finances

Summer is coming…and we need to talk about money.

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We are so close to a glorious summer break, I can almost taste it (yay!). Kids will be home, teachers will be off, and the sun will be out. Summer’s arrival also means many teens, grads, and college students will be starting up their summer jobs. Whether they’re nannying, mowing lawns, spinning pies at the local pizza joint, job shadowing a journeyman electrician, or interning at a law firm, the goal is to gain real life job experience, and of course, make whatever money they can before school starts up again in the fall.

This brings us to an important point. When we think about summer, we usually think about sunscreen, vacations, beach trips, and barbecues. But there’s something we are missing, and it’s… money. Have you equipped your teen with the financial know-how they need to succeed in the real world (and avoid major financial pit falls)? Many parents assume their kids are learning personal finance at high school (or college), but unfortunately, many schools assume the students are learning it at home! It’s a crucial topic that all too often falls through the cracks. And, guess who loses?

As your teen embarks on his/her summer job, you can use this newsletter as a launch pad to build their financial literacy. It’s the perfect time! The principles of wise financial management aren’t that tough to master. You simply need to know the basics and abide by the disciplines and key principles. It pays to emphasize the importance of financial literacy since the stakes are so high. So, a helpful starting approach is to teach them to avoid these eight most common financial mistakes:

  1. failure to set goals and plan/save for major purchases (instead, many load their credit cards with debt, making their items that much more expensive)
  2. failure to set aside an emergency fund for unforeseen expenses (which can lead to panic, more debt, or asking parents to bail them out)
  3. spending more than you earn and failing to budget and monitor expenses (out of all of them, this is probably a top learning priority)
  4. incurring too much debt, including student loans and excessive credit card usage (this can be a slippery slope, and can make buying a new car or home one day very difficult/nearly impossible/far more expensive)
  5. incurring significant fixed expenses relative to your income that can’t be reduced in difficult economic times (e.g., spending too much on housing, cars, etc.)
  6. impulse buying and lack of value consciousness when shopping (make, and stick to, your shopping list beforehand! Last-minute, unnecessary purchases do not bode well for your finances.)
  7. failure to begin saving and investing for the future as soon as possible (and missing out on the compounding of money over long periods of time)
  8. failure to appreciate how the little things can add up (e.g., eating out versus in, paying up for name brands, owning a dog or cat)

Number 6 is an especially common pitfall among young people when working a summer job. They aren’t used to having a surplus of money in their checking account, so they go on spending sprees and end up saving much less than they could. A good rule to learn, especially at this time of life, is save first, spend on “needs” second, and IF there is money left over, enjoy some “wants.”

These financial pitfalls don’t just apply to teens and young people working their summer job…they apply to everyone! If you are a parent or a teacher, you, too, should review how you’re doing in each of these areas. Are you sticking to your budget? Taking on too much debt? Saving less than you could be? When you practice these same financial best practices, you’ll be even better equipped to talk about financial wellness with the young people in your life.  Remember, they’re watching you, so be sure to “walk the talk!” If we can successfully avoid these traps, we’ll ALL be in better financial shape!
Now get out there, get to working, and get to saving! The world (and your bank account) is your oyster.

Oh, and have an amazing summer, too!

 

Forget “Get Rich Quick.” Grow Your Wealth PATIENTLY.

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Promises of getting rich quick are more rampant than ever these days and especially during rising markets. Any of us with a Facebook account probably see at least a dozen invitations a week to some sort of multi-level marketing company that will get you wealthy in no time (“from the comfort of your own cell phone!”). The implication with any sort of “get rich quick” promise or advertisement is that, with little effort or investment, you can become wealthy overnight.

 

Not so fast. That’s just not how it works!

 

In life, patience is a virtue. In building wealth, it’s an absolute necessity! It means starting early so time is on your side, investing as much as you can so you have more money working for you, and adopting a globally diversified, long-term strategy so you avoid the pitfalls of market timing. Most studies show that the average investor loses about 2 percent per year to lousy timing decisions, by buying high and selling low! That’s a wealth destroyer you’ll want to avoid.

 

Bear in mind that a key component in the investment process is TIME, and that’s why I tell people you can never be too young to start! Inexperienced investors often succumb to “get rich quick” schemes and hot stock tips. They buy at the top, after the big gains have already occurred and just before the stock plunges. However, just because a stock or a mutual fund had a great run last year doesn’t mean it will have a repeat performance again this year. In fact, often last year’s biggest winners become this year’s biggest losers because they became overpriced.

 

Here are some smart tips for investing wisely and growing your wealth patiently. If you’re entirely new to the concept of investing, the stock market, and growing your wealth, I’ll give you some straight forward facts so you can understand the basics:

 

  • Regularly invest in a diversified, long-term strategy rather than chase yesterday’s winners or engage in market timing. Begin by establishing an automatic monthly investment program as soon as you receive your first paycheck (even if you’re still in college if you can!). Many large mutual fund companies offer global balanced funds at relatively low fees and minimums. They can arrange for monthly investments from your bank account so it’s a user friendly process.
  • Resist taking more risk after strong market gains and taking less risk (panic selling) after major market losses. Remember, it’s “buy low, sell high” not the reverse! Understand that markets peak when the economy is great and they trough when the news is bleak. Don’t let your emotions get in the way of your wealth. Think and act long term.
  • Avoid overly concentrating your investments in a few stocks or market segments (e.g., technology). The market has a ruthless way of humbling the overconfident investor!
  • As a rule of thumb, no stock should represent more than 10-15 percent of your assets. That way, if things don’t pan out, you’ll still have the other 85-90 percent working for you. (Tip: Although it may seem tempting to go for what seems popular or successful at the time, that’s not always wisest.)
  • Remember to diversify across different asset classes (the three main asset classes are stocks, bonds, and cash equivalents, and others include real estate and commodities) to reduce your risk and beat inflation. Too many people put all (or none) of their assets in stocks and live to regret it during market downturns they can’t handle.

 

After taking the above tips into consideration, remember, above all, that patience is key. Very few “get rich quick” schemes—even if they work—are sustainable for the long term. Save and invest with your END GOALS in mind.

 

Do you see the value in building your wealth patiently? Have you had some experiences with this (investing or otherwise) you’d like to share?

 

8 Financial Tips to Teach Your Children This Summer

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We are on the cusp of summer break, which means many teens, grads, and college students will be starting up their summer jobs. Whether they’re nannying, mowing lawns, spinning pies at the local pizza joint, or interning at a law firm, the goal is to gain real life job experience, and of course, make whatever money they can before school starts up again in the fall.

This brings us to an important point. Money. Have you equipped your teen with the financial know-how they need to succeed in the real world (and avoid major financial pit falls)? Many parents assume their kids are learning personal finance at school, but unfortunately, many schools assume the students are learning it at home! It’s a crucial topic that all too often falls through the cracks. And, guess who loses?

As your teen embarks on their summer job, use this as a launch pad to build their financial literacy. The principles of wise financial management aren’t that tough to master. You simply need to know the basics and abide by the disciplines and key principles. One way to approach it is to teach them how to avoid these eight most common financial mistakes:

  1. failure to set goals and plan/save for major purchases (instead, many load their credit cards with debt, making their items that much more expensive)
  2. failure to set aside an emergency fund for unforeseen expenses
  3. spending more than you earn and failing to budget and monitor expenses (a top learning priority!)
  4. incurring too much debt, including student loans and excessive credit card usage
  5. incurring significant fixed expenses relative to your income that can’t be reduced in difficult economic times (e.g., spending too much on housing and cars)
  6. impulse buying and lack of value consciousness when shopping (make, and stick to, your shopping list beforehand!)
  7. failure to begin saving and investing for the future as soon as possible (and missing out on the compounding of money over long periods of time)
  8. failure to appreciate how the little things can add up (e.g., eating out versus in, paying up for name brands, owning a dog or cat)

(Number 6 is an especially common pitfall among young people when working a summer job. They aren’t used to having a surplus of money in their checking account, so they go on spending sprees and end up saving much less than they could. A good rule to learn, especially at this time of life, is save first, spend on “needs” second, and IF there is money left over, enjoy some “wants.”)

This list isn’t just for young people—it’s for everyone. Periodically review how you’re doing in each of these areas, and encourage the young adults in your life to do the same. (Remember, they’re watching you, so be sure to “walk the talk!”) If we can successfully avoid these traps, we’ll ALL be in better financial shape!

 

Casting Your Vision for 2017

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So, how was your 2016? Despite the holiday frenzy, I hope you took some time to reflect on the year, highlighting your blessings and, yes, considering what might have gone better. What brought you the greatest joy? What were your personal growth successes? Whose lives did you impact the most? What lessons did you learn from your greatest challenges? Does your future look differently?

Soon, the bowl games will be over and it’ll be time to cast your vision for the new year (including completing our goals from 2016!). With a renewed spirit and fresh thinking, some exciting opportunities may be in store.

Here are some tips to help you craft your vision for 2017:

Personal Growth:

Regardless of our age, we can always take steps to improve our personal (and professional) brand. Perhaps you’ve received some constructive criticism. Or, you wish you possessed a quality you admire in others. This list of positive attributes might stimulate ideas. Here are some additional questions to consider:

  • How would you most like to improve your mind, body, and spirit?
  • Which growth goals, if achieved, would have the greatest impact on your life and on others?
  • What new experiences and learning would allow for growth, enjoyment, or potential impact on the community?
  • How might you manage your time more effectively and reduce distractions?
  • Do you have a solid understanding of your assets, interests, and passions?

Relationships:

Positivity is a powerful force in life, especially in our relationships. It’s why we should begin each year by identifying the relationships we’d like to improve and how we might begin the process. (Yes, it generally pays for us to initiate the steps rather than wait for the other party… as difficult as this may be.)

Here are some other questions worth considering:

  • How is technology affecting your relationships with family and friends? Consider making your family time tech free. Technology IS having a serious effect on relationships and communication, so be on guard.
  • For parents: who could become a potential role model and mentor to your children? They’ll help foster new, valuable relationships and help your children build their network. Also, how can you build stronger relationship capital with each of your children?
  • Are politics getting in the way of your friendships? If so, it’s repair time!

Community:

Our greatest sense of joy, purpose, and fulfillment often comes from serving others. If giving back to your community is an area you’d like to strengthen, these questions might help channel your desire into a plan:

  • If you didn’t have to work for a paycheck, how would you contribute to society?
  • If you could solve any problem or pursue any cause, what would you choose?
  • Which people or needs tug most at your heart?
  • Which organizations or programs are aligned with your passions and could benefit from your talents?

Always remember, someone out there needs exactly what you have to offer!

Career:

No matter where you are in your career, there are always opportunities to “up your game.” These ideas might take yours to a new level:

  • For students, take a skills and interests inventory to identify potential matches. Then, as your candidate list narrows, talk with people in those jobs to gain from their wisdom. It’ll either confirm your interest or steer you away. By investing in your career exploration and understanding your talents, passions, and interests, you’ll be in great shape to find a good fit.
  • For experienced employees: 1) is there a new skill/training that will position you to advance? 2) how can you improve your existing job performance? 3) is there someone you would like to be mentored by or whom you can mentor? and 4) what ways can you contribute to your employer’s success that may, or may not, fit within your job description?

Finances:

Finally, we all should be reviewing our financial goals annually as a course of habit. What ways might you learn to save and invest more, spend more wisely, give more to charitable causes, and improve your financial literacy? Are you on a pathway to achieving your financial goals? What tweaks do you need to make?

Best wishes on your vision casting and for a fantastic 2017!

 

 

8 Financial Mistakes to Avoid at All Costs

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Money, money, money. Few things in life generate as much interest, yet demand more responsibility. Money is taken into consideration with almost every life decision we make (which is one reason why personal finance courses should be required in every school)! And while money itself will not bring happiness, mismanaging it can surely ruin a person’s chances for success, and cause a lot of UNhappiness.

 

The principles of wise financial management aren’t that tough to master. Truly, you don’t need to have a degree in finance, be a math whiz, or consult a professional financial consultant in order to make smart choices. You simply need to know the basics and abide by certain key principles. It pays to avoid these eight common financial mistakes (and understand their consequences if you don’t):

 

  1. Failure to set goals and plan for major purchases and retirement. It’s crucial that you plan for large purchases (homes, cars, big toys) by accumulating savings, while also making sure you’ll have sufficient resources for retirement. These types of purchases should never be made on impulse or funded by withdrawals from your 401K.
  2. Spending more than you earn and failing to budget and monitor expenses. These days, it’s impossible to get away from ads (they’re on Instagram, Facebook, Billboards, YouTube videos, commercials, etc.). We are constantly bombarded with the idea that we need this or that. It’s important to resist the urge to spend, unless each purchase is within the budget you’ve set. If you don’t have a budget, set one…now! Overspending is the most common source of financial difficulty and stress.
  3. Incurring too much debt, including excessive credit card usage. If you have to put it on a credit card, you probably can’t afford it. That is, unless you pay off all of your credit card balances at month end.
  4. Investing too little and starting too late. In order to build a sufficient nest egg for retirement, you’ll need to save and invest 15-20% of your income. And, the sooner you begin, the greater your assets will accumulate. Start a monthly investment program as soon as you’ve developed an emergency fund worth six months of expenses. This should be a priority in the first year you begin your career.
  5. Incurring significant fixed expenses that can’t be reduced in difficult economic times (e.g., spending too much on housing and cars). Your mortgage or rent payment should not exceed 25 percent of your monthly income. And please, avoid those crazy high car payments!
  6. Ill-timed investment decisions (“buy high, sell low” habits and market timing). Too many investors make decisions on emotion. They take too much risk when the markets are high and panic sell when markets are in decline. Studies show the average investor loses around 2% a year due to poorly timed decisions! Regular investments in a well-diversified program serves investors better.
  7. Impulse buying and lack of value consciousness when shopping. Have a strong grasp on the actual value of the stuff you’re buying. Are those jeans really worth $175 in the long run? How could buying less expensive jeans and putting that money toward something else impact your financial situation in the long run?
  8. Lack of discipline and personal responsibility. This is one of the most important tips. Making sure you have positive cash flow and that you’re set-up well for the future takes some serious discipline and self-control! If you need some help with accountability, consider downloading spending tracker, like those available on mint.com. It’s eye opening how our spending on little things adds up.

 

Because finances aren’t taught enough (if at all) in secondary school or college/university, parents are advised to assume a leadership role. These are CRUCIAL life skills that will set your young people up for success in the real world (and help them avoid potential crises).

 

Periodically check how you’re doing in these areas, too. If we can all successfully avoid these traps, we’ll be in excellent financial shape! It does wonders for our stress levels, too!

 

 

 

 

 

 

Smart Financial Planning isn’t as Hard as You Think

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There are all sorts of plans and programs and books out there to help people get out of their financial holes and step into a fresh, healthy budget plan. I’m not saying those programs don’t have value, but there is a very simple (and free) way to make sure you stay out of the red when it comes to your finances. Make sure more money is coming in than is going out, and make a conscious, organized, and concerted effort to track your spending.

When to it comes to budgeting, many find it right up there with dieting and root canals in terms of the pleasure factor (which is probably why so many people feel they always fail at it!). However, tracking your spending and disciplining yourself to live within your means and save for the future is definitely worth the effort. If budgeting is not a natural bent for you, don’t give up on the idea altogether. I promise, with just a willing attitude and some good resources to help you stay disciplined, you’ll be able to get on track with your finances.

So, what are my best tips for staying on top of your financial game?

The basic report you should complete (on at least on a quarterly basis) is a cash flow statement. This report tallies your income and expenses in several key categories. It’s the surest way to see whether you’re living within your means and where your spending may be excessive. After subtracting all of your expenses from your income, you’ll see whether your net cash flow for that period is positive or negative. Remember, the goal is positive, positive, positive!
There are many online tools to help analyze your cash flow  (e.g., www.quicken.com and www.mint.com). In the past, analyzing cash flow was a lot more work—you had to save your receipts and organize them manually. But nowadays, if you use a debit card and checks for your purchases and bills, and you link your bank account to your online budgeting program, it will automatically categorize your spending and indicate where your money is going. It will even send you an email in the middle of a month to let you know if you’re over budget in a particular category (it knows if you’ve been bad or good, which is great for accountability!).

Even if it’s just a 75-cent daily newspaper or a $10 Netflix subscription or a $4 (or more!) latte as you head to work each morning, make sure you account for every single dollar you spend. That’s how you can see exactly where your money is going. You may be surprised when you look at your spending after even just a couple of weeks. The nickels and dimes add up!

Analyzing spending and developing budgets are great skills to develop in the young people in your life. For young adults just starting out, tracking their spending will help determine how much they can afford for rent/housing and a car, significant expenses each month. It will also help them get an idea of how little things here and there can add up and destroy their budget! (I’ve heard many freshly-launched young adults say they’re shocked to see how quickly money gets spent!) How much should average living expenses cost? The following are typical expenditure categories and the rough percentages each should represent:

  • Housing/rent (includes utilities)    30-35%
  • Household/personal items                  20
  • Autos/transportation                          10
  • Charitable giving                             5-10
  • Savings and investments                     15+ (not an expenditure per se)
  • Entertainment and leisure                    7
  • Debt/loans                                           5
  • Insurance                                             5
  • Miscellaneous                                       3

While the above percentages are ballpark figures (and they do change through life), spending more than five percent above these levels is getting “up there,” with the exception of savings and investments and loans for new college grads. Compare actual spending to these ballpark figures, and you’ll have a good sense of whether you’re overspending in particular categories. And, take special precautions against buying too much house or car—these expenses get many people in trouble because the payments are fixed.

Wise financial planning requires knowing where your money goes—it’s as simple as that! You’ll make better financial choices, build a stronger credit rating, and develop good savings habits that help build wealth.
 
Do you track and analyze your spending?  How do you do it?  Have you trained and modeled this to the young adults in your life and, if so, how? We’d love to hear your insight and experiences!

The Joy of Living Generously

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The value of a man resides in what he gives
and not in what he is capable of receiving.
~Albert Einstein

Really, life’s greatest joys come not in the getting, but in the giving. Don’t you agree?

People who live generously—not just with their money, but with their whole person—deserve special admiration. They’re not motivated by fame or fortune, but rather by joyful service. Their qualities of generosity, empathy, compassion, and kindness make them inspiring treasures to us all. And although those values tend to get more press at Christmastime, they are values we should all aspire to live by all year long.

Generosity is a paradox. The culture around us screams materialism and commercialism – Buy, buy, buy. Accumulate. Indulge. On the other hand, there is a whole world out there that desperately needs what we have to offer. It invites us to give, serve, help, and empower. The paradox of generosity is this: the more we give, the more we get! It’s counter-intuitive, but it’s true. We find our life by losing it. We win by losing. We gain by giving away. And, our greatest memories are of the gifts we gave rather than the ones we received.

This kind of generosity requires sacrifice—not just financial, but personal. Yes, it can be stretching and uncomfortable. But slowly, we begin to realize there’s more to life than what we own and can hold onto.

Have you ever wanted to change the world? This is where it starts. In fact, how you eventually impact the world will be driven not merely by what you have to offer but what you choose to offer. It’s the ultimate generosity test, isn’t it?

What do you uniquely have to offer the world? There are many different avenues that can allow you to allocate your personal resources to serve others. To decide how best to give what you have to benefit others, there are three main questions to consider:

  • What talents, skills, and resources do I have to offer?
  • What groups or community segments (e.g., youth, elderly, homeless) do I feel most called to help
  • What organizations will allow me to use my time, talents, and treasure to help those I feel most passionately about?Could your answers to these questions be a New Year’s resolution in the making

What would happen in our communities if we all cultivated and demonstrated this heart of generosity, of “other-centeredness” as a way of life, embodying the qualities of generosity and compassion in our everyday dealings with people? I think the world would be a more welcoming place! With that in mind, here are some ideas for living generously this holiday season—and throughout the year:

  • Make a donation to an organization serving people and causes you are passionate about.
  • Look for ways to be creatively generous if you are on a limited budget. How can you give time? Attention? Acts of service? Material possessions? You could sell something you own and give away the proceeds.
  • Volunteer at a soup kitchen or homeless shelter in your city.
  • Visit a nursing home or hospital. Listen to their stories, or tell some of your own. Just sit with them if that’s what brings comfort.
  • Allow yourself to be interrupted without being irritated—this is a mark of a generous spirit. (Or, put down your mobile device and give the people around you your undivided attention.)
  • Make yourself available to people or organizations, free of charge, for consulting on an area or topic in which you have expertise.

This short list of ideas just scratches the surface—you may even come up with better ones! The bottom line is this: Living generously will bring help and hope to others and immense joy to you in return. You’ll receive far more than what you give. Nothing compares with using all of you to serve and improve the world around you. This is the true spirit of Christmas!

Have you experienced the deep satisfaction that “giving yourself away” evokes? What have you done and how has it impacted you. Looking ahead, what new ways do you envision using your time, talent, and treasure to make the world a better place? Share your thoughts; we’d love to hear your stories and ideas!

Know Your Net Worth

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We’ve seen it many times, especially in the sports world and entertainment industry. Stars become famous and amass substantial wealth in short order. They live lavish lifestyles, complete with palatial estates, luxury cars, private jets, and yachts. Their stories are seen on reality shows about the rich and famous. Everything seems to be going their way. And, we are ENVIOUS!

Then, one day we’re shocked to learn that the star that once had it all just declared bankruptcy! How on earth could this happen?

Whether it’s a famous star or a “wealthy” family in an exclusive neighborhood, it’s surprisingly common for the apparently rich to be in tough financial straits. You wouldn’t know it by their outward appearance, but people with substantial assets can be just as likely to head into financial ruin as those with more modest assets and income. It all has to do with whether their assets (what they own) exceed their liabilities or debts (what they owe). This difference is called “net worth.” If it’s positive and growing they’re in good shape. If it’s negative, they’re an accident waiting to happen.

Do you know YOUR net worth … and why it matters?

 

Simply stated, people who run into serious financial difficulty have negative and deteriorating net worth. It’s usually the result of living a lifestyle too extravagant for the income they earn or from financing expensive purchases. For example, if someone buys an expensive home and finances virtually all of it with debt, they’re no better off, in terms of net worth, than one who purchased a modest home with a modest down payment. It may not seem that way to the casual observer, but it’s a fact.

Most people get into financial trouble when they try to “keep up with the Joneses.” Their neighbors build a fancier home or purchase a new luxury car, and it’s tempting to follow suit. Suddenly, their debt levels soar even though their income remains the same.

You should calculate your net worth at least annually. To do this, simply compare the value of your assets (financial and property) with your liabilities (debts including loans and credit card balances). The difference should bepositive and risingthroughout your lifetime.

If your net worth is either negative or deteriorating, determine the cause and adjust your lifestyle and spending to get back on track. Most of the time, negative net worth situations occur when people spend too much on their home or car (usually requiring debt) or take on too much credit card debt relative to what their income can support. That’s why it’s essential to carefully evaluate what you can afford before making significant purchases.

Be sure you fully understand the difference between assets and worth. Too many people feel wealthy when they own a lot of things, but if they’re purchased on credit or with debt, it’s a myth. Do you have the self-discipline necessary to maintain a lifestyle that your income can support? Remember, if you don’t—like those ill-fated celebrities that had it all and then lost it—the consequences can be catastrophic. 

Have you learned to live within your means and been able to see a rising net-worth over your lifetime?  If you are just starting out, how do you plan to accomplish this? Share your ideas and questions with us; we’d love to hear from you!