financial literacy

10 Financial Mistakes You Should Avoid

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Money, money, money.

Few things in life generate as much interest yet demand more responsibility. And while money itself will not bring happiness, mismanaging it can surely ruin a peson’s chances  for success and cause a lot ofUNhappiness.
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 also pays to understand and avoid these ten most common financial mistakes:

  1. failure to set goals and plan for major purchases and retirement
  2. spending more than you earn and failing to budget and monitor expenses
  3. incurring too much debt, including excessive credit card usage
  4. investing too little and starting too late
  5. incurring significant fixed expenses that can’t be reduced in difficult economic times (e.g., spending too much on housing and cars)
  6. ill-timed investment decisions (“buy high, sell low” habits and market timing)
  7. poorly diversified investment portfolios (overly concentrated in high risk stocks)
  8. impulse buying and lack of value consciousness when shopping
  9. inadequate financial knowledge
  10. lack of discipline and personal responsibility

We all need to keep these principles in mind both now and in the future. Periodically review how you’re doing in each of these areas, and encourage the young people in your life to do the same.

If we can all successfully avoid these traps, we’ll be in excellent financial shape!

What are some ways you’ve learned to avoid–or overcome–costly money mistakes in your own life? Do you ideas for passing these principles on to young people? Please share your suggestions and comments below.

Positioning Students for Workplace Success

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Are the young people under your supervision—children, students, or employees—prepared to soar in their eventual career? Not just to land the job, but to be a workplace MVP?

 

With high youth unemployment and all-consuming scholastics and activities driving their schedules and priorities, many of today’s young adults are entering the work force sorely lacking the skills and maturity they need to thrive in the real world. We hear from employers all the time: “They may be book smart, but they’re certainly not life smart,” or, “They can write a resume and complete an application, but they lack the intrinsic qualities and life skills we need in our employees.” Many students understand how to succeed in the “front end” (resume and interview skills), but aren’t trained to succeed once they land the job.

 

At LifeSmart, we’re excited to announce our newest resource designed to help create future workplace superstars! Our new DVD, How to Be an MVP Employee. offers invaluable perspectives from employers and four road-tested strategies for succeeding in any career:

  • Selecting a career that plays to their natural strengths and interests
  • Modeling the qualities employers value
  • Delivering on-the-job excellence
  • Contributing to their employer’s success

 

This 45-minute live presentation at Appleton West High School includes illustrations, skits, training, and strategic insights to promote career readiness and workplace excellence. Viewers will gain practical wisdom about what separates those who soar from those who stagnate in their careers.

 

For $79, you can bring this valuable training into your own classroom or group. How to Be an MVP Employee will help prepare the young people in your life to reach their career heights and to succeed in the increasingly competitive landscape of today’s workplace.

 

For more information or to order, call (920) 319-3169 or email at dtrittin@dennistrittin.com.

Financial Literacy: Keep It Simple!

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As a nation, we have been witnessing a tragedy of epic proportions. Debt, deficit spending, and credit card use have taken control of the lives of millions. The result has been skyrocketing bankruptcies and enormous stress on individuals and their families. How can we avoid this situation? One way is to AVOID the credit card trap altogether!

           

I grew up in a family with a very modest income. However, we were never financially strapped. My parents’ method of managing their finances was a simple one, but it worked. They stuffed with cash for key expenses and lived on what was inside. No credit cards, no loans, no overspending. No more money in the envelopes meant no more spending. Simple. I have adapted my parents’ conservative, simple approach through budgeting and banking and we’ve always lived financially stress-free.

 

The same is not true for the majority of Americans. The credit crisis is enormous on both a national and an individual level. Bankruptcies are at a record high and most families would say that they are experiencing at least some level of financial stress. How did this happen? A couple of things have caused it:

 

·      The widespread availability of credit cards, coupled with a lack of discipline to use them responsibly (studies show spending via credit cards is substantially greater than cash only)

·      Financial literacy is not a priority in many education institutions, despite the importance of budgeting and investing in daily life

·      The rise in consumerism and the strong focus on buying “things” in our culture

 

The long and short of it is that easy access to credit cards and loans has given consumers a false sense of financial security. This lures them into spending more than their income can support. The debt builds and accrues interest, making the monthly payment grow every month. Today’s average family has several credit cards with monthly balances well into the thousands? Eventually, there has to be a day of reckoning and these large balances and interest charges MUST be tackled.

 

Fortunately, you don’t need to be a rocket scientist to live debt free. It’s easy—just be disciplined and abide by this basic principle: Use credit wisely and sparingly and resist making purchases if you can’t pay with cash. Keep it simple—avoid the credit trap and you’ll relieve your financial stress.

“Credit buying is much like being drunk.

The buzz happens immediately and gives you a lift. The hangover comes the day after.”

Joyce Brothers

 

Do you have some good strategies for (or questions about) avoiding or overcoming credit card spending and debt?  Do you keep it simple? What’s YOUR method? Jump into the conversation on my website and leave your comments. Then keep the conversation going: please forward this to friends and encourage them to sign up for our weekly email at www.dennistrittin.com/newsletter.aspx..

 

5 Tips for Getting SMART about Retirement

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When you envision retirement, you probably don’t see yourself depending entirely on Social Security as your main source of income. Unfortunately, many people do, and are alarmed at how little money they have to live on in their golden years. Consequently, many seniors are heading back to work for some “financial supplements,” which is also affecting job opportunities for younger people.

 

It’s time to get SMART about retirement—and here’s a catchy acronym to get you started. The five tips in this acronym will help you develop an investment program now that will give you the financial freedom for later on in life: Start early and Make room in your budget, knowing the growth of your wealth is a function of the Amount you invest, the Rate of return you earn, and the Time period over which you invest.

 

S—Start early

It is never too early to begin strategically planning for your financial future! If you only take away one thing from this blog, may it be this: beginning your investment program as soon as you start your career should be a top priority. By investing early in a long-term program, you’ll have the best chances of building substantial wealth for your retirement. You might be thinking, “Why now…I’m not retiring for 30 years!” The answer is simple—the power of compounding your returns over many years is enormous. Here’s an example:

           

If Brad invests $2,000 per year at a 7% return from age 18 to 27 and lets it grow at that rate until he’s 65, he’ll have a much larger nest egg than Madison, who waits until age 31 to start investing $2,000 each year until age 65. That’s right! Brad’s $20,000 produced greater wealth than Madison’s $70,000! So, start investing ASAP!

 

M—Make room

With money, come choices and tradeoffs. Each time we buy now, we lose the opportunity to buy something of even greater value in the future. It takes self discipline to resist the now for the sake of the future. There’s no getting around that making room in your monthly budget to invest is the only way to build assets for your future.

 

A-the AMOUNT you invest (more is merrier)

The more you invest, the greater (and sooner) your wealth will grow. Strive to invest at least 15% of your income for your retirement, and take this amount into account for your monthly budgets (while considering your employer’s plan). By doing so, you’ll significantly supplement your Social Security income. If you want a retirement lifestyle similar to your career years, you simply have no choice.

 

R-the RATE of your return (higher is happier)

It’s not as intimidating as it sounds. The higher the percentage rate of return after expenses, the greater the wealth you’ll build. Develop a well-diversified portfolio of stocks and bonds that fits your risk profile and beats inflation. The earlier you start, the greater risk you can afford to take and the more wealth you’ll accumulate.

 

T-the TIME period over which you invest (longer is better)

Remember, it’s a snowball effect. The longer the time period that you invest, the more wealth you will accrue. A $10,000 investment with a 7% return grows to over $76,000 in 30 years. That same investment is worth only about $20,000 in 10 years. Make sure time is on your side!

 

           

Being SMART about your retirement takes discipline, but the impact is astounding!

 

In what ways have you begun planning for your retirement? Have you followed these SMART steps? What challenges or obstacles have your run into? We welcome all of your questions, comments, and suggestions!

 

Here Today, Gone Tomorrow? Learn to Analyze Your Spending

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When it comes to “budgeting,” many find it right up there with dieting and root canals in terms of the pleasure factor. 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. You just need a willing attitude and some good resources to help you stay disciplined and on track with your finances.

How do you stay on top of your financial game?

The basic report you should complete (on at least 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)!

Even if it’s just a 75-cent daily newspaper or a $3 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. 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                                      10
  • Savings and investments                        10+ (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. It’s also important to reflect periodic expenses like gifts and vacations in a budget. Holiday spending tends to spike in December, as does vacation spending in the summer. Therefore, it pays to update statements on a monthly or quarterly basis to avoid underestimating expenses. 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 fixed expenses get many people in trouble.

Wise financial planning requires knowing where your money goes. 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!

 

Be the Only You

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“Progress” can often be a two steps forward and one step backward proposition. The technological advances of the last two decades are a good case in point. We are so much more efficient and productive (albeit more distracted!) and, in many ways, connected. The access we have to information boggles my mind compared to what it was a mere 15 years ago.

This progress, however, has come at a cost. For one, our lives are not as private as they used to be. In some cases, it’s the result of information or images that wind up in places we didn’t expect (the most egregious example being “racey” photos). In other cases, identities are stolen and manipulated by shady characters. In this latter case, others can literally pretending to be you. This is real and no laughing matter.

Do you and your family know how to protect yourselves?

Identity theft is when an imposter uses your personal information without your permission. It’s a crime and can cause untold problems for the victim. Generally speaking, it’s caused by lost or stolen credit cards, careless disposal of investment/banking statements, providing personal information (Social Security Number and PINs) where you shouldn’t, and various viral and malware attacks. The perpetrator may open credit cards and accounts in your name, forge your signature, and even obtain a driver’s license in your name.

There is an ever-growing list of ways to avoid identity theft. Some of the key ones are:

  • Shredding your financial documents after their use
  • Keeping PINs (for debit cards) and passwords in a safe, private place and changing your passwords regularly
  • NEVER sharing your banking information, passwords, or PINs with anyone (an especially good reminder for young people, who are often used to  “sharing ” everything, to the point of too much!)
  • Signing credit cards immediately and destroying outdated ones promptly
  • Not keeping your Social Security Card in your wallet or purse
  • Not disclosing your Social Security Number unless it is absolutely required
  • Calling your financial institutions and credit card providers immediately if your wallet or purse is stolen
  • Never taking phone solicitations that seek your Social Security Number and never emailing your Social Security Number or PINs to anyone.
  • Only opening email attachments when you are certain as to their safety
  • Treating your personal information as personal and private!
  • Being extremely wary of phone solicitations. If offers sound too good to be true or the sales party is aggressive, steer clear! Personally, I just avoid solicitors altogether. Period.
  • Report suspicious behavior immediately
  • Use the best anti-virus and anti-malware software for your computers

Finally, there will be situations when you simply don’t know if it’s a safe bet. Here, you should consult with trusted people in the know before releasing any information that is private. Always err on the conservative.              

How careful are you with your personal, financial, and computer information? Have you discussed this with the young adults in your life—your children, students, or young adults you mentor? Share your tips and stories with us by commenting below; we’d love to hear from you!

Build and Maintain a Good Credit Rating

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January is National Financial Wellness Month. It’s a great opportunity to do some assessing of our financial well being. It’s also an opportunity to think about how well we’re modeling and training the young people in our lives—our children, students, mentees, etc.

Here’s a good example. Can we be trusted to repay a debt? I hope the answer is a resounding “Yes!”

That’s what we want lending institutions to answer when we apply for a loan or home mortgage. They’re making a bet on us to repay our loans with interest on time, all the time. But, in order for them to conclude that we’re worth the risk, they’ll need to analyze our financial condition. In that evaluation process, one of the key measures they consider is our credit rating. It’s their way of getting independent advice on our creditworthiness.

Most young adults don’t think about this when they’re starting out, but it’s an important principle to instill at a young age—and to be reminded of throughout life. Do you know what it takes to have a good credit rating?

The most commonly used credit measure is your FICO score. Scores from 680-850 are considered good by lenders. Your keys to a favorable credit rating include:

  • Modest debt relative to your assets and income
  • Reputation for paying your bills fully and on time
  • Making regular deposits into your savings and investment accounts
  • Having a modest number of credit cards and preferably with low or zero outstanding balances
  • Paying off debt rather than replacing it with other debt
  • Not bouncing checks
  • Having a positive and growing net worth

When you have a good credit rating, you’ll receive better access to loans, larger available credit lines, and lower interest rates. It also affects your insurance rates and whether or not a landlord wants to take a risk on leasing a house or apartment to you. That’s why achieving a favorable credit rating should be a priority.

What if your credit rating isn’t so hot? You can turn it around. The sooner you start building—or repairing and RE-building, the better. It generally takes seven years for negative items to drop off your credit reports.

One thing to note if you are rebuilding your credit is that simply closing your revolving accounts to improve your credit score won’t necessarily work.  Closing credit accounts not only lowers the number of open revolving accounts (which generally will improve credit scores), but also decreases the total amount of available credit. That results in a higher “utilization rate,” also called the balance-to-limit ratio, which will actually lower your credit score! So, though it seems counter intuitive, just closing accounts is not the answer; rather, you want to pay them off and then wait patiently. When repairing bad credit, TIME is one of your greatest allies, along with PATIENCE and PRUDENCE.

How would a financial institution assess you as a credit risk? If the answer is “good,” then well done! If the answer is “not good,” what are the primary drivers? What specific steps can you take today that will turn it around?

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!

New! Financial Literacy Posters

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We have some exciting news to share! LifeSmart Publishing has partnered with the creative genius at Learning ZoneXpress to develop an innovative poster series: Secrets to Money Management.

 

This cleverly designed four-poster set shares financial wisdom from What I Wish I Knew at 18, equipping your students with these “real world” success principles:

·       Be a Skillful Earner (career choice and becoming a workplace MVP)

·       Be a Smart Spender and Disciplined Saver (allocating your money wisely)

·       Be a Trusted Borrower (living within your means and building positive net worth)

·       Be a Careful Planner (setting goals and investing early)

 

We think learning about money should be fun! So, adorn your business/personal finance/CTE/FCS/life skills classrooms with these witty and wise posters, and watch your students take these lessons to heart.  

 

Attractively priced at $49.95, the Secrets to Money Management poster set is just a click away!

  

 

Grow Your Wealth Patiently

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You’ve all seen the ads, “Get rich quick!” The implication is that, with little effort or investment, you can become wealthy overnight.
 
Not so fast.
 
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 two percent (2%) per year to lousy timing decisions! That’s a wealth destroyer you’ll want to avoid.           
 
Bear in mind that a key component in this process is TIME. 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:
 

  • 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.
  • 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.
  • 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% of your assets. That way, if things don’t pan out, you’ll still have the other 85-90% working for you.
  • Remember to diversify across different asset classes to reduce your risk and beat inflation. Too many people put all (or none) of their assets in stocks and live to regret it.

 
Do you see the value in building your wealth patiently rather than turning to get rich quick schemes or trading and chasing investments? Have you had some experiences with this you can share with our online community?  Questions you’d like to ask? We’d love to hear from you!