Five Money Goals to Financial Wellness | TIAA

Posted on May 27, 2021 by admin

According to TIAA, there are five big financial goals anyone seeking financial well-being should include on their list:

Max out your 401(k) / 403(b). One rule of thumb says that by the time you turn 30, you should have the equivalent of your annual salary saved (that’s all savings, not just retirement assets); double your salary saved by age 35; three times the amount by age 40. And, it’s essential to take full advantage of your employer match, if you have one: With a $50,000 salary from an employer matching up to 6% of your contributions, you’d be turning down $3,000 (free money) each year! Letting your employer match go to waste would be like you accepting a $3,000 pay cut without a fight. In the absence of an employer plan, contribute to an IRA instead, even though the target is much lower (the annual contribution rate for 2021 is $7,000.
Build an emergency fund. Each year brings economic uncertainty to many and, even for the financially secure, life happens in the form of medical bills, domestic catastrophes and other unplanned expenses. As a general rule, it’s good to maintain an emergency fund that would cover three to six months of living expenses in case you find yourself unemployed. Once you’ve calculated how much you should save, set aside a certain amount from each paycheck to set you on your way.
Get your financial affairs in order. Estate planning is something you can’t afford to ignore. Getting your financial affairs in order, and designating the right people to manage them in the event of your incapacity or death, takes a huge weight off your shoulders. Necessary documents include durable powers of attorney, which designate someone to manage your day-to-day affairs, and a living will or healthcare directive to instruct your doctor what to do if you’re unable to make medical decisions for yourself. Don’t forget to inform those assigned with the task of handling your estate, who need to know the location of your will and other estate planning documents.
Give yourself a debt deadline. Bad debts. You know which ones they are: the loan you took out to pay for a wedding; the credit card with the sky-high interest rate whose balance keeps rolling like a New York subway car. Convincing yourself that minimum monthly payments are okay? How about setting a deadline for repayment and getting rid of this exponentially growing interest?
Create a budget (and stick to it). If you find that your spending is a bit out of control, you may want to press the reset button on your out-of-control spending behavior with a budget.

Setting these five money goals is enough to start you well on your way toward financial well-being.

References:

https://www.tiaa.org/public/learn/personal-finance-101/5-must-have-financial-goals

Financial Mindset

Posted on May 11, 2021 by admin

“It’s difficult to master the psychology and emotions behind earning, spending, debt, saving, investing, and building wealth.”

Personal finance is simple. Fundamentally, you only need to know one thing: To build wealth and achieve financial freedom, you must spend less than you earn. Yet, it seems challenging for most people to get ahead financially.

Financial success is more about mindset and behavior than it is about math, according to J.D. Roth, author of Get Rich Slowly. Financial success isn’t determined by how smart you are with numbers, but how well you’re able to control your emotions and behaviors regarding savings and spending.

A great article here about money mindset from @TheStreet:
"I believe the money mindset is the first, and crucial first step to personal financial success… You need to first understand your thoughts and feelings around money."https://t.co/QcG4071dWn #mindset #money #wealth pic.twitter.com/Dc4YppsJeP

— Heena Thaker (@heenaIWC) May 10, 2021

Financial Mindset

“Change your mindset and attitude, and you can change your life.”

You sometimes have to make sacrifices in order to improve your financial situation. For instance, if you are in debt, you need to sacrifice some expenses so you can pay more towards managing and eliminating your debt. It is these financial sacrifices that will require you to have the right financial mindsets so you can overcome the obstacles that derail people from managing and eliminating their debt.

According to an article published in USAToday.com, Americans do not have a financial literacy problem. Instead, Americans simply make the wrong financial decisions and have bad final habits which does not necessarily translate that they are unaware of the best practices of financial management. We know how to make the right choices about our personal finances. The problem, according to the article’s author Peter Dunn, is that Americans have a financial behavioral problem. It is bad financial behavior, decisions and habits that usually get them into money trouble. It is what put them in a financially untenable position.

A perfect example is that you should never spend more than what you are earning. It is logical after all. But does that mean you follow it. Some people still end up in debt because they spend more than what they are earning.

Other examples of beliefs about money and personal finance include:

Taking personal responsibility regarding your finances is everything.
You shouldn’t buy things you can’t afford.
You don’t have to make a ton of money to be financially successful.
You can give yourself and your family an amazing life, if you’re able to remain disciplined and think long term.
Borrowing money from or lending money to your family isn’t recommended.
Education can get you a better job, if you get the right education.
You should buy life insurance.
You have much more to do with being a financial success than you think.

Financial literacy gems such as “spend less than you make,” “you need to budget” and “save for the future” are impotent attempts to help. However, lacking the correct financial mindset can make following the simple financial gems quite challenging.

There are 5 destructive financial mindsets that are the norm in our society today but you should actually get rid of starting today, according to NationalDebtRelief.com.

1. Using debt to reach your dreams.

This can actually be quite confusing. A lot of people say that it is okay to be in debt as long as it will help you reach your dreams. There is some truth to that but you should probably put everything into the right perspective. Buying your own home and getting a higher education are some of the supposedly “good debts.” It is okay to borrow for these if you can reach your dreams because of that debt. Not so fast. It may be logical to use debt to reach these but here’s the key to really make it work – you should not abuse it. If you get a home loan, buy a house that will help pay for itself. That way, the debt will not be a burden for you. When it comes to student loans, make sure that you work while studying to help pay for your loans while in school. Do what you can to keep debt from being a burden so it will not hinder you from reaching your dreams.

2. Thinking you do not need an emergency fund.

The phrase, “you only live once (YOLO)”, should no longer be your mindset – especially when it comes to your finances. You always have to think about the immediate future. If you really want to enjoy this life, you need to be smart about it. Do not splurge everything on present things that you think will make you happy. It is okay to postpone your enjoyment so you can build up your emergency fund. You are not as invincible as you think even if you are still young.

3. Settling for a stressful job to pay off debt.

“The most important thing when paying off your debts is to pay off your debts.”

Among the financial mindsets that you need to erase is forcing yourself to stay in a stressful job just so you can pay off your debt. You are justifying the miserable experience that you are going through in your job because you need it to meet your financial obligations. This is the wrong mindset. You need to put yourself in a financial position where you will never be forced to stay in a job that you do not like. Live a more frugal life that does not require you to spend a lot so you can pursue a low paying job and still afford to pay your debts.

4. Delaying your retirement savings.

Some young adults think that their retirement savings can wait. Some of them think that they need to pay off their debts first before they can start thinking about the future. This is not the right mindset if you want to improve your finances. You have to save for retirement even when you are drowning in debt.

5. Failing to have a backup plan.

The last of the financial mindsets that you need to forget is not having a backup plan. Do not leave things to chance if it involves your finances. You have to make a plan and not just that, you need to have a backup plan. If you have an emergency savings fund, do not rely on that alone. What if one emergency happens after another? Where will you get the funds to pay for everything? Think about that before you act.

Takeaway

Remember, personal finance is simple…it’s your emotion, behavior and habits that are challenging. Bottom-line, it comes down to your financial mindset. Smart money management is more about your mindset than it is about personal financial math of net worth, cash flow, saving and investing. The math of personal finance is simple and easy. It’s the psychology that’s tough and challenging. Essentially, the concepts to improving your finances and achieving financial freedom are simple but it is not easy to follow through with them.

References:

True Cost of Credit Cards

Posted on May 8, 2021 by admin

Credit cards make buying things easy, but at a significant cost

Credit cards provide security, convenience, and even rewards based on spending. However, if cardholders don’t manage their cards carefully, they may find themselves facing unwanted consequences like a poor credit score or hidden fees.

If you don’t pay off your credit card balance every month, the interest assessed on your account means you may be paying more than you expect. And if you spend beyond your means, the resulting interest and debt can become significant.

Pros and Cons of Credit Cards

To make the most of your credit cards and maintain a great credit score, it’s essential to understand their pros and cons. Maximize the benefits and minimize unnecessary costs by learning about the advantages and disadvantages of credit.

Advantages

Instant Purchasing Power – Credit can help with unexpected emergency expenses and give you the flexibility to pay them over time.
Security – Lose cash, and it’s gone. Lose a credit card, and it can be canceled with no harm done in most circumstances. Also, you need to be prompt about reporting a lost or stolen card to be protected against its unauthorized use.
Record Keeping – Your credit card statement is an itemized list of your monthly expenditures, which can be helpful when it comes to budgeting.
Convenience – Credit cards are more widely accepted as a form of payment than checks, and they’re generally faster to use.
Bill Consolidation – Bills can be paid automatically via credit card, consolidating several payments into a single sum.
Rewards – Using a credit card with a rewards program may earn you benefits like free travel.

Disadvantages

The main disadvantage to credit card usage is the potential cost in interest and fees. Wise use of credit means understanding those costs and acting accordingly. Keep track of your spending to ensure that you can repay your credit card bill in full when it is due each month.

It’s important to understand the true cost of credit cards when interest and fees are factored in. Using credit may be less convenient if it means paying more for purchases over time when interest is factored in.

Payment by credit card is quite different from the cash payment methods like cash, check, or debit card. With credit, a promise to pay later is a part of the transaction. With credit cards, credit is provided by a third party (someone other than the seller), the seller receives full payment for the item. The seller must pay money back to the third party who provided the credit. In this way, the person receiving the credit is delaying payment.

Many people use credit to pay for meals at restaurants, even to make small purchases without having to use cash. Because the use of credit is so common, it might appear that credit is unlimited. However, people who do obtain credit are subject to credit limits, meaning that they can only get so much credit.

Get to know these credit cards terms:

Annual Fee – The once-a-year cost of owning a credit card. Some credit card providers offer cards with no annual fees.
Annual Percentage Rate (APR) – The yearly interest rate charged on outstanding credit card balances.
Balance – An amount of money. In personal banking, balance refers to the amount of money in a savings or checking account. In credit, balance refers to the amount of money owed.
Credit Line – The maximum dollar amount that can be charged on a specific credit card account.
Grace Period – The period of time after a payment deadline when the borrower can pay back the borrowed money without incurring interest or a late fee.
Introductory Rate – An interest rate offered by credit card issuers in the initial stages of a loan. These rates are often set much lower than standard rates in order to attract new cardholders. Make sure you know how long the introductory rate will last and what the standard interest rate will be once the introductory period ends.
Minimum Payment – The minimum amount of money that you are required to pay on your credit card statement each month in order to keep the account in good standing.
Overdraft Protection – A banking service that allows you to link your checking account to your credit card, thereby protecting you from overdraft penalties or bounced checks in the case of insufficient funds.

Credit cards can be a convenient and flexible form of payment, but they have to be used responsibly in order to make the most of your money. Though credit cards allow you to purchase items instantly without using cash, it’s important to use your cards as carefully as you would handle your cash.

References:

Give Every Dollar a Job

Posted on April 28, 2021 by admin

“Controlling and managing your spending is a skill that takes practice, determination and discipline.”

One of the most important things you must learn and understand in financial planning is that every dollar must have a job, whether you intentionally give it one or not. It is best to assign a task to every dollar you earn. When every dollar has a predetermined destination and income minus spend equals zero, you have created a zero-balance budget; this is the goal.

If the idea of maintaining a budget seems unpalatable, start small. Begin by tracking your monthly expenses and spending habits. You need to have a clear picture of where your money is going before you can change anything.

Become the boss of your paycheck and cash

Start assigning a job for every dollar you have with the intent of ensuring that money is your servant and working for you. You need to direct it to the things that move you forward, the things that allow you to live the kind of life you envision for yourself. You need to determine where your money goes, you need to take control. Here are some examples, according to Joe Morgan, financial advisor, Best Financial Life:

Your home equity dollars provide a place to live and the safety that your home value won’t fall below your mortgage (assuming you have enough of them)
Your emergency fund sits like the fireman in the station, ready to help you through life’s next big challenge
Your living expenses, which are funded by your paychecks, ensure your current lifestyle is maintained throughout the year
Your savings cover any big purchases over the next five years that cannot be funded by your regular pay
Your investment portfolio takes care of expenses that are five or more years in the future, which won’t be covered by future income
Your “play money” investment account is for entertainment purposes, but only if you know you won’t get rich (or go broke) buying and selling individual stocks.

Give Every Dollar a Name

Intentional Mindset

Personal finance podcaster, Paula Pant, says, “You can afford anything, just not everything.” Intentional living is not about deprivation or sacrificing the things you enjoy, but investing and spending on the things that are valuable to you.

Adopting an intentional mindset around where and how you spend your money will help control cash flow and free up more money to save and invest. For example, if quality food and nice meals are where you find value, you could focus on spending in that category, but you may need to pull back in another.

It’s important to understand that building the life you deserve isn’t about owning luxury brands or having the biggest house. It’s about finding the things that aligns with your personal values and the vision for your life and that bring you purpose, fulfillment, and joy, while balancing the cost versus value in the choices you make.

Your time is ultimately one of your greatest assets. As Warren Buffett says, “If you don’t learn to make money while you sleep, you will work until you die.” A big part of your financial journey will be finding ways to make your money work for you, taking steps like investing in low-cost index funds.

When it comes to spending, being intentional by giving every dollar a job and intentionally search for the best value can make a big difference to your cash flow and personal financial bottom line.

References:

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Emergency Funds: How to Build and Use Them

Posted on April 25, 2021 by admin

An emergency fund can help you manage unexpected expenses without using a credit card or incurring personal debt.

“None of us, no matter our job, is immune to financial impacts,” Mikel Van Cleve, USAA advice director and CFP professional said. “Under the pandemic, we’ve seen major corporations close their doors, and small businesses that once were thriving fail.” Millions of Americans, who believed they were in secure recession proof positions, found themselves with jobs and regular paychecks.

Thus, Americans from every realm have witnessed firsthand the impact of unexpected black swan events can have on their livelihoods, hopes and dreams for the future.

“Emergencies—from a broken bone to a layoff—are a fact of life. When you’re faced with life’s unexpected events, you can be ready.” Vanguard Investments

Even in the best of times, it might make sense to have a little extra money put aside for emergencies. A financial buffer can help if your car breaks down, you experience a loss of income, or you’re hit with a big medical bill. And having an emergency fund might also help you avoid tapping into savings and investments when an unexpected cost pops up.

An emergency fund is a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

Oh, those unexpected expenses. Be prepared with an emergency fund that lets you borrow from yourself, no matter what happens.

— USAA (@USAA) March 24, 2021

Saving money isn’t always easy, but it’s likely to be less painful than the alternatives. A 2012 FINRA Investor Education Foundation National Financial Capability Study found that many of the people surveyed currently or recently:

Had unpaid medical bills: 26%.
Overdrew their checking account: 22%.
Took a loan from their retirement account: 14%.
Took a hardship withdrawal from their retirement account: 10%.
Had more than one late mortgage payment: 13%.
Filed for bankruptcy: 3.5%.

Furthermore, if you don’t have an emergency fund, you’re not alone. A 2019 Federal Reserve report found that 27% of Americans in 2018 would have a hard time covering an unexpected $400 expense. And 12% wouldn’t be able to pay for it at all.

How to Build an Emergency Fund

You might think that emergency funds are only for people who can set aside lots of extra cash each month. But even if money is tight, an emergency fund could help you feel more secure. Here are a few suggestions for building yours.

Keep it separate. The Consumer Financial Protection Bureau (CFPB) recommends setting up a separate savings account for your emergency fund. This makes it accessible, but not so accessible that you’ll be tempted to dip into it.
Start small if you need to. The Federal Trade Commission recommends saving even if you can only manage $10 each week or month. You might find it useful to set a regular schedule for your contributions and stick to it. It can be motivating and satisfying to watch the deposits add up, however small they start off.
Pay yourself first. If you can, you might want to consider setting aside some of your income for savings before you spend it on anything else. You could even automatically transfer your chosen amount into a savings account each payday.
Bank any extras. A tax refund, cash gift or raise at work could provide a good opportunity to kick-start an emergency fund or give it a big boost. Immediately setting that money aside can be a great way to grow your savings without dipping into your wallet.
Say “yes” to the 52-Week Savings Step-Up Challenge. The premise is simple: This week, save $1; next week, save $2; in week 3, save $3. Continue adding a dollar a week for 52 weeks. A year from now, you’ll have saved $1,378 — and surpassed your first goal of $1,000.
Schedule a monthly automatic draft that transfers money from your checking account to your savings account. This is the perfect solution if you look at your budget and know how much you can save. Just set it and forget it.

When to Use an Emergency Fund

After building an emergency fund, here are a few common situations when you might need to tap into your emergency savings.

To protect your income. A financial buffer could help if anything threatens your ability to do your job—for example, if your car breaks down and you can’t get to work any other way, or you need a new piece of equipment.
To replace your income. If your job is downsized or cut, your emergency fund could help you pay rent, buy food and cover other necessary expenses until you can find another source of income.
To cover medical expenses. Using your emergency fund is a no-brainer if your doctor recommends treatment or medication for a health issue.
To maintain a habitable living environment. Damage to your home, like a leaky roof, could cause more costly issues down the line if it’s not taken care of as soon as possible.

Remember, everyone’s situation is different, and you might have multiple ways to respond to a financial emergency. If you’ve been laid off and you’re struggling to pay bills, the CFPB recommends reaching out to your lenders directly. And it might be a good idea to seek the advice of a qualified financial adviser.

Bottomline

Whether you’re considering putting your money in a savings account, checking account, certificate of deposit, money market deposit account, money market mutual fund, bond or equity investment, real estate, or some other form of investment, weigh the following pros and cons:

How liquid are the funds? In other words, can you immediately withdraw your money if you need it?
Are there any fees or limitations to accessing the funds?
If you access your funds, is there a risk of loss of principal?

In many cases, FDIC-insured savings accounts or money market deposit accounts are preferable options because your money is more easily accessible. Plus, it’s not subject to market fluctuations.

References:

Financial Planning 12 Step Process

Posted on April 15, 2021 by admin

A financial plan creates a roadmap for your money and helps you achieve your financial goals.

The purpose of financial planning is to help you achieve short- and long-term financial goals like creating an emergency fund and achieving financial freedom, respectively. A financial plan is a customized roadmap to maximize your existing financial resources and ensures that adequate insurance and legal documents are in place to protect you and your family in case of a crisis. For example, you collect financial information and create short- and long-term priorities and goals in order to choose the most suitable investment solutions for those goals.

Although financial planning generally targets higher-net-worth clients, options also are available for economically vulnerable families. For example, the Foundation for Financial Planning connects over 15,000 volunteer planners with underserved clients to help struggling families take control of their financial lives free of charge.

Research has shown that a strong correlation exist between financial planning and wealth aggregation. People who plan their financial futures are more likely to accumulate wealth and invest in stocks or other high-return financial assets.

When you start financial planning, you usually begin with your life or financial priorities, goals or the problems you are trying to solve. Financial planning allows you to take a deep look at your financial wellbeing. It’s a bit like getting a comprehensive physical for your finances.

You will review some financial vital signs—key indicators of your financial health—and then take a careful look at key planning areas to make sure some common mistakes don’t trip you up.

Structure is the key to growth. Without a solid foundation — and a road map for the future — it’s easy to spin your wheels and float through life without making any headway. Good planning allows you to prioritize your time and measure the progress you’ve made.

That’s especially true for your finances. A financial plan is a document that helps you get a snapshot of your current financial position, helps you get a sense of where you are heading, and helps you track your monetary goals to measure your progress towards financial freedom. A good financial plan allows you to grow and improve your standing to focus on achieving your goals. As long as your plan is solid, your money can do the work for you.

A simple, 7 baby steps to start with your financial planning.

Thanks to @aidy_syazreef for sharing the poster. pic.twitter.com/TFt3H90iTR

— #BangsaEnamAngka (@FinancialGory) March 29, 2021

A financial plan is a comprehensive roadmap of your current finances, your financial goals and the strategies you’ve established to achieve those goals. It is an ongoing process to help you make sensible decisions about money, and it starts with helping you articulate the things that are important to you. These can sometimes be aspirations or material things, but often they are about you achieving financial freedom and peace of mind.

Good financial planning should include details about your cash flow, net worth, debt, investments, insurance and any other elements of your financial life.

Financial planning is about three key things:

Determining where you stand financially,
Articulating your personal financial goals, and
Creating a comprehensive plan to reach those goals.
It’s that easy!

Creating a roadmap for your financial future is for everyone. Before you make any investing decision, sit down and take an honest look at your entire financial situation — especially if you’ve never made a financial plan before.

The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional.

There is no guarantee that you’ll make money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.

12 Steps to a DIY Financial Plan

It’s not the just the race car that wins the race; it also the driver. An individual must get one’s financial mindset correct before they can succeed and win the race. You are the root of your success. It requires:

Right vehicle at the right time
Right (general and specific) knowledge, skills and experience
Right you…the mindset, character and habit

Never give up…correct and continue.

Effectively, the first step to financial planning and the most important aspect of your financial life, beyond your level of income, budget and investment strategy, begins with your financial mindset and behavior. Without the right mindset around your financial well-being, no amount of planning or execution can improve your current financial situation. Whether you’re having financial difficulty, just setting goals or only mapping out a plan, getting yourself mindset right is your first crucial step.

Knowing your impulsive vices and creating a plan to reduce them in a healthy way while still rewarding yourself occasionally is a crucial part of a positive financial mindset. While you can’t control certain things like when the market takes a downward turn, you can control your mindset, behavior and the strategies you trust to make the best decisions for your future. It’s especially important to stay the course and maintain your focus on the positive outcomes of your goals in the beginning of your financial journey.

Remember that financial freedom is achieved through your own mindset and your commitment to accountability with your progress and goals.

“The first step is to know exactly what your problem, goal or desire is. If you’re not clear about this, then write it down, and then rewrite it until the words express precisely what you are after.” W. Clement Stone

1. Write down your goals—In order to find success, you first have to define what that looks like for you. Many great achievements begin as far-off goals, that seem impossible until it’s done. Though you may not absolutely need a goal to succeed, research still shows that those who set goals are 10 times more successful than those without goals. By setting SMART financial goals (specific, measurable, achievable, relevant, and time-bound), you can put your money to work towards your future. Think about what you ultimately want to do with your money — do you want to pay off loans? What about buying a rental property? Or are you aiming to retire before 50? So that’s the first thing you should ask yourself. What are your short-term needs? What do you want to accomplish in the next 5 to 10 years? What are you saving for long term? It’s easy to talk about goals in general, but get really specific and write them down. Which goals are most important to you? Identifying and prioritizing your values and goals will act as a motivator as you dig into your financial details. Setting concrete goals may keep you motivated and accountable, so you spend less money and stick to your budget. Reminding yourself of your monetary goals may help you make smarter short-term decisions about spending and help to invest in your long-term goals. When you understand how your goal relates to what you truly value, you can use these values to strengthen your motivation. Standford Psychologist Kelly McGonigal recommends these questions to get connected with your ideal self:

What do you want to experience more of in your life, and what could you do to invite that/create that?
How do you want to be in the most important relationships or roles in your life? What would that look like, in practice?
What do you want to offer the world? Where can you begin?
How do you want to grow in the next year?
Where would you like to be in ten years?

Writing your goals out means you’ll be anywhere from 1.2 to 1.4 times more likely to fulfill them. Experts theorize this is because writing your goals down helps you to choose more specific goals, imagine and anticipate hurdles, and helps cement them in your mind.

2. Create a net worth statement—To create a successful plan, you first need to understand where you’re starting so you can candidly address any weak points and create specific goals. First, make a list of all your assets—things like bank and investment accounts, real estate and valuable personal property. Now make a list of all your debts: mortgage, credit cards, student loans—everything. Subtract your liabilities from your assets and you have your net worth. Your ratio of assets to liabilities may change over time — especially if you pay off debt and put money into savings accounts. Generally, a positive net worth (your assets being greater than your liabilities) is a monetary health signal. If you’re in the plus, great. If you’re in the minus, that’s not at all uncommon for those just starting out, but it does point out that you have some work to do. But whatever it is, you can use this number as a benchmark against which you can measure your progress.

3. Review your cash flow—Cash flow simply means money in (your income) and money out (your expenses). How much money do you earn each month? Be sure to include all sources of income. Now look at what you spend each month, including any expenses that may only come up once or twice a year. Do you consistently overspend? How much are you saving? Do you often have extra cash you could direct toward your goals?

4. Zero in on your budget—Your cash-flow analysis will let you know what you’re spending. Zeroing in on your budget will let you know how you’re spending. Write down your essential expenses such as mortgage, insurance, food, transportation, utilities and loan payments. Don’t forget irregular and periodic big-ticket items such as vehicle repair or replacement costs, out of pocket health care costs and real estate taxes. Then write down nonessentials—restaurants, entertainment, even clothes. Does your income easily cover all of this? Are savings a part of your monthly budget? Examining your expenses and spending helps you plan and budget when you’re building an emergency fund. It will also help you determine if what you’re spending money on aligns with your values and what is most important to you. An excellent method of budgeting is the 50/30/20 rule. To use this rule, you divide your after-tax income into three categories:

Essentials (50 percent)
Wants (30 percent)
Savings (20 percent)

The 50/30/20 rule is a great and simple way to achieve your financial goals. With this rule, you can incorporate your goals into your budget to stay on track for monetary success.

5. Create an Emergency Fund–Did you know that four in 10 adults wouldn’t be able to cover an unexpected $400 expense, according to U.S. Federal Reserve? With so many people living paycheck to paycheck without any savings, unexpected expenses might seriously throw off someone’s life if they aren’t prepared for the emergency. It’s important to save money during the good times to account for the bad ones. This rings especially true these days, where so many people are facing unexpected monetary challenges. Keep 12 months of essential expenses as Emergency Fund or a rainy day fund. If you or your family members have a medical history, you may add 5%-10% extra for medical emergencies (taking cognizance of the health insurance cover) to the amount calculated using the above formula. An Emergency Fund is a must for any household. Park the amount set aside for contingencies in a separate saving bank account, term deposit, and/or a Liquid Fund.

6. Focus on debt management—Debt can derail you, but not all debt is bad. Some debt, like a mortgage, can work in your favor provided that you’re not overextended. It’s high-interest consumer debt like credit cards that you want to avoid. Don’t go overboard when taking out a home loan. It can be frustrating to allocate your hard-earned money towards savings and paying off debt, but prioritizing these payments can set you up for success in the long run. But, as a rule of thumb, the value of the house should not exceed 2 or 3 times your family’s annual income when buying on a home loan and the price of your car should not exceed 50% of annual income. Try to follow the 28/36 guideline suggesting no more than 28 percent of pre-tax income goes toward home debt, no more than 36 percent toward all debt. This is called the debt-to-income ratio. If you stick to this ratio, it will be easier to service your loans/debt. Borrow only as much as you can comfortably repay. If you have multiple loans, it is advisable to consolidate all loans into a single loan, that has the lowest interest rate and repay it regularly.

“Before you pay the government, before you pay taxes, before you pay your bills, before you pay anyone, the first person that gets paid is you.” David Bach

7. Get your retirement savings on track—Whatever your age, retirement planning is an essential financial goal and retirement saving needs to be part of your financial plan. Although retirement may feel a world away, planning for it now is the difference between a prosperous retirement income and just scraping by. The earlier you start, the less you’ll likely have to save each year. You might be surprised by just how much you’ll need—especially when you factor in healthcare costs. To build a retirement nest egg, aim to create at least 20 times your Gross Total Income at the time of your retirement. This is necessary to keep up with inflation. But if you begin saving early, you may be surprised to find that even a little bit over time can make a big difference thanks to the power of compounding interest. Do not ignore ‘Rule of 72’ – As per this rule, the number 72 is divided by the annual rate of return on investment to determine the time it may take to double the money invested. There are several types of retirement savings, the most common being an IRA, a Roth IRA, and a 401(k):

IRA: An IRA is an individual retirement account that you personally open and fund with no tie to an employer. The money you put into this type of retirement account is tax-deductible. It’s important to note that this is tax-deferred, meaning you will be taxed at the time of withdrawal.
Roth IRA: A Roth IRA is also an individual retirement account opened and funded by you. However, with a Roth IRA, you are taxed on the money you put in now — meaning that you won’t be taxed at the time of withdrawal.
401(k): A 401(k) is a retirement account offered by a company to its employees. Depending on your employer, with a 401(k), you can choose to make pre-tax or post-tax (Roth 401(k)) contributions. Calculate how much you will need and contribute to a 401(k) or other employer-sponsored plan (at least enough to capture an employer match) or an IRA.

Ideally, you should save 15% to 30% from your net take-home pay each month, before you pay for your expenses. This money should be invested in assets such as stocks, bonds and real estate to fulfil your envisioned financial goals. If you cannot save 15% to 30%, save what you can and gradually try and increase your savings rate as your earnings increase. Whatever you do, don’t put it off.

After retiring, follow the ‘80% of the income rule’. As per this rule, from your investments and/or any other income-generating activity, you need to generate at least 80% of the income you had while working. This will ensure that you can take care of your post-retirement expenses and maintain a comfortable standard of living. So make sure to invest in productive assets.

8. Check in with your portfolio—If you’re an investor, when was the last time you took a close look at your portfolio? If you’re not an investor, To start investing, you should first figure out the initial amount you want to deposit. No matter if you invest $50 or $5,000, putting your money into investments now is a great way to plan for financial success later on. Market ups and downs can have a real effect on the relative percentage of stocks and bonds you own—even when you do nothing. And even an up market can throw your portfolio out of alignment with your feelings about risk. Don’t be complacent. Review and rebalance on at least an annual basis. As a rule of thumb, your equity allocation should be 100 minus your current age – Many factors determine asset allocation, such as age, income, risk profile, nature and time horizon for your goals, etc. But you could broadly follow the formula: 100 minus your current age as the ratio to invest in equity, with the rest going to debt. And, never invest in assets you do not understand well.

Good health is your greatest need. Without good health, you can’t enjoy anything else in life.

9. Make sure you have the right insurance—As your wealth grows over time, you should start thinking about ways to protect it in case of an emergency. Although insurance may not be as exciting as investing, it’s just as important. Insuring your assets is more of a defensive financial move than an offensive one. Having adequate insurance is an important part of protecting your finances. We all need health insurance, and most of us also need car and homeowner’s or renter’s insurance. While you’re working, disability insurance helps protect your future earnings and ability to save. You might also want a supplemental umbrella policy based on your occupation and net worth. Finally, you should consider life insurance, especially if you have dependents. Have 10 to 15 times of annual income as life insurance – If you are the bread earner of your family, you should have a tem life insurance coverage of around 10 to 15 times your annual income and outstanding liabilities. No compromise should be made in this regard. Review your policies to make sure you have the right type and amount of coverage. Here are some of the most important ones to get when planning for your financial future.

Life insurance: Life insurance goes hand in hand with estate planning to provide your beneficiaries with the necessary funds after your passing.
Homeowners insurance: As a homeowner, it’s crucial to protect your home against disasters or crime. Many people’s homes are the most valuable asset they own, so it makes sense to pay a premium to ensure it is protected.
Health insurance: Health insurance is protection for your most important asset: Your health and life. Health insurance covers your medical expenses for you to get the care you need.
Auto insurance: Auto insurance protects you from costs incurred due to theft or damage to your car.
Disability insurance: Disability insurance is a reimbursement of lost income due to an injury or illness that prevented you from working.

10. Know your income tax situation—Taxes can be a drag, but understanding how they work can make all the difference for your long-term financial goals. While taxes are a given, you might be able to reduce the burden by being efficient with your tax planning. Tax legislation tend to change a number of deductions, credits and tax rates. Don’t be caught by surprise when you file your last year’s taxes. To make sure you’re prepared for the tax season, review your withholding, estimated taxes and any tax credits you may have qualified for in the past. The IRS has provided tips and information at https://www.irs.gov/tax-reform. Taking advantage of tax sheltered accounts like IRAs and 401(k)s can help you save money on taxes. You may also want to check in with your tax accountant for specific tax advice.

11. Create or update your estate plan—Thinking about estate planning is important to outline what happens to your assets when you’re gone. To create an estate plan, you should list your assets, write your will, and determine who will have access to the information. At the minimum, have a will—especially to name a guardian for minor children. Also check that beneficiaries on your retirement accounts and insurance policies are up-to-date. Complete an advance healthcare directive and assign powers of attorney for both finances and healthcare. Medical directive forms are sometimes available online or from your doctor or hospital. Working with an estate planning attorney is recommended to help you plan for complex situations and if you need more help.

12. Review Your Plans Regularly–Figuring out how to create a financial plan isn’t a one-time thing. Your goals (and your financial standing) aren’t stagnant, so your plan shouldn’t be either. It’s essential to reevaluate your plan periodically and adjust your goals to continue setting yourself up for success. As you progress in your career, you may want to take a more aggressive approach to your retirement plan or insurance. For example, a young 20-something in their first few years of work likely has less money to put into their retirement and savings accounts than a person in their mid-30s who has an established career. Staying updated with your financial plan also ensures that you hold yourself accountable to your goals. Over time, it may become easy to skip one payment here or there, but having concrete metrics might give you the push you need for achieving a future of financial literacy. After you figure out how to create a monetary plan, it’s good practice to review it around once a year.

Additionally, take into account factors such as the following:

The number of years left before you retire
Your life expectancy (an estimate, based on your family’s medical history)
Your current basic monthly expenditure
Your existing assets and liabilities
Contingency reserve, if any
Your risk appetite
Whether you have adequate health insurance
Whether you have provided for other life goals
Inflation growth rate

A financial plan isn’t a static document to sit on — it’s a tool to manage your money, track your progress, and one you should adjust as your life evolves. It’s helpful to reevaluate your financial plan after major life milestones, like getting m arried, starting a new job or retiring, having a child or losing a loved one.

Financial planning is a great strategy for everyone — whether you’re a budding millionaire or still in college, creating a plan now can help you get ahead in the long run, especially if you want to make a roadmap to a successful future.

For additional financial planning resources to create your own financial plan, go to the MoneySense complete financial plan kit.

References:

Manage Your Debt

Posted on March 25, 2021 by admin

You must protect your wealth from destructive forces, such as debt, taxes and inflation, which all can erode wealth. Add to these another wealth destroyer: overspending.

Americans are drowning in debt. Before COVID-19, Americans were merely treading water in dangerous seas. But once the economy turned ugly, jobs went away and nest eggs cracked, those with the most debt, sunk, according to the Bill “No Pay” Fay the founder of Debt.org. Many people were forced into insolvency or foreclosure, unable to pay their obligations or provide for their families.

Today, debt is almost a fact of life for most Americans. When you owe money to someone, you are in debt. Owing money is not always bad. Debt allows you to buy homes and cars, send our kids to college, and have things in the present that we can pay for in the future and nearly everyone has at least one credit card. Indeed, capitalism essentially was built on the extension of credit and the ensuing debt it creates. But credit’s convenience can easily lead to spending more than you earn or budget. And, debt becomes bad and financial bondage when you owe money you cannot pay back.

Debt is rampant

“Most American’s spending habits are based on the amount of available credit they have, not on their cash flow (income) or checking account balance”

According to the New York Federal Reserve, consumer debt was approaching $14-trillion in the second quarter of 2019. This includes mortgages ($9.14-trillion), auto loans ($1.65-trillion), student loans ($1.44-trillion), and credit card loans ($829-billion). It was the 24th consecutive quarter for an increase.

Living without debt these days is next to impossible. Debt falls into two categories: good debt and bad debt. It’s good to know that all debt (or money owed) isn’t created equal, and it’s even better to know the difference, according to Navy Federal Credit Union. Before buying anything on credit, it’s a good idea to determine whether you’re accruing good debt or bad debt.

Good Debt:

Good debts are those that create value and can be seen as an investment. Think mortgages, loans for college education or business loans. School loans and mortgages often have lower interest rates than other kinds of debt. Student loans can increase your ability to command a larger income. An ideal situation in a home loan is that the property increases in value over the course of the loan term, an increase that could offset the interest paid on your loan.

Bad Debt:

Bad debt comes into play when you purchase items that quickly decrease in value and don’t generate income. Bad debt often carries a high interest rate—think store credit cards and payday loans or cash advance loans. The rule of thumb for avoiding bad debt is: If you can’t afford it, don’t buy it. Every month that you make a partial payment on a high-interest loan, that item loses value while the price you paid for it increases.

When it comes to your credit history, well-managed debt can actually help improve your credit score. When purchasing on credit, know what you’re getting into and take on only as much debt as you can afford to pay off.

https://twitter.com/cbcfamily1889/status/1354852205451501569?s=21

For many, using credit is a normal part of handling their finances. For others, using credit can lead to uncontrolled spending, anxiety, and even bankruptcy. It’s important to recognize your own spending and savings habits so you remain in control.

Knowing when and where not to use credit –and what type of credit to use –can help you avoid getting in over your head. Borrowing for higher education is probably a good idea as it should result in a higher earned income later. Charging extravagant vacations, and for expensive dinners and gifts that you really can’t afford is not a good idea.

Installment credit and credit cards

“Your biggest enemies are your bills. The more you owe, the more you stress. The more you stress over bills, the more difficult it is to focus on your goals. More importantly, if you set your monthly income requirements too high, you eliminate a significant number of opportunities.” Mark Cuban

There are two major types of household debt: installment and revolving credit.

Installment debt is paid off in a specified period of time with predetermined periodic payments. Conventional mortgages are the best example.
Revolving credit is a line of credit that is instantly available, usually through credit cards. As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, which can extend your payoff period and the interest you pay.

Installment debt is excellent for big-ticket purchases like a home mortgage and should be accounted for in your monthly budget. Compared with credit cards, interest rates for installment debt are usually relatively low.

According to statistics collected by the Federal Reserve and other government data, credit card debt is the third highest source of household debt behind mortgages and student loans, with an average owed of $15,863.

The modern-day credit card — which entered the culture in the late 1950s — has meant far greater buying power for U.S. consumers, but also financial disaster for many individuals and families.

Consider these statistics about credit cards in America :

More than 189 million Americans have credit cards.
The average credit card holder has at least four cards.

Credit cards are a convenient way to buy virtually anything at any time, but you need to use them intelligently and be aware of the interest costs. And, you might not realize it, but every time you use your credit card, you’re essentially taking out a loan. The purchases you put on your card are bought with your line of credit, and you’re responsible for paying your credit card company back for whatever you buy. When used responsibly, a credit card can be a great tool for building credit history; used incorrectly, it can lead to debt.

Credit cards can offer the temptation to overspend, but you can curb that urge by using these tips to be smart about your spending:

Budget. Budget. Budget. Keep track of your finances with an up-to-date budget that accurately reflects your income and output. Knowing your finances is a huge step in knowing how much you can afford.
Borrow only as much as you repay. A good rule of thumb is to not tie up more than one-third of your income in debt, including mortgage, credit cards and installment loans. Borrow only as much as you can pay back in a reasonable time, while staying on top of the daily necessities.
Pay bills in full and on time. Don’t overextend your funds. Be mindful of when your credit card bills are due and make a concerted effort to pay them off in full each month.
Check your credit report regularly. By keeping an eye on your credit report, you can monitor your status and whether there are mistakes that could negatively affect your score. You can check your credit report for free on an annual basis at

Remember that you have to pay back every charge you make. In a nutshell – don’t charge things you can’t afford. Try to pay your entire balance each month to avoid finance charges and be sure to make the payments on time to avoid late payment fees.

Credit is a powerful tool. It’s convenient and especially useful in emergencies. But it’s also easy to let it get out of hand. Why should you be concerned? https://t.co/dnUBxv0Cyd

— ELB (@ebrownl33) February 1, 2021

Assessing your financial situation helps you to manage your debt efficiently. And with respect to wealth destroyers — taxes, inflation debt and overspending — the last two can have the most destructive effect on your wealth if not kept in check. They are the forces over which you can manage and have the most control.

Keeping Debt Manageable

Compounding interest can be a powerful tool to have in your arsenal. It can be very beneficial in accumulating wealth and in creating large sums of money over time if wielded correctly. But unfortunately, debt has a best friend forever (BFF) and it is the darker side to compounding interest – compounding debt.

When you get into debt, it’s you that incurs interest on what you owe. And if you don’t have a solid repayment plan, that can easily spiral out of control. If you’re stuck in the vicious circle of compounding debt, it’s important to quickly get out as fast as you can. The less you owe the less interest you incur so pay as much as you can as often as you can.

8 warning signs debt is becoming a problem: https://t.co/KNAmBn5DVT

— Laura D. Adams, MBA (@LauraAdams) March 19, 2021

The simplest way to maintain a manageable amount of debt is to ensure you never owe more than you can pay, but simple isn’t always easy. Follow these tips from Navy Federal Credit Union to better manage your debt:

Know how much you owe. Make a list of all of your debts. Include the debt total, monthly payment, interest rate and due date. Track your progress by updating the list regularly as you make payments. As the old adage goes, you can’t manage what you don’t measure.
Pay your bills on time each month. Set up automatic payments so you don’t miss payments and incur late fees. Determine which bills are due first and pay them in order. Pay more than the minimum on each bill if you’re able. Paying the minimum on high-interest debt usually doesn’t help you make real progress, but if that is all you can pay, it does keep debt from growing.
Pay off the high-interest debts first. High-interest debt costs you the most, so you’ll want to immediately wipe it out. The faster you pay these debts off, the less interest you’ll pay. The thinking behind this solution is that if you let the debt with the highest interest rate sit for a long time, it will cost you a bundle in interest payments so attack it immediately. Waiting to pay off high-interest debt likely will cost you thousands of dollars and increase the amount of time you spend in debt.
Start an emergency fund. That way, should an unexpected expense come up, you won’t have to add to your debt to pay it.

Eliminate Your Debt Before You Invest

“If you’ve got $25,000, $50,000, $100,000, you’re better off paying off any debt you have because that’s a guaranteed return.” Mark Cuban

Bottomline about paying off debt is that you must be committed to the process. It’s likely you didn’t incur the debt overnight and it’s even more likely you won’t get out of debt overnight. A study published in the Journal of Marketing Research says that the act of closing accounts after they’re paid off, regardless of size, is a better predictor of whether you’ll get out of debt in the long run.

“Credit is a financial tool, debt is a financial problem.”

References:

Stimulus, Inflation, Unsustainable Debt and America | Fidelity Investments and Peterson Foundation

Posted on March 21, 2021 by admin

“America has been on an unsustainable fiscal path for many years, since long before this pandemic.” The Peter G. Peterson Foundation

The new $1.9 trillion stimulus spending package, on top of trillions already spent to revive the economy, is driving the national debt to unprecedented levels.
History shows that high government debt often leads to inflation, and an uptick in inflation is expected this year as the economy recovers.

The $1.9 trillion federal stimulus package will help many families, businesses, and state and local governments hard hit by the pandemic. But it is also fueling concerns about the ballooning federal debt, inflation, and how investors can protect themselves.

The Congressional Budget Office projected that the federal budget deficit will rise during the second half of the decade and climb steadily over the following 20 years. By 2051, the federal debt is expected to double as a share of the economy.

The projections by the nonpartisan office forecast a more challenging long-term outlook, as interest costs on the national debt rise and federal spending on health programs swells along with an aging population. “A growing debt burden could increase the risk of a fiscal crisis and higher inflation as well as undermine confidence in the U.S. dollar, making it more costly to finance public and private activity in international markets,” the CBO report said.

Today President Biden signed the #AmericanRescuePlan into law. Here’s a breakdown of the major programs and how much they cost. https://t.co/4JwRXW0Grv

— Peterson Foundation (@pgpfoundation) March 11, 2021

Our federal fiscal budget has structural problems, driven by well-known and predictable factors that include an aging population, rising healthcare costs and compounding interest—along with insufficient revenues to meet our commitments, according to The Peter G. Peterson Foundation.

Over the last 20 years, the federal government’s debt has grown faster than at any time since the end of World War II, running well ahead of economic growth. In addition to COVID-related spending, rising federal debt has been driven by longer-term trends including increasing Social Security and Medicare spending for an aging population. Today, according to the Congressional Budget Office, the federal debt is $22.5 trillion, more than 100% of gross domestic product (GDP).

Why debt matters

New Fidelity research suggests that higher debt can slow economic growth, and ultimately lead to higher inflation and more volatile financial markets. Warns Dirk Hofschire, senior vice president of asset allocation research at Fidelity Investments: “Debt in the world’s largest economies is fast becoming the most substantial risk in investing today.”

In the short term, Fidelity’s director of global macro Jurrien Timmer says a market consensus has emerged that inflation will rise in the second half of 2021: “An inflationary boom could result from the combination of COVID infections falling, vaccinations rising, ongoing massive fiscal stimulus, pent-up consumer demand, and low interest rates.”

FEDERAL DEBT IS ON AN UNSUSTAINABLE PATH

Longer term, Hofschire says, “The rise in debt is unsustainable. Historically, no country has perpetually increased its debt/GDP ratio. The highest levels of debt all topped out around 250% of GDP. Since 1900, 18 countries have hit a debt/GDP level of 100%, generally due to the need to pay for fighting world wars or extreme economic downturns such as the Great Depression. After hitting the 100% threshold, 10 countries reduced their debt, 7 increased it, and one kept its level of debt roughly the same.”

Only time will tell which way the US goes and when. But Hofschire thinks “government policies are likely to drift toward more inflationary options.” Among them:

Federal spending aimed at lower- and middle-income consumers
Increased public works spending not offset by higher taxes
Protectionist measures with a “made in America” rationale
Infrastructure upgrades targeting sectors such as renewable energy, 5G telecom, and health care
Higher inflation targeting by the Federal Reserve
Mandatory pay increases for workers benefiting from government assistance

In the longer term, if further free-spending fiscal policies are adopted while interest rates stay low and credit remains abundant, the likelihood of inflation could increase. But history suggests the magnitude and timing is uncertain. Many predicted an inflation surge the last time the federal government embarked on major fiscal and monetary stimulus after the global financial crisis, but inflation mostly failed to appear.

THE GROWING DEBT IS CAUSED BY A STRUCTURAL MISMATCH BETWEEN SPENDING AND REVENUES according to The Peterson Foundation

Why the national debt matters, according the The Peter G. Peterson Foundation:

High and rising federal debt matters because it reduces the county’s flexibility to plan for and respond to urgent crises.
Debt matters because growing interest costs make it harder to invest in our future — to build and sustain infrastructure, enhance education and support an economy that creates job growth and rising wages.
Debt matters because it threatens the safety net — critical programs like Social Security, Medicaid, Medicare, SNAP and Unemployment Compensation are essential lifelines for the most vulnerable populations.
Debt matters because America faces emerging and ongoing challenges that will require fiscal resources to keep the country safe, secure and strong — challenges like socioeconomic injustice, climate change, affordable health care, wealth and income inequality, international conflicts and an increasingly complex and competitive global economy.
Debt matters because the nation should care about its children and grandchildren. Borrowing more and more today reduces the opportunities and prosperity of the next generation.

The U.S. faces a range of complex, unprecedented health, economic and societal challenges, set against the backdrop of a poor fiscal outlook that was irresponsible and unsustainable before the crisis.

Building a brighter future for the next generation must become an essential priority for America, and the high cost of this health and economic crisis only makes that challenge more urgent. Once America has emerged from the pandemic, it will be more important than ever for its elected leaders to address the unsustainable fiscal outlook and manage the burgeoning national debt, to ensure that America is more prepared, better positioned for growth, and able to meet its moral obligation to future generations.

Interest on the #NationalDebt will become the fastest growing part of the federal budget. https://t.co/6UZd8vy5N0

— Peterson Foundation (@pgpfoundation) March 10, 2021

References:

* The Peter G. Peterson Foundation is a non-profit, non-partisan organization that is dedicated to increasing public awareness of the nature and urgency of key fiscal challenges threatening America’s future, and to accelerating action on them. To address these challenges successfully, we work to bring Americans together to find and implement sensible, long-term solutions that transcend age, party lines and ideological divides in order to achieve real results.

Personal Debt in America

Posted on March 16, 2021 by admin

“Debt means enslavement to the past, no matter how much you want to plan well for the future and live according to your own standards today. Unless you’re free from the bondage of paying for your past, you can’t responsibly live in the present and plan for the future.” Tsh Oxenreider, Organized Simplicity: The Clutter-Free Approach to Intentional Living

Debt stands stubbornly in the way of Americans’ financial goals and life dreams. Moreover, debt is the biggest barrier to wealth creation and is the great destroyer of wealth. Debt and financial freedom are polar opposites – they never meet. Where there is debt, there cannot be wealth and financial freedom.

In the U.S., adults aged 18+ report having an average of $29,800 in personal debt, exclusive of mortgages, according to the latest findings from Northwestern Mutual’s 2019 Planning & Progress Study. The research also revealed that 15% of Americans believe they’ll be in debt for the rest of their lives.

While those numbers are staggering, they represent an improvement over last year when U.S. adults reported an average of $38,000 in personal debt. Still, the debt problem in America continues to run deep with wide-spread implications. The study found:

On average, over one-third (34%) of people’s monthly income goes toward paying off debt
45% of Americans say debt makes them feel anxiety on at least a monthly basis
35% report feeling guilt at least monthly as a result of the debt they’re carrying
One in five (20%) report that debt makes them feel physically ill at least once a month
One-fifth (20%) of U.S. adults are not sure how much debt they have
Over one in three Americans (34%) are unsure how much of their monthly income goes toward paying off their debt

Among the generations, Gen X reported the highest levels of personal debt with $36,000 on average. They’re followed by Baby Boomers at $28,600; Millennials at $27,900; and Gen Z at $14,700.

This is the latest round of findings from the 2019 Planning & Progress Study, an annual research project commissioned by Northwestern Mutual that explores Americans’ attitudes and behaviors towards money, financial decision-making, and factors impacting long-term financial security. This year marks the 10-year anniversary of the study.

The Credit Card Crisis

The leading sources of debt for most Americans is a tie between mortgages and credit cards, according to the study. An equal 22% of U.S. adults listed each as their main source of debt, more than double the next two highest sources — car loans (9%) and personal education loans (8%).

Millennials cite credit card bills as their main source of debt (25%), while Gen Z notes personal education loans as theirs (20%). Both Gen Xers (30%) and Baby Boomers (28%) note mortgages as their leading source of debt, followed by credit card bills (at 24% and 18% respectively).

Digging deeper into the numbers around credit card debt, the study found:

Nearly one-third of Americans (31%) are paying interest rates on their credit cards greater than 15%
Over 1 in 10 (12%) say they “always” pay only the minimum required payment, just covering the interest without paying down any principal
Close to one-fifth (19%) don’t know what their interest rate is, with Millennials being the most likely to report not knowing (22%)
18% report having four or more credit cards, with Baby Boomers being more likely than other generations to have four or more (23%)

According to the Federal Reserve Bank of New York, credit card debt has reached $868 billion in the United States, and delinquencies are on the rise.

“Before you spend, earn. Before you invest, investigate. … Before you retire, save.” William A. Ward

When you are in debt the clock works against you. Every morning when you wake—weekends, holidays, sick days, birthdays and work days—you are already behind. The mortgage, credit card, car loan, et cetera, all tacked on interest the second after midnight. Long before you rolled out of bed and poured your first cup of coffee you need to work to pay the interest before you have money for food, clothing, shelter or entertainment.

You can't change bad financial habits overnight, but you need to start somewhere. These tips from @SoFi are a good place to start. https://t.co/0EzWwHTHMo

— Debt.com (@debtcom) March 23, 2021

In debt you are a slave; without debt you’re free. Every day in debt you owe your master. Every day! He is a cruel, heartless master. When the clock ticks past midnight the interest for the day ahead is due. Only those without debt and in possession of investment assets are free to live each day as they choose.

Without debt you are free; without debt and with possessing of assets and wealth, each day is yours to use as you chose.

References:

Beginner’s Guide to Investing

Posted on March 12, 2021 by admin

“Successful investors had to start somewhere, and it’s never too early or too late to start planning for your financial future and learning how to invest wisely.” Phil Town

Getting started investing can be intimidating. The learning curve combined with the fact that you are putting your own money at risk is often enough to scare many people away from one of the safest ways to put ‘your money to work for you’ and financial freedom.

However, the most successful investors like Peter Lynch and Warren Buffett had to start somewhere, and it’s never too early or too late to start planning for your financial future and learning how to invest wisely.

This beginner’s guide to investing, according to investment advisor and NY Times Best-Selling author Phil Town, covers everything you need to know to start investing on your own and make smart investing decisions.

Step 1: Pay Off Bad Debt and Avoid Money Traps

Don’t even think about making any major investments before you have paid off unnecessary debt.

These things shouldn’t hold you back from starting to invest, but if you have “bad” debt from credit cards and high interest personal loans that will get you in trouble with interest payments, pay that off before you put money in the stock market.

Additionally, don’t fall into the common money traps. People of all ages trying to keep up with the Joneses: buying the latest phone, shiniest car, biggest house.

“Money traps are things that will take all your money so you have nothing left to invest.” Phil Town

These are money traps because they are things that will take all your money so you have nothing left to invest. Spending money wisely is one of the most important steps you can take to put yourself in the best possible financial situation before you begin investing.

Step 2: Create an Emergency Fund

If you have figured out how to spend your money wisely, you have probably figured out how to save it. An emergency fund is part of your savings that you set aside in case of an emergency.

It’s a good idea to put 3-6 months of your living expenses into your emergency fund (it can just be in a savings account) should something crazy happen a pandemic!

If your car breaks down, you get laid off, or you have unforeseen medical expenses, you will have the funds you need. An emergency fund will also come in handy in case of a recession.

Even if you don’t have to tap it, you will have peace of mind knowing there is a cushion available if you need it.

Step 3: Learn the Investing Basics

You wouldn’t start driving a truck without knowing the basics driving, so you shouldn’t jump in the stock market without knowing the basics of investing.

Before you begin building wealth, it’s important to understand the basic goal of investing as well as the basic process that you will use to reach that goal.

Step 4: Embrace a Positive Investing Mindset

Your investing psychology (mindset and behavior) and how it affects your investing are important aspects to understand and appreciate. It will dictate how you as an investor will actually behave, the reasons and causes of that behavior, why the behavior can hurt your wealth and what you can do about it.

Understanding the psychological aspects and how psychology affects investing are an important and critical aspect of investing. Knowing that you belong in the market and that your capable of investing in the market are important first steps.

Successful investing has much to do with you needing to be a pretty good amateur psychologist of both your own biases and the market’s, according to Nick Murray. Virtually all market tops and bottoms occur at emotional extremes:

Bottoms coincide with widespread panic while
Tops tend to be associated with some unjustified level of overconfidence or greed.

The theory behind sentiment analysis is quite simple. Market peaks occur when buying power has become exhausted. This happens because those buyers have become either complacent, overconfident or just plain greedy. Once they’ve all bought in, who’s left to buy?

Step 5: Create an Investment Plan

Once you have a positive investing mindset and know you know how investing works, you can move on to the next steps, but don’t get your wallet ready just yet.

Before you put your money in the market, you need to have a clear plan of what you want to accomplish and how you are going to do it. This is where creating an investment plan comes in.

The best investment plan is one that is customized to your lifestyle, so it’s necessary to create an individualized strategy that will set you on the path to success.

Evaluate your current financial standing to understand how much risk you can take.
Determine your goals and how long it will take you to realistically achieve them.
Figure out which types of investments and strategies are the best way to get you to where you want to be.

Having a clear investment plan will give you a ton of clarity as you begin investing.

Step 6: Decide What Type of Investment to Make

Next, you need to decide what type of investments will help you accomplish what you have set out to accomplish. There are several different types of investments that you should be aware of before you start investing your money.

Step 7: Establish Your Investing Strategy

Investing is more than picking a few stocks and hoping for the best. If you’re doing it right, there’s a real strategy involved. Now, you can choose from a plethora of investment strategies for investing beginners. These investment strategies include:

Impact Investing: Investing in companies with a measurable environmental or charitable impact
Growth Investing: Investing in companies that exhibit signs of above-average growth
Income Investing: Investing in securities that pay dividends
Small-Cap Investing: Investing in small companies that are new and potentially grow faster
Value Investing: Investing in great companies when they are on sale for prices lower than they are worth

There is one investment strategy that is recommended which follows the principles of value investing. When you value invest, you buy growth companies, small-cap companies, and impactful companies, but you buy them when they are on sale.

This investing strategy will give you the highest rates of return with the lowest amount of risk. When you buy wonderful high-value companies for half or even a quarter of their value, you can ensure big returns.

Step 8: Determine Where To Invest

Once you decide that you are ready to start buying and selling stocks, you need to choose what platform or service you will use to make your investments.

For most investors, an online broker will be the best option because online brokers allow you to place trades for a relatively small fee while still offering all of the resources and information you need to make wise investments.

There are many online brokers available to choose from and most are fairly competitive in regards to the fees they charge and the services that they offer. And, you really can’t go wrong with any of the major online brokers.

Step 9: Build a Stock Watchlist

It’s time to start investing. If you decided stocks are the right type of investment, you can start picking stocks…carefully. A stock watchlist is your own personal list of companies that you have researched and found to be worthy of your investment. Once you build your watchlist, you watch and wait for the companies on it to go on sale.

To build a watchlist, you need to do your research

The best companies to invest in for beginners are companies that have been around for at least ten years, companies that you understand, companies that exhibit past growth and the potential for future growth, companies that are run by trustworthy management, and companies that have been placed on-sale relative to their value.

You can break down these qualifications into what we call the Four Ms of Investing. It will take a bit of research to discover the Four Ms for each company, but the payoff will be worth it.

If you find a company that meets these qualifications, you will have found an ideal investment for any investor, beginners included.

If you find a company that meets all of these qualifications, you will likely have found an ideal investment opportunity.

Practice Patience and Wait

Once you have found a company that meets your qualifications, it still may not be prudent to invest in it right away. Instead, you’ll want to put the company on your watchlist and wait until the stock market places it on sale.

The good news is that the market puts wonderful companies on sale all the time. If you’re patient, the companies on your watchlist will eventually dip to a price that allows you to buy them up for a bargain rate and profit once the price of those companies goes back up to their true value.

Investing Tip: Check Your Emotions

By far, the most important investing tip for beginners to follow is this: keep your emotions in check.

If you invest in wonderful companies at a point when the market has placed them on sale relative to their value, it’s hard not to make money; that is, if you don’t let your emotions get the better of you.

Even great companies can experience dips in price over the short-term, and these dips often cause inexperienced investors to become afraid and sell off their shares.

By the same token, greed causes many investors to buy into a company at times when the company is overpriced. This leads to lower returns or even losses.

If you want to succeed as an investor, you have to avoid letting fear or greed drive your decision-making process.

Remain patient and logical as you invest and you’ll be able to avoid many of the pitfalls that beginner investors often fall prey to.

Step 10: Know When to Buy Your Stocks

Succeeding at investing in stocks is all about choosing the right companies as well as the right time to invest, but the right time won’t last forever. Once a company on your watchlist goes on sale, it’s time to buy.

Making money requires some degree of timing. Investment legends like Warren Buffett may condemn market timing, however, they would not disagree that there are far better times to enter a stock position and exit a stock position than others.

Entering a new position when there is panic is a far better bet than when the stock price has increase to levels far above its intrinsic value due to fear of missing out.

At this point, all you need to do is place your money in the company and keep it there for the long-term. If you made a wise investment, your money will grow in value for many years after you invest it in the company.

References:

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