Inflationary Pressures are a Real and Present Concern

Posted on June 12, 2021 by admin

“Inflation jumped 5 percent in the past year, the fastest pace in 13 years.”

Inflation in the US has jumped to the highest rate since 2008. For the past decade, inflation has averaged under 2 percent a year. But suddenly, inflation is rising much faster than anticipated and planned by the Federal Reserve. For instance, inflation rose 5 percent between May 2020 and May 2021, the Labor Department reported.

Inflation results when demand exceeds supply in an economy. When the economy grows faster than its ability to provide goods and services demanded by consumers, prices rise. When the economy grows more slowly than its potential growth rate, prices tend to fall. Factors that affect an economy’s growth rate include the supply of labor and the productivity of those workers.

Inflation is imply defined as the price of a good or service increasing over time. Conversely, you can also define inflation by looking at the value of the dollars purchasing those goods and services. Said another way, while you might agreed that the price of good and services have increased, you can also state the dollars you spend now purchase less quantity of goods and services … and by extension, the dollars themselves are clearly worth less.

Money supply and budget deficits

We’ve learned that inflation is, “always and everywhere a monetary phenomenon,” according to economist Milton Friedman. Money supply growth is a requirement, but in and of itself, it’s not enough to cause inflation. The money needs to find its way into the economy and turnover rapidly to generate inflation. (This is referred to as the velocity of money or ratio of M2 money supply to gross domestic product, or GDP.) In recent years, the velocity of money has fallen sharply.

Rising budget deficits are not necessarily linked to inflation, either, but can contribute to an overheating economy. It all depends on whether it stimulates demand to exceed supply. From a long-term perspective, there has been little correlation in recent years between the level of debt in the economy and inflation.

The causes of present inflation and the primary explanations are:

Pent-up demand following the COVID-19 shutdown.
Base effects (essentially older low values rolling off).
A massive increase in the supply of dollars.

Rising Prices

“Inflation is taxation without legislation.” – Milton Friedman.

With commodity prices soaring, money supply growth exploding, and government spending surging, there is a palpable fear of a return to 1970s-style inflation. I get it. I remember those times.

Core inflation, which strips out volatile items such as food and energy, leaped to the highest level since 1992. It rose 3.8% year-on-year, up from 3% in April.
Other official data showed that the number of initial claims for jobless benefits fell to its lowest since mid-March 2020, when the first wave of Covid-19 hit.

The cost of used cars and trucks climbed 7.3% in May from April, accounting for a third of the increase in inflation. Prices were 29.7% higher than a year earlier. They have risen in recent months because of a global semiconductor shortage that has held back car production, pushing people to enter the market for second-hand vehicles instead.

Energy prices rose, by 28.5% year-on-year, including a 56% jump in gasoline prices compared with May 2020, when demand slumped due to the pandemic. And, gasoline prices are destined to go higher with the cancelation of the cross-border permit for the Keystone XL pipeline and suspension of the program for oil and gas leasing on federal lands and waters.

The cost of flights, household furnishings, new cars, rental cars and clothing rose during May.

Inflation jumped 5 percent in the past year, the fastest pace in 13 years. Few are panicking yet, but there’s a big debate about how long prices will stay high. https://t.co/yefQt0zQWH

— The Washington Post (@washingtonpost) June 10, 2021

What should investors do?

In response to inflation, investors should:

Must become awareness of inflation. Inflation is likely to increase throughout the year (and perhaps further), and bonds are likely to at least be less of a stalwart than they have over the past 40 years. It is important to realize that is possible and you should all be prepared for lower near-term performance in fixed income markets.
Diversification is key. Equities, for example, have historically been a reasonable asset during certain inflationary periods as companies can often pass through increased costs.
Explore other forms of inflation protection, as well as a broader diversification of fixed income instruments.

Inflation is clearly present for U.S. consumers in the grocery stores, at gas stations and in vehicle sales. Fears over rising prices has investors fearing that pent-up demand and supply chain bottlenecks would create inflationary pressures, and force the Federal Reserve to “tamper” their monetary stimulus program and dampen demand by increasing interest rates.

References:

Money and Happiness

Posted on May 25, 2021 by admin

“The great Western disease is, ‘I’ll be happy when… When I get the money. When I get a BMW. When I get this job. When I get the relationship,’ Well, the reality is, you never get to when. The only way to find happiness is to understand that happiness is not out there. It’s in here. And happiness is not next week. It’s now.” Marshall Goldsmith

Research shows that after you make enough money to pay your essential expenses and save for the future, making more does little for your happiness. A 2010 study by economist and psychologist Daniel Kahneman found that, where wealth is concerned, a person’s satisfaction with their life no longer increases after about $75,000 ($90,000 in today’s dollars) a year.

If anything, once people start making a lot of money, they begin to think they’re doing worse in life, because they become obsessed with comparing themselves to those who appear richer and appear to be living a relatively larger and more luxurious social media embellished lifestyle. But, it important to remember that, “Money has never made man happy, nor will it, there is nothing in its nature to produce happiness”, Benjamin Franklin quipped. “The more of it one has the more one wants.

Instead, research suggests that spending money on experiences rather than tangible goods, giving to others with no thought of reward, and expressing gratitude for what you have, results in the greatest feelings of happiness.

Pitfalls of chasing money

Focusing on chasing the accoutrements of wealth is a trap, because it leads only to an increased focus on chasing wealth. Even multimillionaires make the mistake of believing that money, and not time, experiences and gratitude, will enrich their lives.

“These days, in our materialistic culture, many people are led to believe that money is the ultimate source of happiness. Consequently, when they don’t have enough of it they feel let down. Therefore, it is important to let people know that they have the source of contentment and happiness within themselves, and that it is related to nurturing our natural inner values.” Dalai Lama

A few thousand of the world’s wealthiest people were surveyed and asked how much money they’d needed to be “perfectly happy”, according to Harvard Business Review. Seventy-five percent (many of whom had a net worth of $10 million or more) said they’d needed “a lot more” ($5 million to $10 million, “at the very least”) to be happy.

It doesn’t take a PhD in psychology to see how misguided the mindset of “needing a lot more money” is not related to achieving happiness.

Money may not buy happiness, but there are some things you can do to try to increase happiness such as writing down what you’re grateful for. Literally “counting your blessings” can help you feel more positive. Instead of thinking about what you don’t have, think about the things you do have.

Nothing less than your health and happiness depends on reversing the innate notion that money alone leads to happiness. It’s important to start seeing time, daily habits, being grateful, and lifestyle are the main drivers that determines your happiness:

Convince yourself that your time, expressing your gratitude, and your health are more important than money and your bank account balance.
Remind yourself that your values and that your closely aligned goals when faced with critical life and financial decisions.
Make deliberate and strategic decisions that allow you to have more time across days, weeks months, and years.

Among millionaires, past studies reveal that wealth may be likely to pay off in greater personal happiness only at very high levels of wealth ($10 million or more), and when that wealth was earned rather than inherited.

Takeaways

Research concludes that money can buy life satisfaction and that money is unlikely to buy happiness, but it may help you achieve happiness to an extent through experiences, expressing gratitude, and giving to others. Look for experiences and opportunities that will help you feel fulfilled and that are aligned with your values. And, remember to count your blessings.

And beyond that, you can find happiness through other nonfinancial means, like spending time with people you enjoy or thinking about the good things in your life. Since, “Happiness comes from spiritual wealth, not material wealth…”, according to Sir John Templeton. “Happiness comes from giving, not getting. If we try hard to bring happiness to others, we cannot stop it from coming to us also. To get joy, we must give it, and to keep joy, we must scatter it.”

References:

Retiree Emotional Well-being

Posted on May 21, 2021 by admin

Retirement presents some unique emotional challenges.

There are significant emotional challenges of retirement. Knowing how to deal with retirement emotionally can be just as important as, or more important than, financial preparation.

Most people spend the majority of their lives working to cultivate a career and raise a family. It’s human nature to take solace in the daily routine that you developed, but when you reach retirement you may find that it takes some time to get used to your new life after leaving the workforce and/ or becoming an empty nester.

https://twitter.com/kathrynpeyton/status/1215464171912884224

If you’re having a hard time adjusting to retirement, you’re not alone. A survey of 1,000 people ages 60 to 73 shows that about two-thirds of Baby Boomer participants said they had difficulties in transitioning from their primary profession to retirement. The survey also identified the top reasons that participants had trouble adapting to life in retirement:

37% said that they missed the daily social interactions they would have with work colleagues.
32% had trouble adjusting to a new daily routine.
22% found it difficult to find ways to create meaning and purpose in their life after work.

The good news is that eventually more than half of the participants found that they adjusted to these changes rather quickly, and 97% reported being “somewhat” or “rather” satisfied in their retirement.

The key to adjusting to these life changes and living a fulfilling life after work is emotionally preparing for the transition years and decades prior to reaching retirement age.

Deal with Retirement Emotionally

Though retirement is often seen as a time to slow down, this doesn’t mean that you can’t continue to remain active or find meaning outside of your professional life. And, there are ways to cope with the emotional challenges of retirement:

Find activities you enjoy outside of work. – Retirement is the time for you to do the things that you enjoy most. Volunteer your time at your favorite local organization or take up a new hobby. Staying active is a great way to find meaning in life after work.
Begin to expand your relationship base. – Chances are, many of your friendships were formed in the workplace. Though it’s great to keep in touch with former colleagues, try to develop new friendships. Friends are the key to staying connected and maintaining your well-being.
Include your family in your pre-retirement plans. – Once you’re retired, you will have more time to spend with your spouse. Actively include him or her in your pre-retirement plans. Have a conversation about what you would like life after retirement to look like and discuss how you can help support one another.
Have a solid financial plan. – Not having enough resources to support yourself after retirement can add stress to your life. One way to make sure that you are emotionally prepared for the transition is to make sure that you have a financial plan in place that provides a quality of life for yourself in retirement.

Change in life status is exciting and can be positive if you’re prepared.

Mindset, attitudes, behaviors and habits.

Retirement can mean looking forward to a simpler, less stressful life, free of commuting, demanding boss, meetings and deadlines.

Good health care, combined with recreational and fitness opportunities, are critical attributes of retirement of a healthy retirement. Good health, combined with a moderate cost of living, are critical since 96% of retirees—and 99% of those age 75 and over—say that health is more important than wealth to live well in retirement, according to the survey.

Yet health and wealth are very intertwined. People with financial resources can invest more in their health, and those in poor health have a harder time enjoying what their money can buy.

Tackling tough financial issues, such as overspending, debt and “having more month left than money available”, are a great way to drive change. Better yet, it’s always a good idea to learn more about financial management matters, getting out of debt and becoming a discipline saver for the future and invest for the long term.

To retire with financial security and sense of confidence, most financial experts recommend a certain liquid asset level, a mostly paid-off mortgage, and multiple streams of income. Furthermore, they observe that:

Retirees are feeling increasingly confident about their ability to maintain a comfortable lifestyle without running out of money. And, that is the primary goal for retirement.
Retirees want a physically active, healthy and vibrant lifestyle.
Retirees want to be emotionally engaged and socially fulfilling lifestyle.

Find happiness in retirement

Finding happiness and contentment in retirement requires retiring with core pursuits and sense of purpose. What’s paramount to an happy retirement and life is having multiple activities/ projects / endeavors that you’re passionate about participating.

These are activities (projects or endeavors) that excite and fulfill; hobbies on steroids and things you look forward to. Examples are learning an instrument, learning a language, and enjoying golf, biking, yoga, walking, hiking. Wes Moss, a managing partner at Capital Investment Advisors in Atlanta and author of three personal-finance books and host of the Money Matters weekly radio call-in show, commissioned Georgia Tech University in Atlanta do a statistical analysis retirees’ activities and found that “happy retirees have 3.6 core pursuits. Unhappy retirees have 1.9 core pursuits”.

When you have a long life expectancy, you can spend the first sixty years working for you and your family, then the next forty years working for the greater good and contributing to make the world a better place. Working for the greater food gives you a sense of greater purpose. One in five Americans downright hate their jobs. Compare this to the results that show that three in five could “take it or leave it”.

The Happiness Retirees on the Block (HROB) create their happiness by engaging in a long series of core pursuits — activities, projects and endeavors — that make a difference in their lives. Your core pursuits can lead you to a more fulfilling future while adding life to your years. Core pursuits can lead to a more fulfilling future while adding happy life to your years.

Get going, Get growing, Continue learning

Sparse diet, taking the stairs and take on activities that feed their soul and focus on you and the greater good. Curiosity may have killed the cat, but a lack of curiosity is what kills the happy retiree.

Are 41 percent of retirees economically insecure? It's a figure that many news outlets have repeated. In @Forbes, @biggsag sheds light on the supposed "retirement crisis" and offers better approaches to evaluating retiree well-being: https://t.co/ZLw0x0q8hb

— AEI Economics (@AEIecon) April 23, 2020

References;

2021 Modern Wealth Survey | Charles Schwab

Posted on May 19, 2021 by admin

“The past year has of course caused Americans to focus on their health, in particular their mental health, along with the health of their relationships. But the pandemic and the significant impact it had on the economy and stock market also taught us a valuable, and in many cases difficult, lesson about the importance of financial health and preparedness, including the importance of having a plan and emergency savings.” Rob Williams, vice president of financial planning, Charles Schwab

A majority of Americans (60 percent) are feeling more optimistic about the state of the United States overall, including the economy, the stock market and their personal financial prospects, according to Schwab’s 2021 Modern Wealth Survey. And, more than half feel positive about the U.S. job market, economy and role as a global economic power.

Schwab’s 2021 Modern Wealth Survey is an annual examination of how 1,000 Americans think about saving, spending, investing and wealth. The online survey was conducted from February 1 to February 16, 2021, among a national sample of 1,000 Americans aged 21 to 75.

Recalibrating Priorities and Redefining Wealth

“More than half of Americans were financially impacted by COVID-19 in 2020”

According to Schwab’s survey, more than half of survey participants were financially impacted over the past year, whether the economic environment strained their finances (31 percent), they faced a salary cut or reduced hours (26 percent), or they were laid off or furloughed (20 percent).

In lieu of this recent reality, more than two-thirds (68 percent) of Americans have reprioritized what matters most to them, with 69 percent saying mental health is more important than it was before, followed closely by relationships (57 percent), financial health (54 percent) and physical health (39 percent).

Being financially comfortable

“Americans lowered the bar for what it takes to achieve “financial happiness” and to be “financially comfortable” in 2021”

When it comes to achieving financial peace of mind, Americans say you only need a net worth of $624,000 to be considered “financially comfortable.” That’s down significantly from the $934,000 net worth that Americans cited as the minimum needed for financial comfort last year, according to the Survey.

Additionally, the survey finds that Americans have also revised their perspective on what it takes to be wealthy. It takes $1.9M to be viewed as wealthy, more than double the national average, but down from 2020.

U.S. households had an average net worth of $748,800 prior to the pandemic, according to The Federal Reserve’s 2019 Survey of Consumer Finances. However, the median, or midpoint, net worth of all families was much lower, just $121,700 in 2019.

Some lessons learned or relearned from the pandemic include the importance of being financially prepared and being mindful (and more aware) of your financial, physical, mental and emotional health.

References:

Investing – How to Get Started

Posted on May 15, 2021 by admin

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” Robert Kiyosaki, Rich Dad Poor Dad

Investing, which involves putting your money to work, is a great first step toward building wealth for yourself and your family. If you think investing is gambling, you’re doing it wrong. The world of investing requires discipline, planning and patience. And, the gains you see over decades can be exciting. The three most common categories of investments, referred to as asset classes, include:

Stocks – which are a share in a company. These tend to be riskier investments, but also typically offer more potential for profit over time.
Bonds – which are a share of debt issued by a business or the government. These are safer investments, typically returning a lower profit than stocks over time.
Cash and cash equivalents – which are readily available cash and short-term investments like certificates of deposit (CDs). These are the safest investments, but typically return little profit over time.

Before you start investing, it is important for you to understand a few basic concepts and definitions, such as:

Risk Tolerance

Risk tolerance is basically your emotional ability to deal with losing money. If you invested $1,000 today, could you deal with it being worth $500 for a period of time? That’s possible if you invest heavily in stocks, which tend to increase in value over time but can be volatile from one day to the next. If you answered yes to being okay losing a great deal of money for a period of time, then you have a high risk tolerance.

Time Horizon

Time horizon is the amount of time before you want to use your money. If you’re planning to use the money to make a down payment on a home within the next three years, you have a short time horizon and would likely have less risk tolerance. If you’re not planning to use the money until you retire in 30 years, then you have a long time horizon and can afford to take on more risk.

Asset Allocation

Asset allocation is the percentage of stocks, bonds or cash you own. If you have a high risk tolerance and long time horizon, you’re likely to want a larger percentage of stocks because you’ll be able to weather ups and downs and make more money over the long term. On the other hand, if you have a low risk tolerance and short time horizon, you probably want more cash and bonds so that you don’t lose money right before you need it.

Stocks, bonds and cash tend to respond differently to market conditions (one may go up when the others go down). Asset allocation helps you spread your money so that when one asset class unexpectedly zigs, your whole portfolio doesn’t zig along with it. In this way, asset allocation can help ensure your portfolio is correctly positioned to help you reach your financial goals, no matter what is happening in the market.

Diversification

Diversification splits your investments among different groupings or sectors in order to reduce risk. That includes your asset allocation. But it also includes where you invest within asset classes. For instance, you might diversify between stocks in companies located within the United States and stocks in companies located in Asia.

Different sectors of the economy do better at different times. It’s tough to predict which one will do well in any given year. So when you diversify and own stocks across different sectors, you are positioned to make money on whatever sector is performing well at the time. A well-diversified portfolio can help lessen the impact of market ups and downs on your portfolio.

Rebalancing

If you’ve done a good job with asset allocation and diversifying, then the balance of your portfolio is likely going to get out of whack over time as one sector does better than another. For instance, let’s say you wanted 10 percent of your stocks to be companies in Asia. If companies in Asia have a great year, those companies may now make up 15 percent of your stocks. In that case you’ll want to sell some of those stocks and use that money to buy more stocks (or even bonds) in parts of your portfolio that didn’t do as well.

Rebalancing on a regular basis (once or twice a year, for example) can help ensure your portfolio remains aligned with your goals. And because it provides a disciplined approach to investing, portfolio rebalancing also may prevent you from buying or selling investments based on emotion.

Dollar Cost Averaging

Dollar cost averaging (DCA) involves putting your investment plan on autopilot. With DCA, you invest a set amount at set intervals (for example, $200 every month) in the market. By investing systematically, you’ll buy more shares of an investment when the market is lower, fewer when the market is higher, and some when the market is in between. Over time, this may help you to pay a lower average price for the total shares you purchase.

DCA takes the emotion out of investing, helping you to start on your investment plan sooner, rather than later. And once you begin, DCA can also help you remain focused on your goals, no matter what’s happening in the market. It helps make investing a habit.

Capital Gains

Capital gains is an increase in the value of an asset or investment over time. Capital gains is measured by the difference between the current value, or market value, of an asset or investment and its purchase price, or the value of the asset or investment at the time it was acquired {cost basis}.

Realized capital gains and losses occur when an asset is sold, which triggers a taxable event. Unrealized gains and losses, sometimes referred to as paper gains and losses, reflect an increase or decrease in an investment’s value but are not considered a capital gain that should be treated as a taxable event.

No alternative text description for this image

Fiscal Fact: The average white household had $402,000 in unrealized capital gains in 2019, compared with $94,000 for Black households and $130,000 for Hispanic or Latino households. These disparities have generally widened over time. Source: Tax Policy Center https://www.taxpolicycenter.org/fiscal-fact/unrealized-capital-gains-ff-05102021

Capital gains are classified as either short-term or long-term. Short-term capital gains, defined as gains realized in securities held for one year or less, are taxed as ordinary income based on the individual’s tax filing status and adjusted gross income. Long-term capital gains, defined as gains realized in securities held for more than one year, are usually taxed at a lower rate than regular income.

“If you want to become really wealthy, you must have your money work for you. The amount you get paid for your personal effort is relatively small compared with the amount you can earn by having your money make money.” John D. Rockefeller

Before you start investing or putting your money to work for your, do your homework and research. Once you’ve made a decision, make sure to re-evaluate the assets in your portfolio on a regular basis. A good asset today may not necessarily be a good asset in the future.

And, don’t panic during the inevitable setbacks and don’t be fearful during the inevitable stock market corrections that all long-term investors face. If the reasoning behind the investment decision was sound when purchased, stick with the assets, and they should eventually recover and grow.

References:

Financial Mindset

Posted on May 11, 2021 by admin

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

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

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

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

— Heena Thaker (@heenaIWC) May 10, 2021

Financial Mindset

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

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

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

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

Other examples of beliefs about money and personal finance include:

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

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

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

1. Using debt to reach your dreams.

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

2. Thinking you do not need an emergency fund.

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

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

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

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

4. Delaying your retirement savings.

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

5. Failing to have a backup plan.

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

Takeaway

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

References:

The Man in the Arena — Daring Greatly

Quote

Posted on May 10, 2021 by admin

On April 23, 1910, Theodore Roosevelt gave what would become one of the most widely quoted speeches of his career. In Paris at the Sorbonne, Roosevelt delivered a speech called “Citizenship in a Republic,” which would come to be known as “The Man in the Arena.”

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

Theodore Roosevelt, Twenty-Sixth POTUS

I have quoted Theodore Roosevelt’s “Man in the Arena” speech since I saw it painted on our weight room wall at UM in 1995. It’s a constant reminder to ignore the noise, buckle my chinstrap, and battle through whatever comes my way.

Coming 2021 on @espn! pic.twitter.com/nm9SdFYB7D

— Tom Brady (@TomBrady) May 21, 2020

110 years ago today, at the Sorbonne in Paris, Theodore Roosevelt gave what would become one of his most quoted speeches: "Citizenship in a Republic," a.k.a. "The Man in the Arena." https://t.co/WbFkduu0vC

— History Photographed (@HistoryInPics) April 24, 2020

References:

https://www.mentalfloss.com/article/63389/roosevelts-man-arena

Understanding the Emotions of Investing | Edward Jones

Posted on May 3, 2021 by admin

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch

No one can control the economy, the stock market or exactly know how an investment will perform in the short term. And that lack of control and certainly can lead to making poor (and many times, emotional) investing decisions – like chasing performance, not diversifying, or trying to time the market by moving into and out of the market (often at the wrong time).

While these reactions can be triggered by a desire to avoid risks (defined for our purposes as loss of capital), the results of these behaviors can pose the greatest risk of all — not reaching your long-term goals. In fact, the biggest risk may not be market fluctuations themselves; it’s our emotional reaction to these fluctuations and market volatility. That’s why it’s so important to have a financial advisor in your corner, helping you stay committed to your long term investment strategy.

Here are some common emotional investing behaviors that may derail your journey to reaching your long-term financial goals. By understanding the pitfalls of these behaviors, you can prevent making these investing mistakes in the future.

1. Heading to (or staying on) the sidelines

We’ve all seen the headlines: the economy’s slow recovery, the government’s budget deficit, market volatility. Prompted by what they perceive as bad news, some investors may try to “time the market” or sell investments just because of what they hear in the news – to move to the sidelines (and perceived safety) and wait until things get better. But it’s nearly impossible to correctly ‘time’ the market (predict when to get out and even more difficult to decide when to get back in), which often results in missing the best days – thereby severely affecting your performance And often, waiting until things get better means selling when prices are down and then buying back in when prices are higher – not a recipe for long-term success.

Other investors hold in too much cash because they want to avoid market risk. But not investing could actually increase your risk because you may not have enough growth in your portfolio to meet your short and long term financial goals or offset inflation (and loss of purchasing power).

2. Stay in the game and stay invested

Keep your focus on your long-term financial goals rather than on the ever-changing headlines, which could focus too much on the negative for dramatic effect.

If you begin to feel overwhelmed, talk with your financial advisor about your attitude toward risk and observe how you react to specific events. That way, you can work together to refine your goals and investment strategy, if needed.

3. Chasing performance

When the media raves about the latest “hot” investment or highlights “dramatic” declines in the market, some investors are tempted to chase the winners and sell the losers. This type of emotional response could be a recipe for underperformance because it results in buying high and selling low – not the recipe for a successful investment strategy.

4. Stay diversified

Having a diversified set of investments is more important than trying to find the next “hot” investment. When you have a portfolio made up of a variety of quality asset classes and investment types, success isn’t tied to one company or one type of investment. While diversification cannot guarantee a profit or protect against loss, it can help smooth out the ups and downs of the markets, providing the potential for a better long-term experience.

Financial experts recommend reviewing your portfolio with your financial advisor at least once a year to ensure it’s adequately diversified. Your financial advisor can also help you decide if a recent major lifestyle or goal change warrants a change to your strategy.

5. Focusing on the short term

Day-to-day fluctuations in an investment’s value may tempt some investors away from their long-term strategy. For example, some investors sold out in 2008 because their portfolio had fallen from an all-time high, even though their performance may still have been on track to meet their goals and well above where they initially started.

Decisions can also be influenced by how a situation is presented.

Take this example: “The Dow plummets 150 points” OR “the Dow declines 1%.” Both could describe the same situation, but the first sounds much worse. It’s these short-term movements, and how they’re presented by the financial entertainment media, that could lead you to make emotional short-term decisions.

6. Setting realistic expectations

Realizing that market declines, while unpleasant, are normal will help you set your own realistic expectations for investment performance. After all, the stock market averages one 10% correction every year, and over a 25-year retirement, you could experience an average of six to seven bear markets.

It’s important to measure performance as progress toward your long-term goals, not in day-to-day fluctuations. Your financial advisor can help you answer the question, “How am I doing?” and help provide the discipline you’ll need to stick with your long-term strategy and ignore short-term distractions.

Source: https://www.edwardjones.com/preparing-for-your-future/financial-education-resources/investing-emotions.html

Give Every Dollar a Job

Posted on April 28, 2021 by admin

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

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

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

Become the boss of your paycheck and cash

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

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

Give Every Dollar a Name

Intentional Mindset

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

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

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

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

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

References:

Our mission is to educate and empower you with financial knowledge and skills, so you can ultimately apply to your life, create financial security, and build wealth for retirement.

Let This be the Best Year Ever by Ann Landers

Posted on April 27, 2021 by admin

“Let this coming year be better than all the others. Vow to do some of the things you’ve always wanted to do but couldn’t find the time.” Ann Landers

Ann Landers dispensed advice to millions of Americans on everything from parental difficulties to marital relationships. Landers was one of the world’s most widely read advice columnist.

For 46 years, she offered compassionate and blunt counsel to spouses, singles in relationships and teenagers. Her columns chronicled the nation’s attitudes, preoccupations and worries for millions readers.

Her most enduring and endearing column is…”Let this coming year be better than all the others. Vow to do some of the things you’ve always wanted to do but couldn’t find the time.

Call up a forgotten friend. Drop an old grudge, and replace it with some pleasant memories.
Share a funny story with someone whose spirits are dragging. A good laugh can be very good medicine.
Vow not to make a promise you don’t think you can keep.
Pay a debt.
Give a soft answer.
Free yourself of envy and malice.
Encourage some youth to do his or her best. Share your experience, and offer support. Young people need role models.
Make a genuine effort to stay in closer touch with family and good friends.
Resolve to stop magnifying small problems and shooting from the lip. Words that you have to eat can be hard to digest.
Find the time to be kind and thoughtful. All of us have the same allotment: 24 hours a day. Give a compliment. It might give someone a badly needed lift.
Think things through. Forgive an injustice. Listen more. Be kind.
Apologize when you realize you are wrong. An apology never diminishes a person. It elevates him.
Don’t blow your own horn. If you’ve done something praiseworthy, someone win notice eventually.
Try to understand a point of view that is different from your own. Few things are 100 percent one way or another.
Examine the demands you make on others.
Lighten up. When you feel like blowing your top, ask yourself, “Will it matter a week from today?”
Laugh the loudest when the joke is on you.
The sure way to have a friend is to be one. We are all connected by our humanity, and we need each other.
Avoid malcontents and pessimists. They drag you down and contribute nothing.
Don’t discourage a beginner from trying something risky. Nothing ventured means nothing gained. Be optimistic. The can-do spirit is the fuel that makes things go.
Go to war against animosity and complacency.
Express your gratitude. Give credit when it’s due—and even when it isn’t. It will make you look good.
Read something uplifting. Deep-six the trash. You wouldn’t eat garbage—why put it in your head?
Don’t abandon your old-fashioned principles. They never go out of style.
When courage is needed, ask yourself, “If not me, who? If not now, when?”
Take better care of yourself. Remember, you’re all you’ve got. Pass up that second helping. You really don’t need it. Vow to eat more sensibly. You’ll feel better and look better, too.
Don’t put up with secondhand smoke. Nobody has the right to pollute your air or give you cancer. If someone says, “This is a free country,” remind him or her that the country may be free, but no person is free if he has a habit he can’t control.
Return those books you borrowed. Reschedule that missed dental appointment. Clean out your closet. Take those photos out of the drawer and put them in an album. If you see litter on the sidewalk, pick it up instead of walking over it.
Give yourself a reality check. Phoniness is transparent, and it is tiresome. Take pleasure in the beauty and the wonders of nature. A flower is God’s miracle.
Walk tall, and smile more. You’ll look 10 years younger.
Don’t be afraid to say, “I love you.” Say it again. They are the sweetest words in the world.
If you have love in your life, consider yourself blessed, and vow to make this the best year ever.”

References:

From Gratitude to Greatness: Brownlee Global's Path to a Purposeful Life

Guide and Educate Individuals How to Build Long-Term Wealth, Better Manage Their Money, and Achieve Financial Freedom

Category Archives: Mindset

Inflationary Pressures are a Real and Present Concern

Like this:

Money and Happiness

Like this:

Retiree Emotional Well-being

Like this:

2021 Modern Wealth Survey | Charles Schwab

Like this:

Investing – How to Get Started

Like this:

Financial Mindset

Like this:

The Man in the Arena — Daring Greatly

Quote

Like this:

Understanding the Emotions of Investing | Edward Jones

Like this:

Give Every Dollar a Job

Become the boss of your paycheck and cash

Like this:

Let This be the Best Year Ever by Ann Landers

Like this: