Financial Cheat Sheet

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Major Definite Purpose

Posted on May 27, 2022 by admin

It is said widely that ninety-five percent of the people of the world drift through life aimlessly without definite purposes for their lives.

Psychological reason for having a definite purpose in life implies that one’s actions are determined by the thoughts of one’s mind. Therefore, if you deliberately hold your definite purpose in your mind with the expectation of it realization, this will permeate your subconscious mind to the point where it will automatically influence the actions needed to achieve your definite purpose.

Once you determine your definite purpose, make sure that it is well-defined. You must write it down and place it where you can see it as soon as you open your eyes in the morning and the last thing that you see before you close your eyes at night.

An excerpt from Brian Tracy’s “Goals”

Your major definite purpose can be defined as the one goal that is most important to you at the moment. It is usually the one goal that will help you to achieve more of your other goals than anything else you can accomplish. It must have the following characteristics:

It must be something that you really want. Your desire for this goal must be so intense that the very idea of achieving your major purpose excites you and makes you happy.
It must be clear and specific. You must be able to define it in words. You must be able to write it down with such clarify that a child could read it and know exactly what it is that you want and be able to determine whether or not you have achieved it.
It must be measurable and quantifiable. Rather than “I want to make a lot of money,” it must be more like “I will earn $100,000 per year by (a specific date).”
It must be both believable and achievable. Your major definite purpose cannot be so big or so ridiculous that it is completely unattainable.
Your major definite purpose should have a reasonable probability of success, perhaps fifty-fifty when you begin. Set huge, audacious goals, and you will still be motivated to take the steps necessary to achieve them. But in the beginning, set goals that are believable and achievable and that have a high probability of success so that you can be assured of winning right from the start.
Your major definite purpose must be in harmony with your other goals. You cannot want to be financially successful in your career on the one hand and play golf most of the time on the other. Your major definite purpose must be in harmony with your minor goals and congruent with your values.

“Decide now what you desire from life and what you have to give in return.”

To achieve success, you have know exactly what you want and what you are willing to give-up in return….success is a two-way street.

References:

https://www.achieve-goal-setting-success.com/definite-purpose.html

Wealth Building and Dividends

Posted on February 22, 2022 by admin

“Systems are the vehicles that are going to take you to your goals—your goals are simply the destination.” James Clear

“We don’t rise to the level of our goals; we fall to the level of our systems. Don’t share with me your goals; share with me your systems.” James Clear

Are you prepared for your financial future and to build wealth? There are many benefits of investing for the long term and to building wealth. Here is a simple and straightforward checklist to get started:.

Start early!
Investing starts with a plan
Investment plan starts with defining and identifying your financial goals.
Create a savings and investment plan based on your goals.
Two primary goals must be creating an emergency fund and building wealth for retirement
Develop good financial habits
Pay off high-interest debt first.
Participate in your company’s 401(k) plan and max out any employer match.
Understand your risk tolerance.
Understand investment fees and their impact on returns.
Research all investments thoroughly.
Check your investments regularly and maintain a diversified portfolio.
Avoid investment opportunities that sound too good to be true.

40% of stock market returns come from dividends

It’s interesting that most investors don’t know how powerful stocks that pay dividends are. Dividend stocks are stocks of companies which pay out a portion of their earnings to the shareholder in the form of dividends. Between January 1926 and December 2004, 41% of the S&P 500’s total return owed not to the price appreciation of the stocks in the index, but to the dividends its companies paid out.

An additional benefit is that, under the current tax laws, qualified dividends are taxed at lower rate instead of your standard income bracket rate which translates into more money in your pocket.

Investors know that the best dividend stocks aren’t those with a high yield, but rather are quality businesses that can grow over time and pass along profits to shareholders through the dividend, by repurchasing shares and reinvesting in the business.

Bottomline is that dividend-paying stocks have outperformed in the past and that they have a good chance of doing so in the future. The secret is to reinvest those dividends, and put the power of compounding to work in your portfolio.

To build wealth, investors need to account for a range of significant, real-world challenges, including:

Longevity
Inflation and rising costs
Fixed income vs. equity valuations
Low yields

With tens of billions of dollars trading hands every day on the New York Stock Exchange alone, it’s easy to lose sight that when purchasing a stock investors are effectively purchasing ownership interest in a business. Assume for a moment that you don’t get a quote every day for your shares in that business and that you can’t sell your ownership interest for several decades. Your focus would likely shift from price to value.

And the value of that business, whether publicly traded or privately held, is the present value of all future cash flows. After all, what is the point in owning a business – or any investment – if you’re never going to receive any cash from it? When a company generates positive free cash flow, it has several options; the company can hold cash in reserve, fund organic growth, make acquisitions, pay down debt, or return it to shareholders through dividends or stock buybacks.

Using dividends to pay your expenses and allow you to reinvest to get more income. You can achieve this by investing in excellent dividend-paying securities now and letting those dividends reinvest as you work towards your retirement.

References:

Fintech (Financial Technology) Investing

Posted on November 26, 2021 by admin

“Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese.” Chris Skinner

The integration of technology with financial services is today’s new and present reality. These technologies not only improve the efficiency and productivity of financial services but also enhance the customer experience.

Fintech is a hybrid industry of two nearly opposing parts—finance and technology
Fintech’s disruptions may transform not only the way we transact money but the definition of money itself
Financial technology is a rapidly growing industry.

We’re on the precipice of a major evolution in the domestic and global financial services industry. How we send, receive, store, spend, and invest money may undergo a few radical changes.

Fintech—“financial technology”—is an emerging hybrid industry that brings together legacy financial services and technological innovation. With this combination, the Fintech industry is likely to compete with and disrupt traditional financial services, especially banking.

Financial technology is the driving force behind the rapid digitization of the world. Fusing the concept of financial services with new technology, fintech companies aim to improve traditional methods of moving money around by offering lower costs, time efficiency and improved access for businesses and consumers to manage their finances.

The term fintech can describe many processes, such as online money transfers, mobile payments, loan management, or investments, all done digitally without the need for intermediary.

There are countless examples of how Fintech is reshaping the world of money, commerce and financial services, but they all fall into three primary categories:

New tech (such as apps) that allow for monetary transactions online,
Digital money which is a blockchain technology-based alternative to cash and
The Internet of things (IoT)-enabled credit and loan services (which are replacing and digitizing traditional banking services).

Naturally, fintech is often described as a disruptor of the finance world. The financial services once recognized as the domains of banks, brokerage houses and desktop computers are now available on mobile phones.

It’s one thing to invest in a financial asset for the long term. It’s another thing to invest in the very source and infrastructure that may give all financial assets their substance, mobility, and meaning.

Fintech’s growth is driven by three primary factors:

Cryptocurrencies: Fintech’s fortunes are closely connected to the skyrocketing popularity of cryptocurrencies, such as bitcoin, and blockchain technologies that provide a safe, decentralized platform for them.
Mobile devices: Smartphones, tablets and laptops are used for nearly everything these days, and it’s almost hard to imagine how we lived without them. None of these devices would have been able to thrive without the rise of mobile apps and related technology.
Millennials: This generation is the most tech-savvy in U.S. history. Millennials are the first people to grow up with the internet and smartphones, and they’re on track to become the biggest wage earners, buyers and money managers since baby boomers.

To invest in this rapidly evolving industry, you might consider paying attention to all the moving parts that feed into the engines of financial progress and disruption. In a way, the current areas of only scratch the proverbial surface of Fintech’s potential.

Planning and Achieving Financial Freedom

Posted on November 16, 2021 by admin

Financial freedom can be an elusive—and hard-to-define—goal.

Financial freedom is often said to be in the eye of the beholder. To some it may mean freedom of debt and being able to fund your lifestyle with your cash flow; to others it may mean early retirement on a Caribbean island. Whatever your financial goals or definition of financial freedom, there are ways and things you can learn to help you get your financial house in order.

Once you’ve decided that financial freedom is one of your top goals, you can start taking steps to achieve it. Thus, the first step toward achieving financial freedom is to define exactly what it means for you. You can’t generally achieve something that you haven’t defined. So, once you’ve defined what financial freedom means to you, you can start taking steps toward your goals.

“What then is freedom? The power to live as one wishes.” Marcus Tullius Cicero

Just because you have money does not mean you have financial freedom. There have been numerous people, especially professional athletes and entertainers, who have earned millions of dollars and subsequently lost it all through reckless spending and debilitating debt. Thus, even if you have a lot of money, if you don’t know how to manage and make your money work for you, it will more than likely disappear.

Financial freedom typically means having enough savings, financial assets, and cash on hand to afford the kind of life you desire for yourself and your families. It means growing savings and investments to a level that enables you to retire or pursue the career you want without being driven to earn a wage or salary each year. Financial freedom means your money and assets are working hard for you rather than the other way around…you’re working hard for your money.

In other words, financial freedom is about much more than just having money. It’s the freedom to be who you really are and do what you really want in life. It’s about following your passion, making choices that aren’t influenced by your bank account, net worth or cash flow, and living life on your terms.

Track your expenses

It’s difficult to know how to save money if you don’t have a good idea of where your money is going. Carefully track your spending habits for a typical month. Doing this will help you to become more conscious of your discretionary expenditures. It will also reinforce what expenses are essential and remind you to plan for unexpected expenditures, like medical emergencies and car repairs. Therefore, it is vital to understand and to know where your money is going.

Make a budget

Once you’ve taken inventory of your expenses, next step is to create a budget. While budgeting can sound like a cumbersome task, you may want to start by using a budgeting calculator to get a feel for how you are currently spending your money and how you’d like to change your spending.

One popular budgeting method is the 50/30/20 rule. The 50/30/20 rule is a way to divide your post-tax income based on your needs, wants and savings. The rule states that people should spend 50% of their income on their needs. This includes health insurance, housing, transportation, and groceries. Then, the guideline states that people should spend 30% of their income on wants or non-necessities such as entertainment, travel, and more. Finally, the last 20% of a person’s income should be saved or invested. This might include retirement savings and building a stock portfolio.

Once you have created a budget, don’t put it in a drawer and forget about it. Instead, make it a working and living document that you check and refer to often. Spend a half-hour per month reviewing how your actual expenses match your budget and make adjustments as necessary.

Automate your savings

Automating your savings and investing is one of the easiest steps you can take to ensure that you are on the path to financial freedom. You can set automated contributions to your employer-sponsored investments, including your 401(k) contributions and employee stock options.

When your savings and investing are automated, your money will continue to grow without you having to think about it. This will help you to reach your financial goals easily and quickly.

Have some percentage (10% to 20%) of your paycheck automatically deposited into a separate account—whether it’s a savings account, a 401(k) or an IRA. Money that isn’t easily accessible is not easily spent.

Unfortunately, many Americans are not saving enough to maintain their current standard of living during their retirement years. It was found that about 21% of Americans have nothing saved for retirement, according to the Northwestern Mutual’s 2018 Planning & Progress Study.

Start investing early

Follow the adage, the best time to start investing was twenty years ago; the second best time is today. You should start investing in a tax deferred account, preferably with your employer matching a portion or all of your contribution.

Planning for retirement is a marathon and not a sprint. Even if you are starting small, the most important thing is to get started. Therefore, it will likely take decades to reach your goal. Therefore, it is important to remember why you want to achieve financial freedom. Keeping your purpose, goals and the bigger picture in mind will help you navigate the day-to-day financial decisions.

Once you become financially free, you have more choices of how to live your life and spend your days.

When you decide that you want to start working toward financial freedom, it is important to remember that you will not become financially free overnight. However, according to certified financial planner David Rae, in a 2018 article in Forbes magazine, there are eight hierarchies of financial freedom that you can work towards:

Level 1: Not Living Paycheck to Paycheck – The first level of financial freedom is building up an emergency fund and paying off any credit card debt. Unfortunately, living paycheck to paycheck is the reality of millions of Americans. According to the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2017, some 40% of households could not cover a $400 unexpected expense.
Level 2: Enough Money to take a sabbatical from your work – Accumulating enough money to be able to take a break away from work can be rewarding. This does not mean you have to quit your job, but it sure is a good feeling to know you can.
Level 3: Enough to be Financially Happy and still Save – it’s about enjoying your life and having the money to do it. There can be peace when you are earning enough to save, doing the things you enjoy and still having extra at the end of the month.
Level 4: Freedom of Time – Many people desire more flexibility with their schedules. Freedom of time and financial independence go hand in hand. Together, they are about following your passion, or spending more time with family, and not going completely broke doing it.
Level 5: Enough for a Basic Retirement – Think about what your bare minimum retirement would look like. By knowing your bare minimum retirement, and knowing that you have enough money saved to at least cover some standard of living in your retirement, will also influence other life choices you may make along the way.
Level 6: Enough to Actually Retire Well – Knowing you are on track to accumulate a nest egg to support that lifestyle is a big win. Well done to those who have accumulated enough assets, or passive income streams, to be in a position to retire well.
Level 7: Enough for Dream Retirement – It would feel great knowing that you are on track to have enough money to retire and be able to live your dream life. What is stopping you from getting there.
Level 8: More Money Than You Could Ever Spend – Having more money than you expected to spend is great. Building enough wealth so that you could not possibly spend all of it is another.

Bottomline is that if you want to be financially free, if you want to be able to live the lifestyle of your choosing while responsibly managing your finances, you need to become a different person than you are today and let go of the financial mindset that has created your current financial predicament and has held you back in the past.

Attaining financial freedom, which means having enough savings, investments and cash flow to live as you desire, both now and in your later years, requires a continuous process of growth, learning and emotional strength. In other words, whatever has held you back and provided you comfort in the past or kept you less than who you really are will have to be replaced. You will have to become comfortable for awhile being uncomfortable. And in return, the financially empowered, purposeful, and successful you will emerge — like a butterfly shedding its cocoon.

References:

Financial Literacy – 7 Principles of Money Management

Posted on June 5, 2021 by admin

“If you don’t know where you are going, any road will get you there.” Lewis Carroll

Mastering personal finance requires more than a strategy of hope and ‘wishing for the best’—you have to look at your current financial situation holistically and come up with a financial plan for how to manage your money and how to achieve your goals. There are seven personal finance principles that are important for achieving financial success: mindset, budgeting, saving, debt, taxes, insurance, and investing for retirement.

1. Mindset – According to Stanford psychologist Carol Dweck, your mindset plays a pivotal role in what you want and whether you achieve it. Your mindset is a set of beliefs that shape how you make sense of the world and yourself; and, people are capable of changing their mindsets. Mindset influences how you think, feel, and behave in any given situation. And, the first step on the path to financial success is believing you can change your financial circumstances, being accountable, and accepting responsibility for your current reality and financial future. You must embrace that you are in control of your financial future, and every choice you make and action you take can have an impact.

2. Budgeting, Financial Planning and Goal Setting – Budgeting helps you better understand how you spend your money and shows you ways to manage your money, pay off debts and save for future financial goals. Budgeting helps you better understand how you spend your money and shows you ways to manage your money, pay off debts and save for future financial goals. Whether you’re new to budgeting or you’ve tried it before and failed, understanding which steps to follow makes budgeting for beginners simpler.

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

Figuring out how to budget can be challenging. Avoiding these three common budgeting pitfalls:

Getting overwhelmed,
Having unrealistic expectations, and
Being too strict

Financial planning involves implementing strategies that help you reach your financial goals, be they short-term or long-term. The path to financial success involves planning. It is impossible to effectively manage your finances if you don’t know how much money you have available to spend or have a plan on how you want to spend, invest, and save. You need to create a road map by defining your financial goals.

“The great majority of people are “wandering generalities” rather than “meaningful specifics”. The fact is that you can’t hit a target that you can’t see. If you don’t know where you are going, you will probably end up somewhere else. You have to have goals.” Zig Ziglar

Three essential keys to setting financial goals:

Be specific – define what you want to achieve and when. Goals can be short term (a few days, months, or a year) and long term (five, 10, or 15 years).
Be realistic – make certain your goals are attainable. Setting unattainable goals will only lead to disappointment when they are not achieved.
Write them down – keep records of your goals and mark off key milestones as you achieve them. Refer to this information from time to time. Writing down goals, reviewing them, and recording your progress can motivate you.

3. Credit and Debt – Understanding the way compound interest works is key to building wealth or avoiding crushing debt. Compound interest can work to your advantage as your investments grow over time, but against you if you’re paying off debt, like credit cards. Thus, make that compound interest work for you instead of against you.

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” Albert Einstein

Compounding interest can be a powerful tool to have in your financial arsenal. It can be very beneficial in building wealth and in creating large sums of money over time if invested correctly. But unfortunately, there is a darker side to compounding interest – compounding debt.

Debt is rampant across the United States. According to the New York Federal Reserve, consumer debt was approaching $14-trillion in the third quarter of 2018. This includes mortgages ($9.14-trillion), auto loans ($1.65-trillion), student loans ($1.44-trillion), and credit card loans ($829-billion). The thing about debt is that it eventually has to be paid. There is no such thing, economists like us tend to remind too often, as a free lunch.

Compound interest means reinvesting earned interest back into the principal of an investment Although investment returns aren’t guaranteed, compound interest can potentially help your investments grow exponentially over time.

If you don’t have credit already, start building it now! Many lenders consider not having credit just as bad as having bad credit. Many people in their 30s who have no credit think they have perfect credit because they’ve never had delinquent payments. They can’t have great credit, since they have no credit at all. Many people who are afraid of credit don’t actually understand credit. They may have a credit card, but never use it. Because they never use it, there is no history to report to the credit bureaus. In this case, they might as well not have the card at all, since creditors have no way of determining their credit trustworthiness.

4. Taxes – Being tax efficient with investments allows more money to be reinvested into a portfolio to grow over time. There are ways investments can be taxed and strategies for potentially minimizing tax burdens. Tax planning and financial planning are closely linked, because taxes are such a large expense item as you go through life. If you become financially successful, taxes will become your single biggest expense over the long haul. So planning to reduce taxes is a critically important piece of the overall financial planning process.

5. Saving and Emergency Funds – An emergency fund is 3-6 months of expenses set aside in the event of a job loss, car problems, a medical emergency, or other unexpected financial situations. An emergency fund should be kept in a liquid bank account like a savings account that is easy to access in the event of a financial emergency. An emergency fund is just one type of savings account that is “earmarked” or reserved for financial emergencies. Ensure your emergency fund is only used during financial emergencies so it can help you survive if you lose you source of income or your paycheck stops coming in.

6. Insurance and Risk Management – No one really wants to think about life insurance. But if someone depends on you financially, it’s a topic you can’t avoid. Getting life insurance doesn’t have to be hard (or boring). We have some answers to common questions about life insurance so that you can make informed decisions about protecting your loved ones financially. Have you ever wondered on your family would manage if something happens to you? Life insurance is important for protecting your loved ones if something happens to you.

7. Investing for Retirement – It should not be intimidating to start investing. There are five simple rules for building a long-term portfolio:

Contribute early and often
Minimize fees and taxes
Diversify your portfolio
Consider how much time you have
Focus on long-term goals

https://youtu.be/vl2sasYSY4E

Financial Independence, Retire Early (F.I.R.E.) —is a growing movement of people who want to break free from relying on a job for income. Research has found several money management habits of financially independent people that can help you make the most of your money regardless of your financial goals.

https://youtu.be/7zf7zob1Xdc

References:

Goals

Posted on May 12, 2021 by admin

“Most people don’t know what they want.” Jim Rohn

You can’t ask for what you want unless you know what it is you want, according to Mark Victor Hansen, co-author for the Chicken Soup for the Soul. And, the first step to creating a goal is to figure out what you want. If you don’t know what you want, you don’t know what you need to achieve to get there.

Creating a list of financial goals is necessary for managing money and financial success. When you have a clear picture of what you’re aiming for, working towards your target is easy. That means that your goals should be measurable, specific and time oriented.

There are several types and timeframes of financial goals:

Short term financial goals – These are smaller financial targets that can be reached within a year. This includes things like a new television, computer, or family vacation.
Mid-term financial goals – Typically take about five years to achieve. A little more expensive than an everyday goal, they are still achievable with discipline and hard work. Paying off a credit card balance, a loan or saving for a down payment on a car are all mid-term goals.
Long-term financial goals – This type of goal usually takes much more than 5 years to achieve. Some examples of long term goals are saving for a college education or a new home.

The concept of setting “goals” can be intimidating to many individuals. It can feel so overbearing that it keeps people from even beginning the process settling goals.

Instead, a better way is to think of goals as a to-do list with deadlines and for the rest of your life. Goals can be added, subtracted and, most important, scratched off the list as you move through your life.

The major reason for setting a goal is for what it makes you do to accomplish the goal. This will always be a far greater value than what you get. That is why goals are so powerful—they are part of the fabric that makes up our lives.

“Research says that merely writing your goals down makes you 42% more likely to achieve them.”

Goal setting provides focus, provides a deadline and measurement for your dreams, and gives you the ability to hone in on the exact actions you need to take in order to get everything in life you desire.

Goals are exciting because they provide focus and aim for your life. Goals cause you to stretch and grow in ways you never have before. In order to reach your goals, you must most do thing differently, you must become better; you must change and grow.

A powerful goal has components:

It must be inspiring.
It must be believable.
It must have written targets and you must measure progress against those targets.
It must be one you can act on.

When your goals inspire you, when you believe and act on them, you will accomplish them.

Achieving financial goals takes a little more than just luck.

It requires extreme discipline, dedication, and repeated sacrifice. It means setting short- and long-term financial goals and then following through on them. Unfortunately, these are things with which the majority of Americans seem to struggle.

Research, however, suggests that simply writing out a list of financial goals makes a person 42% more likely to achieve them, according to a study done by Gail Matthews at Dominican University.

#goals #dreams #success #mindset #mondaymotivation pic.twitter.com/VDIPqBmyGN

— Mark Victor Hansen (@MarkVHansen) May 10, 2021

It is widely known and accepted that if you want to achieve something, you had better set a goal.

However, very few Americans actually do or even know how to set financial goals. According to Schwab’s Modern Wealth Index, only 25% of people have some sort of written plan or goals. What’s worse, the Financial Health Network finds that only 29% of Americans are financially healthy.

Don’t wait for financial success to come knocking. Achieving your goal like affording a house, paying college tuition, or ultimately funding retirement, will most likely be on you.

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:

Financial Planning 12 Step Process

Posted on April 15, 2021 by admin

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

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

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

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

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

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

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

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

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

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

— #BangsaEnamAngka (@FinancialGory) March 29, 2021

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

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

Financial planning is about three key things:

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

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

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

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

12 Steps to a DIY Financial Plan

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

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

Never give up…correct and continue.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Additionally, take into account factors such as the following:

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

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

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

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

References:

Financial Wellness

Aside

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

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

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

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

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Financial wellness

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

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

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

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

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

References:

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

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