Category Archives: Financial Planning

April is Financial Literacy Month

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“The goal behind teaching financial literacy is to help people develop a stronger understanding of basic financial concepts—that way, they can handle their money better…Financial literacy is the possession of skills that allows people to make smart decisions with their money.” Dave Ramsey

April 2021 is Financial Literacy Month – In 2004 Congress passed a resolution officially recognizing April as Financial Literacy Month to “raise public awareness about the importance of financial education in the United States and the serious consequences that may be associated with a lack of understanding about personal finances.”

Financial Literacy. The goal of financial literacy is to help people develop a stronger understanding of basic financial concepts—that way, they can handle their money better.  Especially when you consider a few realities about our country’s lack of financial literacy and about how the typical American handles money:

  • U.S. college students continue to struggle with massive debt. There’s also the uptick in adults living paycheck to paycheck.
  • Money management appears like it should be simple and easy…just spend less money each month than you make and save for the future.
  • It’s never too late (or too early) to learn good money management habits, or to start saving for the future, and investing for the long-term and to grow your money.
  • Money management and financial planning are not only for the wealthy; it’s available to every American.
  • Learning about money management and personal finance should be a lifelong endeavor that you’ve now begun!

  • A large number of Americans lack financial literacy. They believe financial success is doing things the same way that they have always done or planned to do is the recipe to success; for example, not preparing and planning for the future and only living in the moment.
  • Often times, your spending can take on a life of its own before you can take time to think about it. This is where many people get into trouble. It is not unusual to find someone who is working in an industry or job they may not like, simply because they need a paycheck and do not have a choice financially.

Lacking financial literacy is a significant enemy of financial progress and success. Since living paycheck to paycheck has become a significant way of life for most Americans, according to 2017 CareerBuilder Survey, which highlights:

  • An estimated 44% of Americans can’t cover a $400 emergency without going into debt.
  • 56% of Americans have less than $10,000 in savings for their retirement.
  • 78 percent of U.S. workers live paycheck to paycheck to make ends meet
  • Nearly one in 10 workers making $100,000+ live paycheck to paycheck
  • More than 1 in 4 workers do not set aside any savings each month
  • Nearly 3 in 4 workers say they are in debt today – more than half think they will always be
  • Financial literacy and knowledge has never been more relevant. The only person who will truly always be looking out for your best financial interest is you. Learning about money management and personal finance should be a lifelong endeavor.

It’s never too late (or too early) to learn good money management habits, or to start saving. Since, personal finance is not only for the rich! Read books and financial publications, watch the videos and follow closely emerging and trending issues and practices in finances. Also, work with a financial advisor.

Our schools don’t do the best job preparing us for handling all of the challenges of personal finance, so it’s up to you to figure it all out. As a nation, we must embed basic financial literacy into our education system.

Financial Literacy and understanding money are vital to planning for financial well-being and a life well lived. Financial literacy, when dealing with bills, tracking long and short term payments and how to develop a system for saving, paying for the dailies, etc. is incredibly important.

No. 1: Successful money management is about making sure your money is doing for you what you want it to. This means that before you can be successful with your money, you have to know what you want. To get control of your finances, you must understand your own personal expectations, goals, and values. According to a study by the University of Tennessee, less than 1 out of 20 Americans have clearly defined goals; the key to developing a practical spending plan. That means 19 out of 20 find it difficult to avoid debt and save for the things that really matter.

No. 2: Managing finances is an important part of living a balanced life. It helps you pay your bills, build strong credit, establish realistic goals, and plan for the future. Simply put, it’s the process of making sure you spend less than you earn and save for the future. Income and expenses often vary from month to month, so keep track of your spending and following a budget and financial plan are critical and not hard once you get the hang of it. Don’t focus on the numbers — focus on the outcome! And, at some time or another, everyone will confront a financial emergency. The decisions we take regarding your budget and financial plan can have lasting impact on you, now and far into the future. And, a critical part of that planning is emergency savings to help navigate turbulent times.

No. 3: As every personal finance course emphasizes, retirement savings in tax-advantaged retirement accounts are important but not enough. It is critical that we think about the future, but every household also needs emergency savings to help navigate turbulent times. We must identify ways to make these savings strategies simple, even automatic.

No. 4: Don’t make dramatic changes during periods of high market volatility and economic uncertainty. Instead, embrace a strategy of goal based money management, financial planning and investing. When your tempted to react dramatically to market volatility and economic uncertainty, ask yourself which one of your long-term goals is no longer a priority. Which goal or goals do you want to abandon in order to move assets from stocks to safer asset classes such as bonds or cash. The older you will thank the younger you for not panicking and sticking with your long-term goals.

Let’s each of us make sure that financial literacy becomes part of the curriculum in our education system. We should push for mandatory personal finance education in schools starting next year.

Visa and the NFL Launch New Financial Football Game

Visa and the National Football League (NFL) have teamed up to create Financial Football, a fast-paced, interactive game that engages students while teaching them personal finance skills.

Students of all ages can learn key concepts about saving and spending, budgeting and the wise use of credit in preparation for game play.

References:

  1. https://www.daveramsey.com/blog/what-is-financial-literacy
  2. http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey
  3. https://www.forbes.com/sites/forbescommunicationscouncil/2019/12/16/why-financial-literacy-in-schools-matters-today-for-the-workforce-of-tomorrow
  4. http://video.cnbc.com/gallery/?video=7000121923
  5. https://cdn.zephyrcms.com/c90050c9-f059-4e40-a9d7-381cf48d84bd/-/inline/yes/personal-finance-course.pdf
  6. https://www.practicalmoneyskills.com/play/financial_football
  7. https://www.financialfootball.com

Manage Your Debt

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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.

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.

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:

  1. https://www.debt.org/faqs/americans-in-debt
  2. https://equitable.com/goals/financial-security/basics/manage-your-debt
  3. https://diversyfund.com/blog/compounding-debt-the-dark-side-of-compounding-interest
  4. https://www.navyfederal.org/makingcents/knowledge-center/financial-literacy/understanding-debt/about-debt.html
  5. https://www.bankrate.com/finance/savings/wealth-destroyers.aspx
  6. https://www.thinkbank.com/managing-debt

Creating a Budget

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“A budget is telling your money where to go instead of wondering where it went.” John C. Maxwell

Spending within your means may sound like a simple rule to follow, but many Americans spend more than they save, which can result in debt. The good news is that it’s completely avoidable, and it’s reversible over time. With a little budgeting, planning, tracking and adjusting your spending, you can live happily within your means.

Keeping your personal finances in tip-top state does takes some planning, effort and time. Yet, many people live above their means and don’t even realize it. More than three-quarters of American workers (78 percent) are living paycheck-to-paycheck to make ends meet, according to survey conducted by Harris Poll on behalf of CareerBuilder in 2017. Thirty-eight percent said they sometimes live paycheck-to-paycheck, 17 percent said they usually do and 23 percent said they always do. 

To improve your financial health and money management awareness, the one piece of advice you hear most often from financial experts is to create a budget.

“Budgeting helps you better understand how you spend your money and shows you ways to manage your money, pay off debts and save for future financial goals.”

Budgeting is one of the single most effective tools for money management. Making a budget simply means examining your income and expenditures in order to determine exactly how much money you have coming in and where you’re spending it. Once you’ve got a clear understanding of your current budget – what income you’re receiving and what expenses you’re responsible for – take a closer look and find places where you can spend less.

A budget will help give you a clearer picture of how much money you have coming in (income) and how much is going out (expenses). It’ll set guidelines for your expenses that will help you understand how much you can set aside for those bigger ticket items like a house and long term goals, like saving for retirement or an emergency fund. A budget is a personal cash flow roadmap. It can span a week, month, quarter—three months—or any set length of time. They are created by individuals and businesses.

Begin planning your monthly budget by figuring out how much you have coming in versus how much is going out every month. Ultimately, you want to end up with a blueprint that specifically breaks down your cash flow (income minus expenses), so you know how much you can spend and how much you can save each month. Building a budget starts with a few simple steps.

Budgeting is Important

“When making a budget, the idea is to make sure your expenses don’t exceed your income.”

A budget is a foundational piece of a financial plan. If you’re serious about reaching your financial goals, making a budget and sticking to it can help you achieve them. Here are some of the benefits of making and following a budget:

  • Live within your means: If you haven’t been budgeting up to this point, you may often wonder at the end of the month where all your money went. It’s even possible that you’re running a deficit and taking on credit card debt to cover the difference. A budget can help you live within your means when you use it to set clear boundaries for your spending.
  • Pay off debt: Making a budget is about taking control of your finances. If you’re working to get out of debt, decide how to allocate your spending to prioritize paying more toward debt payments. For example, if you notice that you spend a lot on entertainment, you can set a budget to only allow yourself to spend up to a certain amount on that category. Then use the savings to pay down debt.
  • Save money: Long-term savings goals are also an important part of a personal budget. Think about setting aside money each month to save for retirement, a vacation or a home down payment. In the short term, make sure to save enough for an emergency fund. A budget can give you better control over how you spend your money, allowing you to cut back on spending and save more.
  • Reach financial goals: You likely have financial goals you’re working toward. But if you don’t have a budget, it can be tough to know where to focus your efforts and make meaningful progress. A budget can help you decide how much money to allocate for each goal to keep yourself accountable.

While these are general benefits of budgeting, take a moment to think about why you want to budget. Whether it’s due to a short-term need, long-term goals or simply to understand where your money goes, knowing your reasons for budgeting can motivate you to keep up with it.

Step 1: Look at your paycheck.

To create a budget, you first need to know your net monthly income, or after-tax income. This is your monthly take-home pay, not your total salary — an important distinction when figuring out how much you can spend on a monthly basis. Knowing this number is the first step to creating a spending strategy.

To start, make a list of all your sources of income coming in the door every month. Every paycheck you get. Maybe a regular side hustle. Do you get alimony or child support? What about income from investments? Everything.

Step 2: Distinguish your essential needs from your wants and discretionary spending.

Start listing your expenses. Start with the big stuff: rent, car payments or transportation, utilities, groceries, any debt payments you need to make — things like that. Now it’s time to make a list of your essential expenses. This involves separating your “wants” from the “needs.” Needs usually include things like:

  • Housing costs (monthly rent or mortgage payment)
  • Transportation costs (car payment, fuel, public transportation)
  • Utilities
  • Food
  • Insurance
  • Internet, cable, and phone bills

Once you’ve tallied those costs, add them up and deduct your needs total from your after-tax income. Make note of that number. What about everything you spend money on that you like, but maybe don’t need? Eating out, entertainment, that new pair of shoes. Add those as a list to your expenses. Treating yourself is great! But you want to do it within your budget.

Step 3: Calculate how much your wants cost you.

Next, outline all the things you spent money on that don’t fall into the “needs” bucket, and tally up the total. The easiest way to do this is to look at your credit card statements from the last month or two. If you use cash to pay for things, keep a log for several days (or better yet, a couple weeks) of all your expenses.

Once it’s all written down, use a critical eye and note where you’re being your own worst enemy by overspending or wasting money on things you don’t need (or even want). Strategize on how you can modify your behavior to reduce these unnecessary expenses.

While it’s a-okay to splurge on occasion, it’s important to do so in moderation.

Step 4: Add up all your costs.

Jot down the total amounts of your “needs” and “wants” and see how they stack up against a common rule of thumb: the 50/30/20 budget. This popular money management plan says you should spend 50 percent of your take-home pay on needs, 30 percent on wants, and put the remaining 20 percent toward savings, investments, and any debts you may have, like school loans or revolving credit card debt.

Don’t panic if your current financial picture doesn’t align with this ideal ratio. It can be difficult to stick to this plan, especially if you’re new to the workforce and possibly paying down student loan debt.

But that’s exactly why a budget can be so useful. Matching up how much you spend to established guidelines can be a helpful way to identify where everything’s lining up — and where you can put in a little more effort and reduce your spending.

Step 5: Keep it up.

Now that you have your budget created, here comes the harder part: sticking to it.

The primary part of your budget should always cover your needs. What’s left over is split between the things you want and your savings. When it comes to minding your numbers, try out some of these tips:

  1. Be a stickler and set aside some savings for an emergency fund. It’s smart to have it an intrinsic part of your budget.
  2. While putting 20 percent of your take-home pay toward savings and debt isn’t technically considered a “need,” you should treat it as one. Avoid dipping into that bucket to pay for “wants,” so you can pay down debts and afford future unknowns, should something arise. In fact, you could remove temptation by setting up monthly automatic savings transfers.
  3. Break it down. If a budget isn’t as manageable, try chopping it up into monthly or weekly segments. A shorter time frame can make it easier to stay on track. That way, you won’t discover that you’re already pushing the limit of your budget.
  4. Review regularly. Along those same lines, keep track of your purchases as they happen instead of totaling them up at the end of the month. Checking your balance online or reviewing your recent credit card charges is a great reality check for daily expenditures.
  5. Get everyone on board. If other people, like your spouse, are supposed to follow your budget, make sure they’re on board with the financial goals you’re trying to meet. To help create a comprehensive budget, most financial advisers recommend following the 50/30/20 model for budgeting. This model suggests you use 50% of your take-home pay for essential needs, 30% for wants or discretionary spending, and 20% for savings.

Trim your expenses if your budget proves your expenses outweigh your income. One of the easiest ways to trim your expenses is to evaluate how much money you’re spending on the things you want but don’t necessarily need. For example, a night out with friends costs an average of $81, which really adds up if you go out multiple nights a week. This doesn’t mean you can’t go out and have fun, but you may need to limit your spending to make your budget work.

Another way to cut your expenses and get control of your finances is to see if you can lower the cost of certain services. Contact cellphone, internet and cable television providers to see if a competitor offers a better deal or if you can save money by bundling. Consider dropping premium cable television channels and opt for an economical basic package.

Setting goals

Successful budgeting starts with aligning your spending with your priorities. Creating goals and rewards is a fantastic way to increase your chance of budgeting successfully. For example, set a goal to save a specific amount to pay off debts by spending less on unnecessary expenses like dining out, buying lattes or shopping. Put this money into a savings account to earn interest. When you meet your savings goal, reward yourself with a reasonable splurge on something fun. Typical goals and priorities include:

  • Planning and paying for college and post graduate educational expenses
  • Saving a down payment to buy a home or paying off the mortgage early
  • Paying off high-interest student loans and credit card bills
  • Saving and investing for early retirement

Budgeting doesn’t have to be the complicated or intimidating task that it’s often made out to be. Follow this simple process, and your monthly budget will help keep your finances in check.

Now you have the beginnings of your monthly budget! It’s most efficient to build this your budget in a spreadsheet or budgeting software. Then add new expenses as you spend.

Keep it Simple: The 50/30/20 rule

Tracking your finances doesn’t have to be complicated. A budget starts with a list of your income and your expenses, and following a simple strategy as the 50/30/20 rule.

The 50/30/20 rule is a popular budgeting method that splits your monthly income between three main categories. It’s pretty straightforward: You split your money between your needs, wants and savings, according to those ratios.

Here’s how it breaks down, according to NerdWallet:

Monthly after-tax income. This figure is your income after taxes have been deducted and the cost of payroll deductions for health insurance, 401(k) contributions or other automatic savings have been added back in.

50% of your income: needs. Necessities are the expenses you can’t avoid. This portion of your budget should cover costs such as:

  • Housing.
  • Food.
  • Transportation.
  • Basic utilities.
  • Insurance.
  • Minimum loan payments. Anything beyond the minimum goes into the savings and debt repayment bucket.
  • Child care or other expenses that need to be covered so you can work.
  • 30% of your income: wants. Distinguishing between needs and wants isn’t always easy and can vary from one budget to another. Generally, though, wants are the extras that aren’t essential to living and working. They’re often for fun and may include:
    • Monthly subscriptions.
    • Travel.
    • Entertainment.
    • Meals out.

    20% of your income: savings and debt. Savings is the amount you sock away to prepare for the future. Devote this chunk of your income to paying down existing debt and creating a comfortable financial cushion to avoid taking on future debt.

    How, exactly, to use this part of your budget depends on your situation, but it will likely include:

    • Starting and growing an emergency fund.
    • Saving for retirement through a 401(k) and perhaps an individual retirement account.
    • Paying off debt, beginning with the toxic, high-interest type.

    Making a budget can be an important step in the right direction for you. But budgeting for the sake of budgeting isn’t fun. As you work with your budget each month, remind yourself of the reasons why and purpose you’re doing it. Also, evaluate your progress periodically to make sure you’re on track to meeting your financial goals.

    References:

    1. http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey
    2. https://www.thebalance.com/benefits-to-budgeting-453688
    3. https://www.ally.com/do-it-right/money/how-to-build-a-budget/?CP=135969424;274374394
    4. https://www.marketwatch.com/story/the-beginners-guide-to-building-a-budget-2019-08-09?mod=article_inline
    5. https://www.nerdwallet.com/article/finance/nerdwallet-budget-calculator

    Stay Invested – Time in the Markets

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    “Time in the markets, not timing the markets.”

    A common mantra in investing circles is ‘it’s about time in the markets, not timing the markets’. In other words, the best way to make money is to stay invested for the long term, rather than worrying about short term volatility or whether now is the best time to invest.

    Value investing guru Benjamin Graham once quipped that “in the short term the stock market is a voting machine” that measures the popularity of companies and the sentiment of investors, whereas in “the long term it is a weighing machine” that measures each company’s fundamentals and intrinsic value.

    Time in the market works because it takes this ‘guess the market bottom’ element out of the equation. By focusing on the long term, it’s easier to ignore the volatility of markets. Sure, it’s still scary watching the value of your share portfolio fall from time to time.

    Time in the market is really about harnessing the power of compound interest. Compounding is the best thing about investing. Albert Einstein once said “Compound interest is the most powerful force in the universe. Compound interest is the 8th wonder of the world. He who understands it, earns it, he who doesn’t, pays it.”

    With compounding, your money accumulates a lot faster because the interest is calculated in regular intervals and you earn interest on top of interest. Compounding is usually what makes investors like billionaire investor Warren Buffett wealthy. If you are able to achieve a consistently high annual rate of return over the long term, building wealth is almost inevitable. And Buffett has never tried to time a market in his life.

    But pushing and pulling your money in and out of the market stymies the compounding process. And all it takes is one massive mistime to end up back at square one given the fact that market can never be timed. Investor Peter Lynch said it best: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves.”

    Compounding plays a pivotal role in growing your wealth. When using compounding, the results will be small at the start but over time, your wealth will accumulate fast. Warren Buffet is known to make the majority of his wealth later in his adult life and this is due to the compounding interest effect on his assets and invested capital.

    Missing the best days

    Timing the markets involves trying to second-guess the ups and downs, with the hope that you will buy when prices are low and sell when they are high. This can be lucrative if you get it right consistently, but this is very difficult to do and getting it wrong means locking in losses and missing out on gains.

    Not only is timing the market difficult to get right, it also poses the risk of missing the ‘good’ days when share prices increase significantly. Historically, many of the best days for the stock markets have occurred during periods of extreme volatility.

    Instead of trying to time the market, spending time in the market is more likely to give you better returns over the long term. It is best to base your investment decisions on the long-term fundamentals rather than short-term market noise and volatility.

    Value of $10,000 investment in the S&P 500 in 1980

    Source: Ned Davis Research, 12/31/1979-7/1/2020.

    This chart uses a series of bars to show that from the end of 1979 until July 1, 2020, a $10,000 investment would have been worth $860,900 if invested the entire period. Missing just the 10 best days during that period would reduce the value by more than half, to $383,400.

    Anybody who pulls money out in the early stages of a volatile period could miss these good days, as well as potentially locking in some losses. For instance, between May 2008 and February 2009 in the depths of the global financial crisis the MSCI World index dropped by -30.4%. By the end of 2009 it had bounced back +40.8%.

    References:

    1. https://www.edwardjones.com/us-en/market-news-insights/guidance-perspective/benefits-investing-stock
    2. https://www.fa-mag.com/news/retirees-are-leading-precarious-financial-lives-42426.html
    3. https://www.tilney.co.uk/news/it-s-about-time-in-the-markets-not-timing-the-markets
    4. https://www.fool.com.au/2020/10/06/does-time-in-the-market-really-beat-timing-the-market/
    5. https://www.fool.com.au/definitions/compounding/

    Investing Rules of the Road

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    “Invest for the long term, seek quality investments and manage risk through diversification.”

    The market changes every day, but what you want for your future probably doesn’t. The same goes for your investment / financial mindset, strategy and goals.

    Your investment / financial mindset, strategy and goals are as unique as the route you take to reach them. But regardless of your course, the following 10 investing “rules of the road”, according to financial-services firm Edward Jones, can help you get where you want to be.

    1. Develop your long-term goals and strategy

    Determine your long-term goals, investment time frame and comfort level with risk – before deciding on a strategy. The more you can outline and clearly define what you are trying to achieve, the more you can tailor your strategy.

    It’s tempting to chase the market, but most successful investors make their money over time, not overnight. Long-term investing with an emphasis on quality and diversification is a proven and time tested course of action.

    The best way to build and preserve your financial future is with a long-term approach to investing. That’s why you don’t follow investment fads. But “buy and hold” doesn’t mean “buy and ignore.” You should still review your portfolio at least once a year to make sure you’re on track for the long haul.

    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.

    1. Evaluate your current financial standing to understand how much risk you can take.
    2. Determine your goals and how long it will take you to realistically achieve them.
    3. 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. By creating a specific plan, you will be ready to make your retirement goals a reality when that day comes.

    2. Understand the risk and your risk tolerance

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

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

    3. Diversify for a solid foundation

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

    While diversification can’t protect you against a loss, it can help reduce your risk. If your money is invested in just one or a few investments, and one of them struggles, your entire financial strategy could be in trouble. So most financial advisors recommend building a portfolio that includes different types of investments that perform differently over time.

    4. Stick with quality

    Believe in long-term investing with an emphasis on quality and diversification. Of all the factors to consider when investing, quality is one of the most important factor. It’s also one of the most overlooked. Although it may be tempting to buy a popular investment, it may not fit with the rest of your portfolio, and it may be riskier than you expect. If it sounds too good to be true, it probably is.

    5. Save and Invest for the long term

    It’s tempting to chase the market, but despite stories of fortunes made on one or two trades, most successful individual investors make their money over time, not overnight. One of the biggest mistakes you can make is trying to “time” the markets.

    Timing the market is difficult or simply impossible for even the most seasoned professional investors and smart money. Rather than waiting for the best time to invest, it can often be a better idea to just take the plunge into the market and get invested. Waiting for the best time will lead to a lot of missed opportunities.

    6. Establish realistic expectations

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

    The average stock market total return (e.g. S&P 500 historical returns), from 1950 to 2020 was 8.9%.

    7. Maintain your balance portfolio and asset mix

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

    8. Prepare for the unexpected

    When things are going well, emergency savings can seem unimportant. But in addition to your regularly occurring expenses, like rent/mortgage and utility bills, you’ll often deal with unforeseen events and unexpected costs.

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

    No one wants to think about car breakdowns or job loss. But as much as we’d like to avoid thinking about them, emergencies do happen. Building an emergency savings account that is dedicated to handling unexpected costs is important.

    9. Focus on what you can control

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

    • Diversifying your portfolio
    • Owning quality investments
    • Maintaining a long-term perspective

    Additionally, taking control of your spending habits and weighing them against your dreams for the future can determine how to align your spending goals. Perhaps you might decide that it’s more important for your family that you retire by a certain age, and you could drive one car for a longer time or cut back in other areas. That way, more money would be available to make that bigger dream a reality.

    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. 

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

    10. Review your strategy regularly

    The one constant you can expect is change. That’s why it’s so important that you review your strategy on a regular basis. You should still review your portfolio at least once a year to make sure you’re on track for the long haul.

    Realizing your dreams starts with smart investing. By regularly reviewing your strategy and make the adjustments you need, you can have a clearer picture of where you stand and what you need to do to help reach your goals.

    No matter what your path forward looks like, tailor your strategies – so you can see the road ahead and move forward with confidence.

    References:

    1. https://www.edwardjones.com/us-en/market-news-insights/personal-finance/investing-strategies/investing-rules
    2. https://www.edwardjones.com/us-en/why-edward-jones/investing-approach/investment-philosophy
    3. https://www.ruleoneinvesting.com/blog/how-to-invest/get-started-investing-with-these-10-steps/

    Black-White Inequality Wealth Gap

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    “Wealth is a safety net that keeps a life from being derailed by temporary setbacks and the loss of income.”  Brookings Institute

    The wealth gap for African Americans remains significant. A close examination of wealth in the U.S. finds evidence of persistent and staggering racial disparities and past racist federal policies, according to the Brookings Institute findings. Specifically, the disparities include:

    • At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016.
    • Gap in stock market participation between the groups persists, with 55 percent of Black Americans and 71 percent of white Americans reporting stock market investments.

    This disparity means that Black Americans will have less money saved and invested for retirement, and less accumulated wealth to pass onto the next generation than their white peers.

    Figure 1. White families have more wealth than Black, Hispanic, and other or multiple race families in the 2019 SCF.

    Notes: Figures displays median (top panel) and mean (bottom panel) wealth by race and ethnicity, expressed in thousands of 2019 dollars.

    These gaps in wealth and investments between Black and White households reveal the effects of centuries’ of accumulated inequality, discrimination and racism, as well as differences in power and opportunity that can be traced back to this nation’s inception. The Black-White wealth gap reflects a society that has not and does not afford equality of opportunity to all its citizens.

    It is important to note that it was never the case that a White asset-based middle class simply emerged, according to research based on a study of historical and contemporary racial inequality. Rather, it was extraordinary government policy, and to some extent literal government giveaways, that provided Whites the financial assets, educational opportunities, land grants and infrastructure to accumulate and pass down wealth.

    In contrast, blacks were largely excluded from these wealth generating benefits. When they were able to accumulate land and enterprise, it was often stolen, destroyed or seized by government complicit in theft, fraud and terror.

    Federally funded racism in housing and labor unions

    In the mid-twentieth century, the government subsidized builders to construct suburbs of single-family homes  in scores of developments across the country on explicit federal condition that no homes be occupied by African Americans, according to the NAACP Legal Defense Fund. Over several generations, federally subsidized white homebuyers gained a quarter million dollars in home equity or more. In contrast, the government restricted African Americans, including war veterans, mostly to segregated urban apartment rentals where no wealth appreciated.

    White homeowners were able to bequeath some of this federally subsidized wealth to subsequent generations, after using it for retirements, children’s college education, care for elderly parents, or medical emergencies. African Americans had to use current income for such expenses, if they could do so at all, pushing many into poverty. Largely because of twentieth century federal segregation policy, while average African American income is about 60 percent of white income, African American wealth is only 7 percent of white wealth.

    Other federal policies forced African Americans into poverty, continuing for generations. In 1935, the government gave construction and factory unions the right to collectively bargain for higher wages and benefits. As proposed by Senator Robert Wagner, the law denied that right to unions that barred African Americans. Segregated unions lobbied to remove that provision and the Wagner Act was then passed, unconstitutionally empowering unions to exclude black workers — a policy that continued for over 30 years. Denied the best blue-collar employment, African Americans participated less in the collectively bargained income boom that raised white working class incomes in the three decades following World War II.

    Wealth

    “Black children are less economically upwardly mobile partly because of the multigenerational effects of federal and state government racist policies that purposely segregated their grandparents and great-grandparents into low-income communities and low paying jobs from which exit was difficult.”

    Wealth is the sum of resources available to a household at a point in time; as such it is clearly influenced by the income of a household, but the two are not perfectly correlated.

    Two households can have the same income, but the household with fewer expenses, or with more accumulated wealth from past income or inheritances, will have more wealth.

    As a result, high- and middle-income white families are much wealthier than Black families with the same incomes. A few reasons are that White families receive much larger inheritances on average than Black families. Economists Darrick Hamilton and Sandy Darity conclude that inheritances and other intergenerational transfers “account for more of the racial wealth gap than any other demographic and socioeconomic indicators.”

    For example, while 51 percent of white Americans say they have inherited wealth, just 23 percent of Black Americans have, according to an annual Ariel-Schwab Black Investor Survey.

    All of this matters because wealth confers benefits that go beyond those that come with family income.

    Wealth is a safety net that keeps a life from being derailed by temporary personal economic setbacks and the loss of income, according to Brookings Institute. This safety net allows people to take career risks knowing that they have a buffer when success is not immediately achieved.

    Family wealth allows people (especially young adults who have recently entered the labor force) to access housing in safe neighborhoods with good schools, thereby enhancing the prospects of their own children.

    Wealth affords people opportunities to be entrepreneurs and inventors. And the income from wealth is taxed at much lower rates than income from work, which means that wealth begets more wealth.

    Education a Way to Weslth

    Social science research indicates that blacks attain more years of education than whites from families with comparable resources. Essentially, blacks place a high premium on education as a means of mobility

    Yet, the racial wealth gap between Blacks and Whited expands at higher levels of post secondary education. In short, Black families where the head graduated from college have less accumulated than wealth than white families where the head dropped out of high school.

    One take-away…better mindsets regarding wealth and money alone can’t fix the legacy of unconstitutional and racist federal and state sanctioned economic policy.

    References:

    1. https://www.brookings.edu/blog/up-front/2020/02/27/examining-the-black-white-wealth-gap/
    2. https://www.aboutschwab.com/ariel-schwab-black-investor-survey-2021
    3. Source: Federal Reserve Board, 2019 Survey of Consumer Finances.
    4. https://www.marketwatch.com/story/heres-why-black-families-have-struggled-for-decades-to-gain-wealth-2019-02-28
    5. https://www.epi.org/blog/is-poverty-a-mindset/

    What Every Woman Needs To Know About Her Money

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    “The lion’s share of wealth, two-thirds of wealth in the United States, is going to end up in the hands of women by the year 2030.” Jean Chatzky

    The women that Jean Chatzky, New York Times Bestselling Author and financial editor at the NBC TODAY Show, has talked with “share a lack of confidence” regarding managing and investing their money. “Whether we’ve got one hundred, one hundred thousand, or one million dollars, we don’t always feel equipped to manage it, even when we’re doing exactly the right things,” she explained.

    In order to create a better world, Chatzky suggests women should, “…use this power that’s coming our way to improve not just our lives, but the lives of the people that we love and care about, and the causes that  we believe in. We really do have an opportunity through giving and investing to create the world we want.”

    Women…”have an opportunity through giving and investing to create the world we want.” Jean Chatzky

    Chatzky offers 15 tips to help you get a handle on your finances and to create the financial future you want for yourself.  A future that aligns with your goals, values and purpose in life.

    1. Talk openly about money

    Chatzky explains, “We gather groups of women who don’t make a habit of talking about money with the specific purpose of talking about money…and it’s really freeing.” One open ended question she asks is, “What do you want your money to do for you?”.

    2. Track your spending to see what you really value

    Do you want a clear picture of your spending? More so, do you want to uncover whether or not what you say are priorities are aligned with your expenditures?

    3. Determine what your ideal life actually costs

    “What do you want from your life?” This is a question Chatzky believe you need to consider so that you can determine what your ideal life actually costs. Write down what you want and next to each item, list the price to do or have it.

    4. Use money as a resource to buy you more time

    Money is a tool which creates freedom of time and choice. Chatzy shares, “The most important thing to realize is the opportunity that you’re wasting. Money we can get more of. Time, you absolutely can’t get more of…But by moving around some of our money, we can restructure our time in a way that feels much better, much more fulfilling, and much less stressful. We are so stressed, and using our money to swap for a little bit of extra time is one great way to reduce some of that stress.”

    5. Identify your money scripts

    “We all have stories around money which became ingrained as children. In some cases we mimic them, in others we rebel against them. In order to know where you’re going with your financial future, it’s helpful to identify the scripts that are overtly or subliminally impacting your views and habits around money,” advises Chatzky.

    6. Find financial harmony in your primary relationship

    Chatzy suggests, “Listening is the key to success within a relationship. You have to understand why your partner needs what they need as much as they need to understand what you need.”

    7. Don’t let money injure your friendships

    “Listen and read between the lines. We know an awful lot about our friends’ financial situations, even if they tell us not one thing. We see how they spend. We see how they manage. We know if they’re stressed financially. We just have to be a little bit empathetic and open-minded about the fact that they may not have the same choices or priorities that we have. And that doesn’t mean that we can’t be great friends,” shares Chatzky.

    8. Teach your kids early

    It can feel scary to talk to your kids about money, especially if you feel tentative about your own financial skills. Fortunately, it doesn’t have to be challenging: “Kids have to have money in order to learn to manage money.”

    9. Get paid what you deserve

    To charge or get paid what you deserve, “First, you must know what you deserve and once you know what that number is, you have to ask for it:

    10. Negotiating won’t hurt your outcomes

    The person on the other side of the table, they are waiting for you to negotiate, according to Chatzky. They’re not going to punish you for negotiating. You may not get the money. But asking is not going to hurt you.

    11. To be or not to be (an entrepreneur)

    30% of US businesses are women-owned, and that number is rising steadily.

    12. Spend on others

    Studies show that when you do for others, you’re guaranteed to feel happier. This includes when you spend on others. “There’s no sense in feeling guilty for spending money that’s not sabotaging our financial life”, says Chatzky.

    13. Talk with aging parents

    “If you haven’t had a conversation with your parents before you’ve hit age forty or they hit age seventy, it’s time”, she comments

    14. Have a little fun with your money

    Chatzky comes from a judgment-free zone when it comes to how you spend your money. But, “know how much it costs” since you earned that money and yours to do with as you want.

    15. Consider your legacy

    “You have to think about what’s important to you. That’s where a lot of us fall down when it comes to charitable giving”, Chatzky says.

    Building wealth

    If you want to build wealth, you need only do four things, according to Chatzky:

    1. Make a decent living.
    2. Spend less than you make.
    3. Invest the money you donʼt spend.
    4. Protect the financial world you build so that a disaster doesnʼt take it all away from you.

    Building wealth sounds easy, so why is it so hard, particularly for women?  “Because women according to Chatzky, “make excuses”. We tell ourselves that we’re “just not good with money,” or that our husbands “like taking care of the finances.”

    In short, “what successful women want from their money are: independence, security, choices, a better world, and–oh yes–way less stress, not just for themselves but for their kids, partners, parents, and friends.”

    To read more: https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/

    References:

    1. https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/
    2. https://www.jeanchatzky.com/books/

    Financial Wellness

    Aside

    Financial Wellness: Time to tune up your financial goals, plan and strategy.

    Tax season is upon us meaning that the 2020 filing season officially opens on February 12, 2021, and the final deadline is April 15, unless the IRS announces changes. For that reason, it is the time to assess your financial health, gather your tax documents and get your personal finance in order.

    Knowing where you stand financially before the tax filing deadline gives you time to adjust your current tax withholding and also figure out what you can contribute to accounts like traditional IRAs, Roth IRAs, and health savings accounts, based on your modified adjusted income and your overall financial picture.

    “People focus on the negative. They don’t like locating all the files, math is scary, and there’s this need to be very precise,” says Andy Reed, PhD, Fidelity’s vice president for behavioral economics. “The beginning of the year is a good trigger for taking stock of your financial situation, which is good to do once a year.”

    https://twitter.com/raininstantpay/status/1359117351124430853?s=21

    Financial wellness

    Knowing where you stand is a critical to financial wellness. “Financial Wellness” relates to thinking about and paying attention to your financial well-being. And, there is no better time than now to hit the refresh button and create a path towards financial wellness. Thus, having your financial plan and strategy in place can not only mean a great deal to you in the long term, but it may provide you some comfort in the short term.

    The first thing to do is to do a financial year in review by calculating your personal net worth (assets – liabilities) and assessing your cash flow (income – expenses). Once you know where you stand financially, you can plot out how you achieve your financial goals, according to Charles Schwab financial advisors. Consequently, thinking about what you really want financially, your goals, is the first step toward getting it.

    “Saving and investing wisely helps you work toward a more secure future, it also gives you freedom to focus on you.”

    Your primary financial focus should be earning and saving money, managing spending and debt, and setting up an emergency fund. Cash flow is financial oxygen of financial wellness, explained Berna Anat, a financial literacy educator and creator of financial education website Hey Berna. “Once you can breathe better, you can plan better.”

    To achieve a sense of financial wellness means having your financial plan, strategy and goals in place. Financial wellness can not only mean a great deal to you in the long term, but it may provide you some comfort in the short term.

    References:

    1. https://www.fidelity.com/viewpoints/personal-finance/getting-started-on-tax-returns
    2. https://www.become.co/blog/january-financial-wellness-month
    3. https://www.cnbc.com/2021/01/21/12-month-roadmap-to-financial-wellness.html
    4. https://equitable.com/goals/financial-security/basics/invest-for-retirement

     

    Investment Plan

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    “An idiot with a plan can beat a genius without a plan.” Warren Buffett

    Creating budgets and financial milestones are great, but you need an actual investment plan to help you stay on track. It’s one of the most critical steps to meeting your long-term financial goals. According to Warren Buffett, “An idiot with a plan can beat a genius without a plan,” and this is especially true in investing.

    Planning helps you focus on long-term goals, not short-term fears and market volatility. If your goal is 20 years away, a loss over one month or year probably isn’t all that important. Focus on your individual goals and time horizon. People who invest more time planning their finances invariably make better decisions, get better results, and achieve financial independence.

    It’s also important to know why and for what you are investing in because it will influence how and in what you invest. This is the basis of an investment plan. The best investment plan is one that is tailored to you, and includes an individualized strategy and goals that will set you on the path to success. That means a plan that takes into account your individual goals, situation, and time horizon—and one that’s diversified.

    “People who invest more time planning their finances invariably make better decisions, get better results, and achieve financial independence.” Brian Tracy

    Diversification doesn’t mean you won’t ever lose money. But owning a mix of investments can help reduce the risk. That way if some investments drop, others may rise, helping you reach your goals. And, you should always manage your risk—by choosing an asset mix that is appropriate for your current circumstances, and creating diversification within that asset mix to improve your risk/return relationship.

    Step 1: Evaluate Your Current Financial Standing

    The first step in creating your investment plan is to evaluate your current financial standing and determine how much you have to invest.

    Step 2: Define What You Want to Accomplish

    Your short or long term goals that you want to achieve in your life will impact your investing strategy. Where do you want to be when you retire? Do you want to own a house? Do you want to create passive income? Do you want to create generational wealth for your family?

    Defining what you want to accomplish will help you determine how much risk you can take and what type of investments to make that will help you achieve what you want to accomplish in your lifetime.

    Step 3: Determine How Much Risk You Can Take

    Rule #1 of Investing is to not lose money, but there is always some risk involved when investing in an unpredictable stock market. How much risk can you take based on what you want to accomplish (what we just talked about) and how much time do you have to accomplish it?

    If you want to earn money for retirement and retirement is 30 years away, you have a lot of time for your money to grow and recover from economic downturns, so you can afford to be more aggressive. However, if retirement is only a few years away, you will need to make more conservative investments that ensure you will have enough money, but won’t lose it.

    Step 4: Decide What Type of Investment to Make

    You need to decide what type of investments will help you accomplish what you have set out to accomplish. Consider building a mix of stocks, bonds, and short-term investment. You should learn about the different types of investments that are available before you start investing your money.

    Step 5: Establish Your Time Horizon

    Time Horizon is the period where one expects to hold an investment for a specific goal. The longer the time horizon, the more aggressive, or riskier portfolio, an investor can build.  Simply put, your investment time horizon is the length of time you need your portfolio to work for you.

    Planning and goals are really just the means to the end. The end being the tangible things (retirement security, house, generational wealth, etc.) you set out to accomplish. You should make a promise to yourself that you will accomplish that thing and make a plan to go after it.

    And monitor your investments per you plan and progress toward your goals on a set, not-too-frequent schedule—perhaps quarterly or twice a year, or if your goals or circumstances change.

    By developing and sticking to an investment plan that’s squarely focused on achieving your individual goals is essential in successful investing.

    Regardless of your plan, it is critically important to recognize that investing involves the risk of loss. Having a plan that aligns with your objectives and risk tolerance, educating yourself on investing and doing your research to know the risks associated with investing are all vitally important.

    Bottom line is that financial plans don’t fail people. Instead, people fail to plan.

    The only way to find financial security is to draw yourself a map. Folks who have specific financial plans that detail what they want save more than people who don’t…Why? Because human beings are easily distracted (especially by shiny new things). So unless you have a road map that tells you where you’re going, it is very, very hard to get there. It’s not that the map will never change.  Revising your specific plans for the future is far better than not having any plans at all.

    References:

    1. https://www.ruleoneinvesting.com/blog/how-to-invest/investment-planning/?utm_medium=cpc&utm_source=facebook.com&utm_campaign=investing-strategies&utm_content=interest&utm_term=cold&dclid=CID8g7PmzO4CFTEYwQod5T0EGw
    2. https://www.fidelity.com/viewpoints/personal-finance/financial-improvement?ccsource=email_weekly
    3. https://www.fidelity.com/viewpoints/active-investor/trading-guide-managing-investment-risks-and-opportunities?ccsource=email_weekly

    Financial Literacy: Saving for Retirement

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    “We teach our kids everything in high school: sex education, geography, math, reading, etc. We do not teach them anything about credit cards, or debt, or investing. Then we ask ourselves why we end up in a situation as we are today, which has been highlighted by the pandemic a bit: There’s 100 million people in America that have set nothing aside for their retirement.” Kevin O’Leary

    The retirement crisis in America is an ongoing worry for most Americans. As companies have shifted away from offering traditional (defined) pension plans to employees, much of the responsibility in planning for financial life after work now relies heavily on individuals. Unfortunately, the crisis is mostly due to a lack of financial literacy and consumer spending on new shiny things, and as a result, most are struggling to keep up.

    A March 2019 Bankrate survey found that more than 1 in 5 working Americans aren’t saving any money for retirement, emergencies or other financial goals. Major barriers as to why respondents said they weren’t saving included not making enough money, financially helping adult children, and large credit card and other personal debt payments.

    Financial assistance to adult children

    Parents are helping their adult children financially and the majority of those parents say that financially supporting their adult children is hurting their savings for retirement and their financial futures, according to Bankrate. In total, 50 percent of respondents to a Bankrate survey say they have sacrificed or are sacrificing their own retirement savings in order to help their adult children financially.

    Living and remaining in the workforce longer

    American baby boomers are healthier and are living longer; as a result, they’ll need a bigger nest egg to fund their retirements, especially since the number of employers providing pensions has been steadily shrinking. As some reach retirement age and realize they don’t have enough saved, it’s keeping them in the workforce longer. Workers older than 55 years young filled almost half of all new jobs in 2018 even though they make up less than a quarter of the nation’s labor force, according to an analysis of Labor Department data by The Liscio Report.

    “Many seniors are having a hard time making ends meet and find they have to work when they had not planned to.” Dean Baker, cofounder of the Center for Economic and Policy Research.

    “Most Americans haven’t made saving [for retirement] a priority”, says Nick Holeman, CFP at Betterment. “Most people don’t like to admit that, but we live in a consumer culture and it can be difficult to turn down the new shiny gadgets.” Saving for retirement is your largest and most important financial goal. Even if it feels very far away, it’s important to start saving early.

    Holeman recommends that Americans wanting to retire to take three steps:

    1. Create financial goals and a financial plan. At a minimum, you should have these two financial goals: Create an emergency fund and save for retirement. SoFi calls these “bookend goals”—your primary short-term and primary long-term goal. Your financial plan should consist of small, achievable goals; they’ll help you see your finish line and empower you to stay on track. Start by determining how much you need to retire comfortably.
    2. Come up with a strategy to execute. Selecting an investment strategy depends on your financial goal amount (how much you want to save each month or year) and the time horizon (when you’d like to use that money). Decide how you plan to save that amount.
    3. Get creative. For those struggling to save, consider retiring later or working part-time during retirement. Holeman says there are tons of other options out there, which he refers to as “levers,” like moving to a low-cost state or downsizing your home. Engaging them can help get your retirement savings back on track.

    Investing

    It has been regularly reported that billionaire investor Warren Buffett made 99% of his current wealth after his 50th birthday.  At an age when most Americans give up hope achieving financial independence, Buffett was just getting started on the capital assets he controls today.  Building wealth could mean financial peace, taking a spur-of-the-moment international travel.

    Many older Americans are advised to sell or significantly reduce their stock holdings and frankly, this advice is antiquated, shortsighted and wrong.  Buffett built his incredible level of wealth by continuing to buy stocks despite his advanced age.

    References:

    1. https://www.bankrate.com/personal-finance/financial-independence-survey-april-2019/
    2. https://www.bankrate.com/retirement/baby-boomers-unable-to-retire-gig-economy/
    3. https://www.usatoday.com/story/life/allthemoms/2019/04/24/adult-children-robbing-parents-retirement-savings-study-finds/3559812002/
    4. https://d32ijn7u0aqfv4.cloudfront.net/wp/wp-content/uploads/20170718165706/Guide-to-Investing-Intelligently_V5-1.pdf