from your laptop anywhere in the world, or having enough money so you never have to work another day in your life.

Ultimately, the amount you need comes down to the life you want to live, where you want to live it, what you value, and what brings you joy. Joy is defined as a feeling of great pleasure and happiness caused by something exceptionally good, satisfying, or delightful—aka “The Good Life.”

It is worth clearly articulating what the different levels of financial freedom mean. Grant Sabatier’s book, Financial Freedom: A Proven Path to All the Money You’ll Ever Need, the levels of financial freedom are:

Seven Levels of Financial Freedom

  1. Clarity, when you figure out where you are financially (net worth and cash flow) and where you want to go
  2. Self-sufficiency, when you earn enough money to cover your expenses
  3. Breathing room, when you escape living paycheck to paycheck
  4. Stability, when you have six months of living expenses saved and bad debt, like credit card debt, repaid
  5. Flexibility, when you have at least two years of living expenses invested
  6. Financial independence, when you can live off the income generated by your investments and work becomes optional
  7. Abundant wealth, when you have more money than you’ll ever need

The difference between income and wealth: Wealth is accumulated assets, cash, stocks, bonds, real estate investments, and they have passive income. Simply, they don’t have to work if they don’t want to.

Accumulating wealth and becoming wealthy requires knowing what you want, discipline, taking responsibility and have a plan.

Hundreds of thousands of Americans have great incomes, but you wouldn’t call them wealthy because of debt and lack of accumulated assets, instead:

  • They owe for their homes
  • They owe for their cars and boats.
  • They have little savings and investments
  • They have few “paid for” assets
  • They have negative net worth

Essentially, if you make a great income and spend it all, you will not become wealthy. Often, high income earners’ true net worth is far less than they think it is.

Here are several factors and steps to improve your financial life:

  • Establishing financial goals
  • Paying yourself first and automate the process
  • Creating and sticking to a budget. Know where you money goes.
  • Paying down and/or eliminating credit card and other bad debt. Debt which is taking from your future to pay for your past.
  • Saving for the future and investing for the long term consistently
  • Investing the maximum in your employer’s 401(k)
  • Living on and spending less than you earn
  • Simplify – separating your needs from your wants. You don’t need to keep buying stuff.

Financial freedom can look something like this:

  • Freedom to choose a career you love without worrying about money
  • Freedom to take a luxury vacation every year without it straining your budget
  • Freedom to pay cash for a new boat
  • Freedom to respond to the needs of others with outrageous generosity
  • Freedom to retire a whole decade early

When you have financial freedom, you have options.

“Your worth consists in what you are and not in what you have. What you are will show in what you do.” Thomas Edison

References:

  1. https://www.phroogal.com/calculate-financial-independence-number/
  2. https://www.ramseysolutions.com/retirement/what-is-financial-freedom
  3. https://thefinanciallyindependentmillennial.com/steps-to-financial-freedom/