Category Archives: Financial Planning

Savings and Checking Accounts

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Savings

A savings account is an account for emergency savings or saving towards a specific goal, such as an upcoming vacation.

A savings account is a basic type of financial product that allows you to deposit your money and typically earn a modest amount of interest, writes Bankrate.com. Savings accounts are typically found at banks and credit unions. You don’t need a large amount of money to open a savings account, and you also have easy access to your money.

A savings account is a good place to keep money for a later date, separate from everyday spending cash, because of their safety, reliability and liquidity. These accounts are a great place for your emergency fund or savings for shorter-term goals, like a vacation or home repair.

Once you’ve made a deposit, the money in your savings account will begin to earn interest. The amount you earn will depend on a few factors, including your savings account APY, the amount of money you deposit and how long you keep money in your account.

Your bank may choose to compound interest on a daily, monthly, quarterly or yearly basis. At the end of each compounding period, your accrued interest is deposited into your account. From there, your new account balance (deposits plus interest) will begin earning interest.

Beyond quick access to your cash when you need it, savings accounts often offer higher interest rates than checking accounts. You might even find some savings accounts with a higher APY than money market accounts.

These accounts are federally insured up to $250,000 per account owner and offer a safe place to put your money while earning interest.

Consumers are typically limited to six withdrawals or transfers a month from savings accounts due to Regulation D, a Federal Reserve requirement that distinguishes between transaction and nontransaction accounts. A savings account is considered a nontransaction account, and, therefore, the number of transactions is capped and any above the limit are subject to a fee.

Savings terms to know

  • Compound interest: Method of calculating interest where interest earned over time is added to the principal. Compounding is usually done on a daily or monthly basis and more frequently it is done, the faster your savings can grow.
  • Interest: Money that you earn for having your funds deposited with a bank.
  • Interest rate: A number that doesn’t take into account the effects of compounding.
  • Annual Percentage Yield (APY): A rate that takes into account the effects of compounding during the year. It’s best to compare yields rather than interest rates.
  • Minimum balance requirement: The minimum amount needed in a savings account to avoid a monthly maintenance fee.
  • Money market account: A type of savings account that may offer checks, and/or an ATM or debit card for teller machine withdrawals. Here’s more on the best money market accounts.

Checking

A checking account helps you manage your day-to-day finances, like paying your bills, buying groceries and gas and withdrawing cash from an ATM.

A checking account should be thought of as a transaction account. Checking accounts are easily accessible and are used frequently for everyday transactions, such as transferring money or writing checks. To make transactions convenient, checking accounts usually come with a debit card, checkbook and mobile app with payment features for sending money to other people, even if they bank elsewhere.

Banks typically don’t pay interest on money in checking accounts. As a result, money in checking accounts doesn’t grow. Checking accounts are not meant for building savings and, as such, do not typically provide supplements to saving like interest, though you may be able to find a checking account that pays interest, especially at credit unions.

Checking accounts have three key features to look for:

  • No monthly maintenance fees (or easy ways to waive them).
  • Free access to a large ATM network.
  • No or low overdraft fees.

The best checking accounts usually don’t have a monthly service fee or they offer an easy way for you to avoid it. They also may reward you with interest, cash back or a sign-up bonus. Checking accounts are important for paying your bills and other expenses. They typically have no transaction limits to keep track of.

References:

  1. https://www.bankrate.com/banking/savings/what-is-a-savings-account/
  2. https://www.bankrate.com/banking/checking-vs-savings-accounts/

Older Americans Have Not Saved for Retirement

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Nearly one-third of older Americans have less than $10,000 saved for retirement.

Almost three in 10 older Americans between 55 and 67 years old have less than $10,000 saved for retirement, according to a new survey from Sagewell Financial, a banking and financial technology company focused on seniors’ money management.

Whereas, four in 10 older Americans had less than $50,000 saved for retirement. 

Paying for retirement by older Americans

The Sagewell Senior Certainty Survey of older Americans revealed:

  • 27% have less than $10K saved for retirement, and 40% have less than $50K
  • 57% are concerned that they will run out of money
  • 82% do not feel confident about their access to cash or liquidity in retirement
  • 73% said they welcome some income smoothing (receiving consistent income in the form of 1 or 2 consolidated monthly checks.)

“It is disheartening to learn that more than a quarter of Baby Boomers have less than $10K saved for retirement – that number jumps to 32% among women,” said Sam Zimmerman, co-founder and CEO of Sagewell. “Nearly 60% of seniors expect to live on less than $3K a month in retirement. We are at a crisis point now, and it will worsen unless we take drastic steps to improve the way our seniors plan for and live in retirement.”

Inflation and Recession

Older Americans are being hit hard by soaring inflation, painfully high gas prices, and fear of a looming recession which has outpaced increases in their benefits this year. These challenges have many older Americans worrying about their financial security and future. 

“If you have inflation and a recession combined together, it’s a whole different beast,” said Zimmerman. “This is a time for action. The quicker you move, the more agency you have in reducing the impact of a recession.”

Given the darkening forecast, it’s not too soon to plan ahead and prepare for a possible recession.

First, don’t do this

While there are money moves you can take to help ride out a downturn, that generally shouldn’t include bailing out of the stock market.  

“The worst thing people can do is they get nervous and pull money out the market,” said Jordan Rippy, a personal finance expert and accounting professor at Johns Hopkins Carey Business School. “Most people should be invested in the market for the long term.” 

Cut your budget

Instead, look for ways to trim your monthly budget. That can mean culling things like subscriptions and streaming services, while also negotiating discounts on your cable, cell phone and other bills. 

Pay off your debt 

It’s expensive to carry debt in an inflationary environment. In particular, you want to pay off credit card debt — or any kind of debt with a variable interest rate — right away. That’s because those interest rates will rise and add more debt. 

Keep contributing to your 401(k)

Do not press pause on saving for retirement. Indeed, if possible keep stashing the same fixed percentage of your income in your 401(k) or other retirement savings plan. Even if the market is volatile your assets will grow over time if you don’t try to time the market. 

This approach, known as dollar-cost averaging, ensures that people look past the usual dizzying swings in the stock market and keep building their nest egg.

Create new revenue streams

Try to diversify your income sources so that if your company downsizes and you lose your job, you’ll still have money coming in.

The Sagewell Senior Certainty Index is an online, random sample survey of 1,004 Americans between 55 – 67 who are approaching retirement or recently retired. The survey was conducted to gauge how seniors, particularly those who are online, view the certainty of their retirement planning. 

References:

  1. Jeff H, (June 21, 2022), Sagewell Senior Certainty Index, https://www.msn.com/en-us/money/retirement/nearly-one-third-of-older-americans-have-less-than-2410000-saved-for-retirement/ar-AAYHJVK
  2. https://www.sagewellfinancial.com/sagewell-senior-certainty-index-june-2022/
  3. https://www.cbsnews.com/news/inflation-recession-saving-money-tips-gas-how-to-prepare-financially/

Debt is Bad

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If you make the monthly minimum payment on your 14% interest rate credit card balance, it will take 25 years to payoff this debt and you will pay in interest charges more than the original amount.

You should always pay more than the minimum payment due on your credit cards, student loans and other consumer debt. As your credit card debt balance decreases, your minimum payment due will decrease and your payments will stretch out. If you make the monthly minimum payment on your 14% interest rate credit card balance, it will take 25 years to payoff this debt and you will pay in interest charges more than the original amount.

There are amazing benefits to climbing out of credit card and student loan debt. Paying off debt takes a plan and patience to execute it.

  1. Figure out how much debt you owe. You cannot make a plan to pay off your debt until you know exactly how much you owe.
  2. Decide what to payoff first. Best option is to pay all the minimums, but pay more money on the card with the highest APR. The “snowball” method is the most efficient approach. It’s essential for you to get started.
  3. Negotiate down the APR. call the credit card company and ask for a lower APR. if successful, you can save a significant amount of money.
  4. Decide where the money to pay off your credit card will come from, like balance transfer (a band aid for a larger problem, your spending habits), 401(k) or home equity one of credit (HELOC), or reducing spending to prioritize debt reduction.
  5. Get started. The goal is action, not paralysis by analysis. Get started executing your plan and you can always find tune it later.

Being in debt means giving up choices and having reduced options; it means staying at a job you hate because it pays good money; it means not being able to build a decent savings account. It means delaying or foregoing implementing your plan to achieve financial freedom.

“Good debt is a powerful tool. But bad debt can kill you.” ~ Robert Kiyosaki

Debt can be a tool, as long as it is used to buy assets. And, statistically speaking, debt in America is normal. Only 50 percent of households reported any credit card debt, while credit card companies reported that 76 percent of households owed them money,” wrote Binyamin Appelbaum of the NYT

Seventy-five percent of Americans claim that they don’t make major purchases on their credit cards unless they can pay it off when the balance is due. Yet when looking at data of actual spending behavior, over seventy percent (70%) of Americans carry a balance.

It appears most people have no idea how much they actually owe or have any idea what their debt payoff date is.

Most people don’t get into serious credit card debt overnight. Instead, they accumulate debt little by little overtime until they realize they’ve got a serious debt problem.

Getting rid of credit card and student loan debts is hard, but very necessary to build wealth and achieve financial freedom.

Without a debt management plan, that requires knowing both the amount of debt you owe and the projected payoff date, you will more than likely be controlled by your debts.

The good news is that credit card and student loan debts are almost always manageable if you have a plan and take discipline steps to control and reduce it. You have to plan and take action paying off you credit card and student loan debts.

The number one mistake people make with their credit cards is carry a balance, or not paying it off every month. Since the key to utilizing credit cards effectively is to pay off the balance in full every month.

It is difficult for someone to achieve financial freedom if they always owe and have excessive debt.

Use credit only to purchase things of lasting value: a home, an education, maybe a car. Pay cash for everything else. To quote Knight Kiplinger, “Do you know anyone who got into big financial trouble because they didn’t borrow enough money?”

Once you’re out of the debt hole, you can avoid that predicament again, explains bankrate.com. Here are some rules to live by:

  • Set a budget and stick to it. Live within your means.
  • Avoid impulse purchases.
  • Shop around for the lowest price before making a big purchase.
  • If you use a credit card, pay off the balance each month to avoid interest charges.
  • Keep your finances organized and keep a close eye on your bank balances.
  • Stay away from “buy now, pay later” and “interest-free financing” offers, which just defer your debt.
  • Save money. Try to set aside a certain percentage of your income to be swept into savings.

References:

  1. https://www.bankrate.com/personal-finance/debt/debt-consolidation-options/

Warren Buffett’s Three Investing Principles

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If you want to invest on your own, billionaire investor Warren Buffett recommends three investing principles that have guided him over the decades.

The principles are derived from a book first published in 1949: “The Intelligent Investor”, written by Buffett’s mentor, Benjamin Graham:

Principle 1: Don’t look at a stock like it is a ticker symbol with a price that goes up and down on a chart. It’s a slice of a company’s profits far into the future, and that’s how they need to be evaluated.

Buffett has four things he wants to see, whether he’s buying the entire company for Berkshire, or just a slice of it as a stock:

  1. “One that we can understand …” When Buffett talks about “understanding” a company, he means he understands how that company will be able to make money far into the future. He’s often said he didn’t buy shares of what turned out to be very successful tech companies like Google and Microsoft because he didn’t understand them.
  2. “With favorable long-term prospects …” Buffett often refers to a company’s sustainable competitive advantage, something he calls a “moat.” A “moat” consists of things a company does to keep and gain loyal customers, such as low prices, quality products, proprietary technology, and, often, a well- known brand built through years of advertising, such as Coca-Cola. An established company in an industry that has large start-up costs that deter would be competitors can also have a moat.
  3. “Operated by honest and competent people …”. “Generally, we like people who are candid. We can usually tell when somebody’s dancing around something, or where their — when the reports are essentially a little dishonest, or biased, or something. And it’s just a lot easier to operate with people that are candid. “And we like people who are smart, you know. I don’t mean geniuses… And we like people who are focused on the business.” — 1995 BERKSHIRE ANNUAL MEETING. The quality of the business itself, however, takes precedence.
  4. “Available at a very attractive price.”Buffett’s goal is to buy when the price is below a company’s “intrinsic value.”“The intrinsic value of any business, if you could foresee the future perfectly, is the present value of all cash that will be ever distributed for that business between now and judgment day.“And we’re not perfect at estimating that, obviously”, Buffett stated. “But that’s what an investment or a business is all about. You put money in, and you take money out.”

Principle 2: The stock market is there to serve you, not instruct you.

Many non-professional investors become concerned when stock prices fall. They think the market is telling them they made a mistake. Some may even be so shaken that they sell stocks at the lower prices.

Buffett takes the opposite view. If he buys a stock because he thinks the company will be a long-term winner, he doesn’t let the market convince him otherwise.

Principle 3: Maintain a margin of safety

“We try not to do anything difficult …

“This is not like Olympic diving. In Olympic diving, they have a degree of difficulty factor. And if you can do some very difficult dive, the payoff is greater if you do it well than if you do some very simple dive.

“That’s not true in investments. You get paid just as well for the most simple dive, as long as you execute it all right. And there’s no reason to try those three-and-a-halfs when you get paid just as well for just diving off the side of the pool and going in cleanly.

“So, we look for one-foot bars to step over rather than seven-foot or eight-foot bars to try and set some Olympic record by jumping over. And it’s very nice, because you get paid just as well for the one-foot bars.” — 1998 BERKSHIRE ANNUAL MEETING

Low cost index funds

Buffett has long recommended that investors put their money in low-cost index funds, which hold every stock in an index, making them automatically diversified. The S&P 500, for example, includes big-name companies like Apple, Coca-Cola and Amazon.

Buffett said that for people looking to build wealth and their retirement savings, diversified index funds make “the most sense practically all of the time.”

“Consistently buy an S&P 500 low-cost index fund,” Buffett said in 2017. “Keep buying it through thick and thin, and especially through thin.”

References:

  1. https://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2022/03/22/bwp22links.pdf
  2. https://www.cnbc.com/2022/05/02/warren-buffett-says-investing-is-a-simple-game.html

First Day of Summer 2022

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The first day of summer in 2022 is Tuesday, June 21, in the Northern Hemisphere, at 5:14 a.m. EDT, on Tuesday, marks the 2022 summer solstice.

This is the precise moment when the North Pole tilts closest to the sun, making the sun appear at its highest point in the sky of the year.

At that moment on Tuesday, the sun will be directly above the Tropic of Cancer. That’s the farthest north the sun moves in the sky, which is why the days close to the solstice have the most daylight of the year for n the Northern Hemisphere.

The reason the Earth has solstices, equinoxes and seasons is because the Earth is tilted on its axis. According to Earthsky, Earth’s Northern and Southern Hemispheres trade places in receiving the sun’s light and warmth every six months as the Earth revolves around the sun.

Reference:

  1. https://www.yahoo.com/gma/summer-2022-begins-longest-day-213034087.html

Credit Report and Score, and Credit Cards

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Credit is one of the most vital factors in building wealth and achieving financial freedom.

Building good credit is one of the first steps in creating an infrastructure for achieving financial freedom. Your largest purchases are almost always made on credit. People with good or excellent credit save tens of thousands of dollars on these purchases through lower interest rates and better terms.

There are two main components to your credit: your credit report and your credit score.

A good or excellent credit score can save you hundred of thousands of dollars in interest charges. Since if you have a good or excellent credit, it makes you less risky to lenders, meaning they can offer you a better or lower interest rate on loans such as mortgage loans and automobile loans.

Lenders charge you more or less for a loan depending on you score and credit history, which signifies how safe or risky you are.

Once a year, by law, you’re allowed to obtained a copy of your credit report free from the major credit bureaus: Experian, Equifax and TransUnion.

It’s important to plan now to monitor, manage and improve your credit before you need the auto or mortgage loan three to five years in the future.

And, never forget that one of the most important factors in improving your credit is getting out of debt and paying your bills on time.

Credit Cards

There has been a great proliferation of credit cards and people owning multiple credit cards over the past decade and more. And, the competition for consumers among competing credit card companies has become fierce.

Credit cards provide convenience and flexibility. And if you pay your credit card bill balance in full and on time each month, they can be utilized as a free short -term loan. They can help you track your spending much more easily than cash and you can download your transaction history.

Additionally, there are many benefits and rewards associated with credit cards such as cash back and travel rewards. But beware, most of the best rewards credit cards have annual fees. Only if you spend thousands of dollars per month on your credit card, the annual fee for the rewards might be worth it.

If you’re booking travel or eating out, use a travel card to maximize rewards, writes Sethi. For everything else, use a cash back card.

If you don’t completely pay off your credit card bill balance each month, you’ll incurred an enormous amount of interest at an high annual percentage rate (APR) that compounds.

It’s very easy to overuse and overspend with credit cards and find yourself in debt. One of the biggest problems with credit cards is the hidden cost of using them, says Ramit Sethi, “I Will Teach You to be Rich”. Many Americans have over spent and carry large credit card balances. The average credit card debt in the US in 2021, was $5,525, per Experian’s report. This was nearly 7% lower than the $5,897 in average credit card debt that was recorded in the same report in 2020.

To maximize the credit card benefits like cash-back, gift cards, air miles, discounts at the gas pump, or other rewards. And perks like free roadside assistance, free car rental insurance, or a free credit score and minimize the cost of credit cards, Sethi recommends:

  1. Pay off your credit card bill balance monthly. The single most important thing you can do to improve your credit score is to pay your bills on time. You’ll save thousands of dollars. If you miss one payment on your credit card, your credit score may drop, your APR can increase, you’ll be charged a late fee, and your late fee can trigger a rate increase on your other credit cards.
  2. Try to get fees on your credit card waived. A month before your new annual fee kicks in, call your credit card company and ask if they will waive the fee.
  3. Negotiate a lower APR. Call your credit card company and ask them to lower your APR. If they ask why, tell them that you’ve been diligently paying your bill in full on time for the last several years and there are a number of credit cards offering better rates.
  4. Keep your main cards for a long time and keep them active. Lenders like to see a long history of credit. Thus, the long you hold an account, the more valuable it is for your credit score.
  5. Get more credit. Do this only if you have no debt and you consider yourself financially responsible. You obtain more credit to improve your credit utilization rate, which is simply how much you owe divided by your available credit. Lower is preferred because lenders don’t want you regularly spending all the credit you have available. It’s too likely you’ll default and not pay them back.
  6. Use credit card’s secret perks. If you have very good credit, call your credit cards companies and other lenders once a year and ask them what advantages you’re eligible to receive. Often they can waive fees, extend credit and give you private promotions.

Call your credit card company and ask them to send you a full list of all their rewards.

References:

  1. https://www.iwillteachyoutoberich.com
  2. https://lanterncredit.com/credit-cards/average-credit-card-debt
  3. https://www.creditwww.com/Edu/credit-card-costs-and-benefits/

The Power of Dividends

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Dividends account for about 40% of total stock market return over time

Value of dividends

There are 2 ways to make money in the stock market: capital appreciation and dividends.

Capital appreciation—an increase in a stock’s price—gets most of the attention, but dividends can be surprisingly powerful.

Fidelity Investments’ research finds that dividend payments have accounted for approximately 40% of the overall stock market’s return since 1930.

What’s more, dividends can help prop up returns when stock prices struggle. For example, stock prices in the S&P 500 fell during the 1930s and 2000s, but dividends almost completely offset the decline. In the 1940s and 1970s, when inflation surged, dividends accounted for 65% and 71% of the S&P 500’s return, respectively.

“From a multi-asset income perspective, I am always seeking investments that pay a high enough level of current income to help cushion the blow during down markets. Conversely, in rising markets, this income component contributes to the overall total return of the investment. In this regard, companies that pay a sustainable and growing dividend have the potential to grow their income to keep up with inflation,” says Adam Kramer, portfolio manager for the Fidelity Multi-Asset Income Fund

References:

  1. https://www.fidelity.com/learning-center/trading-investing/inflation-and-dividend-stocks

Purchase Price Matters

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“If you think about the environment we’ve been in for the past 10 years, purchase price has not mattered.” Marc Rowan, CEO & Director, Apollo Global Management, Q4 2021 Earnings Call

The profit of an investment is often determined by the purchase price since “Price is what you pay; value is what you get”, quips billionaire investors Warren Buffett.

The price of a stock is determined by human characteristics and emotions, such as fear and greed, market tendencies and other factors. All of these things affect the price of a stock, sometimes to a large degree but rarely do they significantly affect its value.

“If you think about the [stock market] environment we’ve been in for the past 10 years, purchase price has not mattered”, said Marc Rowan, CEO & Director, Apollo Global Management. “The more risk you took, the more outrageous, generally the higher the pay off.”

Rowan and Apollo Global Management has consistently followed the investment philosophy that “purchase price matters”. Although, over the past decade in the equity stock markets, their strategy of “patient, value-oriented, disciplined approach to capital deployment” had not been consistently rewarded.

Share Price and Intrinsic Value

“Losing money can happen when you pay a price that doesn’t match the value you get. Look for opportunities to get more value at a lower price.”

Before purchasing a stock, it’s essential to compare the market price of a stock to its fair intrinsic value. When you find a company whose stock’s price is trading lower than the company’s intrinsic value would mark the opportune moment to purchase the company. Since value investors believe that an undervalued market priced stock will eventually climb to reach its fair, or intrinsic, value.

This is a process known as value investing, a type of investing that puts the utmost importance on the valuation of a company and uses various metrics to determine whether the valuation is low, high, or where it should be.

Some of the most important metrics include:

  • Price-to-Earnings Ratio (P/E Ratio). The P/E ratio compares the price of a stock to the company’s earnings per share (EPS).
  • Price-to-Sales Ratio (P/S Ratio). The P/S ratio compares the price of the stock to the annual sales, or revenue, generated by the company.
  • Price-to-Book-Value Ratio (P/B Ratio). Finally, the P/B ratio compares the price of the stock to the net value of assets owned by the company, divided by the number of outstanding shares.
  • Price-to-Free-Cash-Flow Ratio (P/FCF Ratio)

Before buying a stock, you must attempt to compute the intrinsic value of the company. If you’re following the value investing strategy, you’ll want to make sure the stocks you buy are undervalued compared to their peers.

Even when following other investing strategies, it’s important to avoid purchasing overvalued stocks because the market has a history of correcting overvaluations with price declines. Because in the long term investing, purchase price does matter.

Growth at a Reasonable Price (GARP)

Overvaluation will ultimately matter. In the short run, stock prices are based on hype and current news. Over the long term, valuations will ultimately matter when the hype declined and the market will correct the price.

When a stock is falling in price, it’s difficult to purchase a stock when it’s out of favor and widely being panned by the crowd.

References:

  1. https://www.apollo.com/~/media/Files/A/Apollo-V3/documents/apo-q421-earnings-call-transcript.pdf
  2. https://www.moneycrashers.com/factors-buying-stock-price-value/
  3. https://www.forbes.com/sites/forbesfinancecouncil/2018/01/04/the-important-differences-between-price-and-value/

Mindset, Discipline, Patience, Opportunity

  • It’s about process and being contrarian to current market sentiment and the crowd’s emotion
  • Why the hype: Optimistic vs. Pessimistic

When you purchase a stock, you are buying a Piece of a Company, not just a Ticker Symbol.

Every Investment is the Present Value of all Future Cash Flow.

Do you understand how the company makes its money (e.g., revenue, profit and free cash flow)

If the share price is surging; but the company’s corresponding fundamentals correlating and are skyrocketing.

Free Cash Flow – the true life blood for a company :

  1. Pay down debt
  2. Buy back stocks
  3. Pay shareholders’ dividends
  4. Acquisitions
  5. Organic growth

Start Early to Build Wealth

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The single most important thing you can do to build wealth is to start early. Getting started is more important than becoming a financial expert and the easiest way to manage your money is to take one small step at a time.

You, like most people, do not need a financial adviser to help you build wealth. Instead, you need to set up accounts at financial institutions, such as Fideltiy or Vanguard, automate the day-to-day money management (including bills, savings, investing and paying off debt). And, you need to know a few things to invest in, and then be patient and wait thirty years for your money to grow.

But, that’s not cool or exciting. Instead of listening to the noise of the financial entertainment media, instead you want your money to go where you want it to go in accordance with your goals and values. You want your money to grow automatically, in accounts that don’t nickel-and-dime you with excessive expenses and fees.

It’s essential to start today to learn about building wealth and take small steps to save, invest and manage your money. You don’t have to be a genius or financial expert to build wealth. Successful wealth building takes time, discipline and patience.

What do I want to do with my life–and how can I use my wealth to do it!

Investing early is the best thing you can do; ‘doing nothing’ ranks right up there with trying to drive a car without tires; it’s a bad idea and it won’t get you anywhere.

The single most important thing you can do to build wealth is to start early.

Here’s a great example of why investing early matters, that puts it in numbers:

  • If you invest $5,000 every year (which is $417/month) for 10 years, from age 25 to age 35 and then never invest again, you’d still have more money at retirement, than someone who starts at age 35 and invests $5,000 every year until they retire.
  • The 25 year old starter invests $55,000 and ends up with $615,000 (given an 8% annual return, which is close to the average return of the stock market per year). The 35 year old invests $130,000 and ends up with $431,000.

So, remember the adage “The best time to start building wealth is twenty years ago. The second best time is today.” You can save and invest modest amounts, like $20 a monty, and over time realize thousands of dollars in gains.

There are a lot of societal problems, but it’s important to focus on what you can control. Don’t be a passenger in life. It’s a lot more fun to be a captain of your own ship, even if you go off course a few dozen times. Building wealth does require some work. But, the benefits and rewards will surpass the effort.

Take a long term view. The economy grows and contracts in cycles ( business cycle). Fear is no excuse to do nothing with your money. You cam automate your saving and investing, thus you can continue to save and invest whiles others respond to emotions of fear.

Investing for average stock market returns (8% to 9%) is great since most retail and so call smart money fail to beat the average returns of the stock market. Moreover, theses investors tend to do the things that guarantee their failure: trade frequently, make outlandish investments, incur high taxes and pay unnecessary fees. The single most important factor to building wealth is getting started.

The challenges and opportunities with building wealth, and the corresponding solution, are you. Your mindset, behaviors and actions are the number one problem.

  1. You’re the only one responsible for your financial problems.
  2. Know how much money you have coming in and then automatically direct it where you want it to end up.
  3. It’s essential to start early and to start investing today, even if it’s just $1.

References:

  1. https://fourminutebooks.com/i-will-teach-you-to-be-rich-summary/

Failure has to be part of Growth

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Failure has to be part of growth.

“As a company grows, everything needs to scale, including the size of your failed experiments. If the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle,” Jeff Bezos, founder of Amazon wrote in his 2018 annual letter to shareholders.

This tolerance for failure is deeply ingrained in Amazon’s culture. It’s a point Bezos has made every year since the very first Amazon shareholder letter in 1997.

“We will continue to measure our programs and the effectiveness of our investments analytically, to jettison those that do not provide acceptable returns, and to step up our investment in those that work best. We will continue to learn from both our successes and our failures.”

References:

  1. https://www.cnbc.com/2020/05/22/jeff-bezos-why-you-cant-feel-bad-about-failure.html
  2. https://www.businessinsider.com/how-amazon-ceo-jeff-bezos-thinks-about-failure-2016-5