Category Archives: Financial Planning

Investing in Bonds

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The US bond market’s value is $46 trillion. It is comparable in size to the US stock market. At $119 trillion, the global bond market is even larger. The reason why the bond market is so large is in part because governments issue bonds, not stocks. For companies, bond financing can also be a more attractive source of financing than equity. PIMCO Investments (Introduction to Bonds)

Today, market uncertainty and volatility has become the short term rule, and not just the exception. Now more than ever, bonds can offer important benefits to help you stay on track with your long-term wealth goals with less risk.

Historically, bonds have offered greater stability than riskier investments like stocks, real estate or commodities. Bonds can also help you diversify the assets in your portfolio and potentially smooth out some of the stock market volatility and rough spots.

Bonds are basically loans from investors and a source fixed income for investors. A company, state or government issues bonds to raise money and capital. When an investor buys a bond they give the issuer – the company or government who issued the bond – a loan. Often, the bond issuer agrees to pay its investors periodic “fixed” interest payments (hence the name fixed income) while the loan is outstanding and to pay back the full loan at the end of the bond’s life (called maturity).

The amount that is given to the issuer is called the principal, or face value, of the bond. In return, the issuer agrees to pay the investor both the face value of the loan on a specific date (the “date of maturity”) and to pay the investor periodic interest payments, known as coupons, in specific intervals.

Source: PIMCO Introduction to Bonds

The coupon is periodic interest payment that the bond holder receives from the issuer from its issue date until it matures. The coupon rate (expressed as a percentage) is calculated by adding the sum of coupons paid per year and dividing it by the bond’s face value. Often coupons are paid semi-annually.

Yield, which is often used when discussing bonds, is the annual net profit that an investor earns on an investment. Yield takes into account the bond’s fluctuating changes in value and is usually reported as an annual percent figure. The interest rate is the percentage charged by a lender for a loan. The yield on new bonds reflects interest rates at the time they are issued.

Unlike stocks, bonds issued by companies do not generally give investors ownership rights. Instead, bonds provide a stream of income. When held in a portfolio with stocks, bond investments can offset some of the volatility in the equities market.

Bonds can play an important role in diversifying a portfolio. Three key potential reasons to consider bonds:

  • Defense Against Capital Loss — Barring default, the principal value of a bond is expected to be returned to the investor at maturity. This can make bonds attractive to risk-averse investors who are concerned about losing capital.
  • Income — Bonds can provide investors with a source of income in the form of coupon payments. Often coupon rates are set, so investors can receive this income during different market conditions.
  • Diversification — Bonds may help diversify a portfolio of riskier assets like equities and this is generally due to the low to negative correlation of bonds with other asset classes.

Bonds can be issued by companies or governments when they want to raise money. There are several types of bonds available for investing, including:

  • Government bonds – Bonds that are issued by a government. These are lower yield because the government guarantees that these bonds are backed by the full faith and credit of their government.
  • Corporate bonds – Many public and private companies issue bonds to help finance their ongoing operations. These bonds can often offer higher yields than municipal or U.S. Treasury securities, although they may entail a greater risk of default.
  • Agency bonds – Debt securities issued by government sponsored agencies for public purposes, such as increasing home ownership or supporting small businesses.
  • High-yield – Bonds with ratings below BBB are often referred to as “junk” bonds. These bonds typically provide higher yields than investment- grade bonds, but have a higher risk of default.
  • Municipal bonds – Municipal bonds, or munis, are debt securities issued by state or local governments to finance public projects. Interest income is typically free from federal income taxes, and if held by an investor in the state of issuance, may be exempt from state and local taxes as well.

References:

  1. https://www.pimco.com/handlers/displaydocument.ashx
  2. https://www.pimco.com/en-us/bonds

All investments contain risk and may lose value.There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.

Summary: The 7 Habits of Highly Effective People

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“Dependent people need others to get what they want. Independent people can get what they want through their own effort. Interdependent people combine their own efforts with the efforts of others to achieve their greatest success.” Stephen R. Covey

Stephen R. Covey’s seminal book, The 7 Habits of Highly Effective People, remains relevant because it focuses on timeless principles of fairness, integrity, honesty, and human dignity. It’s timeless principles are also extremely relevant for those desiring to develop a wealth mindset and to build wealth.

In his book, Covey argues that it’s your character that needs to be cultivated to achieve effectiveness and sustainable success, not your personality and behavior. Effectively, what we are says far more than what we say or do.

Character is closely related to moral and ethical values. It focuses on the traits that are unique to a person. Character is often regarded as the true self, meaning that it represents deep rooted attributes possessed by a person.

While, personality is often referred to as the mask identity of a person. It is reflected by the outer appearance and behavior that may or may not be true to inner character.

In a nutshell, the seven habits of highly effective people are:

  1. You take initiative. “Be proactive.”
  2. You focus on goals. “Begin with the end in mind.”
  3. You set priorities. “Put first things first.”
  4. You only win when others win. “Think win/win.”
  5. You communicate. “Seek first to understand, then to be understood.”
  6. You cooperate. “Synergize.”
  7. You reflect on and repair your deficiencies…you focus on your well-being. “Sharpen the saw.”

In short, you are what you habitually do, so adopt productive habits. You have the ability to improve your habits and your life.

Covey’s seven habits are composed of the primary principles of character upon which happiness and success are based. Rather than focusing on altering the outward manifestations of your behavior and attitudes, it aims to adapt your inner core, character, and motives.

Your character is a composite of your habits, which factors heavily in your life. Because habits are consistent, unconscious patterns, they constantly express your character and result in your effectiveness or ineffectiveness. Habits are deeply ingrained and you are constantly pulled in their direction. Breaking deeply imbedded, habitual tendencies such as procrastination, impatience, criticalness or selfishness that inhibit effectiveness involves more than simple willpower or a few minor changes.

“What we are communicates far more eloquently than anything we say or do.” Stephen R. Covey

A habit is the intersection of knowledge, skill, and desire:

  • Knowledge is the theoretical paradigm, the what to do and the why.
  • Skill is the how to do.
  • Desire is the motivation, the want to do.

Creating a habit requires work in all three dimensions–to listen, knowing how to listen and to want to listen. By working on knowledge, skills, and desire, we can break through to new levels of personal and interpersonal effectiveness as we break from old paradigms. 

Paradigms (another term for mindset) are powerful because they create the lens through which we see the world… “If you want small changes in your life, work on your attitude. But if you want big and primary changes, work on your paradigm.” – Dr. Stephen R. Covey

Habit 1: Be Proactive – Principle: I am free to choose and am responsible for my choices.

Your life doesn’t just “happen.” Whether you know it or not, it is carefully designed by you. The choices, after all, are yours. You choose happiness. You choose sadness. You choose decisiveness. You choose ambivalence. You choose success. You choose failure. You choose courage. You choose fear. Just remember that every moment, every situation, provides a new choice. And in doing so, it gives you a perfect opportunity to do things differently to produce more positive results.

Habit 1: Be Proactive is about taking responsibility for your life. You can’t keep blaming everything on your parents or grandparents. Proactive people recognize that they are “response-able.” They don’t blame genetics, circumstances, conditions, or conditioning for their behavior. They know they choose their behavior.

All external forces act as stimuli that we respond to. Between the stimulus and the response is your greatest power–you have the freedom to choose your response. One of the most important things you choose is what you say. Your language is a good indicator of how you see yourself. A proactive person uses proactive language–I can, I will, I prefer, etc.

Being proactive means more than taking initiative. It means we are responsible for our own lives. Our behavior is a function of our decisions, not our conditions. 

“It’s not what happens to us, but our response to what happens to us that hurts us.” Stephen R. Covey

Habit 2: Begin with the End in Mind – Principle: Mental creation precedes physical creation.

Sometimes people find themselves achieving victories that are empty–successes that have come at the expense of things that were far more valuable to them. If your ladder is not leaning against the right wall, every step you take gets you to the wrong place faster.

Habit 2 is based on imagination–the ability to envision in your mind what you cannot at present see with your eyes. It is based on the principle that all things are created twice. There is a mental (first) creation, and a physical (second) creation. The physical creation follows the mental, just as a building follows a blueprint.

If you don’t make a conscious effort to visualize who you are and what you want in life, then you empower other people and circumstances to shape you and your life by default. It’s about connecting again with your own uniqueness and then defining the personal, moral, and ethical guidelines within which you can most happily express and fulfill yourself.

Begin with the End in Mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.

Covey states that the most effective way to begin with the end in mind is to create a personal mission statement. It should focus on the following:

  • What you want to be (character)
  • What you want to do (contributions and achievements)
  • The values upon which both of these things are based

In time, your mission statement will become your personal constitution. It becomes the basis from which you make every decision in your life. By making principles the center of your life, you create a solid foundation from which to flourish.

To begin with the end in mind means to start with a clear understanding of your destination. You need to know where you are going in order to better understand where you are now so that the steps you take are always in the right direction. 

Habit 3: Put First Things First – Principle: Effectiveness requires the integrity to act on your priorities.

Habit one encourages you to realize you are in charge of your own life, and habit two is based on the ability to visualize and to identify your key values. Habit 3 is the practical fulfillment of Habits 1 and 2. Habit 1 says, “You are the creator. You are in charge.” Habit 2 is the first mental creation, based on imagination, the ability to envision what you can become. Habit 3 is the second creation, the physical creation. It focuses on the practice of effective self-management. By asking yourself the above questions, you become aware that you have the power to significantly change your life in the present.

To live a more balanced existence, you have to recognize that saying no to everything that comes along is okay. There’s no need to overextend yourself. All it takes is realizing that it’s all right to say no when necessary and then focus on your highest priorities.

Habit three concerns itself with putting the most important things first. This means cultivating the ability to say no to things that don’t match your guiding principles. To manage your time effectively, your behaviors and actions must adhere to the following habit 5 concepts:

  1. They must be principle-centered.
  2. They must be conscience-directed, meaning that they give you the opportunity to organize your life in accordance with your core values.
  3. They define your key mission, which includes your values and long-term goals.
  4. They give balance to your life.
  5. They are organized weekly, with daily adaptations as needed.

The focus is on improving relationships and results, not on maximizing your time.

Habit 4: Think Win-Win – Principle: Effective, long-term relationships require mutual respect and mutual benefit.

Think Win-Win is a character-based code for human interaction and collaboration.

Win-win sees life as a cooperative arena, not a competitive one. Win-win is a frame of mind and heart that constantly seeks mutual benefit in all human interactions. Win-win means agreements or solutions are mutually beneficial and satisfying.

To adopt a win/win mindset, you must cultivate the habit of interpersonal leadership. This involves exercising each of the following traits when interacting with others:

  • Self-awareness
  • Imagination
  • Conscience
  • Independent will

To be an effective win/win leader, Covey argues that you must embrace five independent dimensions:

  1. Character: This is the foundation upon which a win/win mentality is created, and it means acting with integrity, maturity, and an “abundance mentality” (i.e., there is plenty of everything for everyone, one person’s success doesn’t threaten your success).
  2. Relationships: Trust is essential to achieving win/win agreements. You must nourish your relationships to maintain a high level of trust.
  3. Agreements: This means that the parties involved must agree on the desired results, guidelines, resources, accountability, and the consequences.
  4. Win/win performance agreements and supportive systems: Creating a standardized, agreed-upon set of desired results to measure performance within a system that can support a win/win mindset.
  5. Processes: All processes must allow for win/win solutions to arise.

Win/Win is not a technique; it’s a total philosophy. This frame of mind and heart constantly seeks mutual benefit in all human interactions. It’s not your way or my way; it’s a better way, a higher way.

Habit 5: Seek First to Understand, Then to Be Understood – Principle: To communicate effectively, we must first understand each other.

Communication is the most important skill in life. You spend years learning how to read and write, and years learning how to speak. But what about listening?

If you’re like most people, you probably seek first to be understood; you want to get your point across. And in doing so, you may ignore the other person completely, pretend that you’re listening, selectively hear only certain parts of the conversation or attentively focus on only the words being said, but miss the meaning entirely.

Seek first to understand involves a deep shift in paradigm. We typically seek first to be understood. Instead, most people listen to the reply. They’re either speaking or preparing to speak. 

Habit 6: Synergize – Principle: The whole is greater than the sum of its parts.

To put it simply, synergy means “two heads are better than one.” Synergize is the habit of creative cooperation. It is teamwork, open-mindedness, and the adventure of finding new solutions to old problems.

Synergy is the highest activity in all life – the true test and manifestation of all the other habits combined. Synergy catalyzes, unifies, and unleashes the greatest powers within people. Simply defined, synergy means that the whole is greater than the sum of its parts. 

Habit 7: Sharpen the Saw – Principle: To maintain and increase effectiveness, we must renew ourselves in body, heart, mind, and spirit.

Sharpen the Saw means preserving and enhancing the greatest asset you have–you. It means having a balanced program for self-renewal in the four areas of your life:

  • Physical: exercise, nutrition and sleep
  • Social/Emotional: meaningful human connections and relationships
  • Mental: learning, visualizing, acquiring new knowledge, growing
  • Spiritual: mindfulness, art, meditation, music, time in nature, prayer and service

As you renew yourself in each of the four areas, you create growth and change in your life. Sharpen the Saw keeps you fresh so you can continue to practice the other six habits. You increase your capacity to produce and handle the challenges around you. Without this renewal, the body becomes weak, the mind mechanical, the emotions raw, the spirit insensitive, and the person selfish.

Feeling good doesn’t just happen. Living a life in balance means taking the necessary time to renew yourself. Remember that every day provides a new opportunity for renewal–a new opportunity to recharge yourself instead of hitting the wall. All it takes is the desire, knowledge, and skill.

Habit 7 makes all of the other Habits possible. When you sharpen the saw, you preserve and enhance the greatest asset you have – yourself. 

In conclusion, real change comes not from the outside in, but from the inside out, explains Covey. And the most fundamental way of changing yourself is through a paradigm shift.

There are so many people out there who are excelling in their work lives but failing miserably in their personal lives. They’re a success story on the outside but their lives are falling apart. Their problems are deep and painful. A quick fix doesn’t work in this case. To change such situations, you have to improve yourself and your mindset.

A paradigm is a way you see and perceive the world. Like a map of a territory, a paradigm is a model of something else. Two people can see the same thing and interpret it differently, and they’ll both be correct. It’s not logical but psychological.

Your paradigms affect the way you interact with people.

“Of course, things can hurt us physically or economically and can cause sorrow. But our character, our basic identity, does not have to be hurt at all.” Stephen R. Covey

References:

  1. https://resources.franklincovey.com/mkt-7hv1/the-7-habits-of-highly-effective-people
  2. https://www.oberlo.com/blog/7-habits-of-highly-effective-people-by-stephen-covey-summary
  3. https://www.stratechi.com/7-habits/
  4. https://www.nps.gov/common/uploads/teachers/lessonplans/7%20Habits-of-Highly-Effective-People.pdf
  5. https://earlgreyninja.com/the-7-habits-of-highly-effective-people-stephen-r-covey/

Building Black Wealth Insights Study – U.S. Bank

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

References:

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

Black History Month Demographic Profile: African Americans

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

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

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

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

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

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

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

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

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

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

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

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

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

References:

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

 

Prioritize Your Happiness

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

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

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

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

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

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

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

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

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

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

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

References:

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

Guide to Medicare Enrollment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

References:

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

Investing rules of the road – Edward Jones

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

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

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

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

1. Develop your strategy

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

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

2. Understand the risk

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

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

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

3. Diversify for a solid foundation

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

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

4. Stick with quality

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

5. Invest for the long term

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

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

6. Set realistic expectations

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

7. Maintain your balance

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

8. Prepare for the unexpected

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

9. Focus on what you can control

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

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

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

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

10. Review your strategy regularly

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

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

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

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

References:

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

There is a difference between money and wealth.

Does Bill Gates have a lot of money?

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

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

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

Don’t get financial advice from NFL stars

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

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

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

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

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

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

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

References:

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

Financial Freedom

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

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

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

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

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

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

Step 1: Calculate Your Spending

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

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

Add all these together to get your Yearly Spending Total.

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

Step 2: Choose Your Safe Withdrawal Rate

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

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

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

Step 3: Calculate Your Financial Independence (FI) Number

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

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

For example:

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

Financial Independence Number = Yearly Spending / SWR

  • $40,000 / 0.04 = $1,000,000

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

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

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

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

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

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

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

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

Seven Levels of Financial Freedom

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

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

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

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

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

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

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

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

Financial freedom can look something like this:

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

When you have financial freedom, you have options.

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

References:

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