## How Credit Card Interest Works

### We all know credit cards charge interest if you carry a balance. But how are interest charges actually calculated?

It can be enlightening to see how rates are applied. Hopefully, it motivates you to pay off those cards as quickly as possible!

What is APR? At the core of understanding how finance charges are calculated is the APR, short for Annual Percentage Rate. Most credit cards now use a variable rate, which means the interest rate can adjust with the prime rate, which is the lowest interest rate available (for any entity that is not a bank) to borrow money. Banks use the prime rate for their best customers to provide funds for mortgages, loans, and credit cards.¹ Credit card companies charge a higher rate than prime, but their rate often moves in tandem with the prime rate. As of the second quarter of 2020, the average credit card interest rate on existing accounts was 14.58%.²

While the Annual Percentage Rate is a yearly rate, as its name suggests, the interest on credit card balances is calculated monthly based on an average daily balance. You may also have multiple APRs on the same account, with a separate APR for balance transfers, cash advances, and late balances.

Periodic Interest Rate. The APR is used to calculate the Periodic Interest Rate, which is a daily rate. 15% divided by 365 days in a year = 0.00041095 (the periodic rate), for example.

Average Daily Balance. If you use your credit card regularly, the balance will change with each purchase. So if credit card companies charged interest based on the balance on a given date, it would be easy to minimize the interest charges by timing your payment. This isn’t the case, however—unless you pay in full—because the interest will be based on the average daily balance for the entire billing cycle.

Let’s look at some round numbers and a 30-day billing cycle as an example.

Day 1: Balance \$1,000 Day 10: Purchase \$500, Balance \$1,500 Day 20: Purchase \$200, Balance \$1,700 Day 28: Payment \$700, Balance \$1,000

To calculate the average daily balance, you would need to determine how many days you had at each balance.

\$1,000 x 9 days \$1,500 x 10 days \$1,700 x 8 days \$1,000 x 3 days

Some of the multiplied numbers below might look alarming, but after we divide by the number of days in the billing cycle (30), we’ll have the average daily balance. (\$9,000 + \$15,000 + \$13,600 + \$3,000)/30 = \$1,353.33 (the average daily balance)

Here’s an eye-opener: If the \$1,000 ending balance isn’t paid in full, interest is charged on the \$1353.33, not \$1,000.

We’ll also assume an interest rate of 15%, which gives a periodic (daily) rate of 0.00041095.

\$1,353.33 x (0.00041095 x 30) = \$16.68 finance charge

\$16.68 may not sound like a lot of money, but this example is a small fraction of the average household credit card debt, which is \$8,645 for households that carry balances as of 2019.³ At 15% interest, average households with balances are paying \$1,297 per year in interest. Wow! What could you do with that \$1,297 that could have been saved?

That was a lot of math, but it’s important to know why you’re paying what you might be paying in interest charges. Hopefully this knowledge will help you minimize future interest buildup!

Did you know?

When you make a payment, the payment is applied to interest first, with any remainder applied to the balance. This is why it can take so long to pay down a credit card, particularly a high-interest credit card. In effect, you can end up paying for the same purchase several times over due to how little is applied to the balance if you are just making minimum payments.

¹ “Prime Rate Definition,” James Chen, Investopedia, Sep 25, 2022, https://www.investopedia.com/terms/p/primerate.asp

² “What Is the Average Credit Card Interest Rate?,” Adam McCann, WalletHub, Nov 29, 2022, https://wallethub.com/edu/average-credit-card-interest-rate/50841/

³ “Credit Card Debt Study,” Alina Comoreanu, WalletHub, Nov 17, 2022, https://wallethub.com/edu/cc/credit-card-debt-study/24400

### Mortgage protection insurance seems like a great idea… on paper.

But a MPI policy might not be the best way to help your family pay off the house.

Here are three questions you should ask before you buy mortgage protection insurance.

Will my payout change?

The fundamental weakness of most MPI policies is that their payout decreases over time. As you work down your mortgage, there’s technically less to protect.

That becomes a problem if your premiums don’t change even as your payout plummets. You’ll be paying the same amount for less protection!

Ask about policies that feature a level death benefit. They’ll provide you with the same amount of death benefit regardless of how much is left on your mortgage.

Premiums for MPI aren’t always fixed. The amount you pay for protection each month might decrease or skyrocket. Your wallet is at the mercy of your insurance provider!

Just remember that fixed premiums might be a double edged sword. It may be useful to have a policy with premiums that lower over time if you don’t have a level death benefit. Ask about fixed premiums for your MPI before you find yourself paying more for less!

Would life insurance be a better option? (hint: the answer may be yes)

Term life insurance may be a better choice than MPI. Payouts are guaranteed by the insurance company and premiums are fixed. You won’t have to worry about paying more for less protection as the years go by.

It’s also flexible. A chunk of the death benefit may knock out the mortgage, while the rest can fund college, health care costs, and living expenses.

There are special circumstances where MPI is superior to term life insurance. It typically doesn’t have medical restrictions, making it a good option for people who normally wouldn’t qualify for term life insurance. Just remember to ask your financial professional these questions if you decide to learn more!

This article is for informational purposes only and is not intended to promote any certain products, plans, or insurance strategies that may be available to you. Before taking out a policy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.

## The Most Important Rule For Buying Life Insurance

### Your life insurance coverage should be worth roughly ten times your annual income.

That’s not as crazy of a number as it might appear. Your income funds your family’s lifestyle and fuels their dreams. It’s how you pay for the house, the car, their education, and all the big and little things that make life run.

So what would happen if your income were to suddenly stop if you became ill or were to pass away?

Could your family afford to stay in the neighborhood? Would a child have to compromise their education? Would your spouse have to get an additional job to cover the daily costs of living?

Life insurance helps answer those questions in the event of your income disappearing.

First, it can act as a buffer while your family grieves and figures out next steps. A proper life insurance death benefit can allow your family to cover final expenses while they decide how to move forward.

Second, it can help your family pay off remaining debts and start funding future opportunities. This reduces the financial burden your loved ones will face in your absence.

Obviously, there are exceptions to this rule. A stay-at-home parent provides services and care that would be costly to replace and should be covered with that in mind. Families with medical concerns might need to consider a policy worth more than ten times their annual income.

But in general, a life insurance policy for ten times your income will help cover the major expenses your family will face.

Want a more precise estimate on how much life insurance you and your family need? Contact a financial professional. They can offer insights into how much coverage your specific situation calls for!

## How to Build A Business That Lasts

### Successful businesses are good at solving problems.

The larger the problem to solve, the more rewards you will reap. We instinctively know this is true, even if we can’t articulate it. Just look at our spending habits.

Our favorite coffee shop solves our lack-of-energy-in-the-morning problem.

Music streaming soothes our rush hour stress with our favorite tunes.

A food delivery app removes the hassle of driving to a restaurant.

Your brands of choice provide you value by solving your problems. The more they fix, the more you love them!

So, imitate your favorites. Explore the problem you’ve identified until you’re an expert. Next, develop a solution that crushes the problem.

Training your sights on providing value won’t magically make you successful. But it can serve as a guiding light when you feel directionless and unsure of your next steps.

Can’t find your target market? Brainstorm which companies or agents would gain the most from implementing your solution. Be as specific as possible in explaining the benefits.

Struggling to discover a niche in a saturated market? Look for issues that competitors and industries have ignored or missed. It might be something they’ve accepted as cost of business.

Trying to scale up? Diligently research the obstacles your new clients face and tailor your solutions to their specific needs.

Let me know if you’re hungry to start a business. We can talk about the problems facing some of the largest industries in the world and how you can provide much needed solutions.

## Pay Yourself First

### Your paycheck makes everyone rich… except you.

Allow me to explain.

Your labor actually is helping make your boss rich. He gives you a portion of earnings in exchange for your time and effort. No harm, no foul. But what becomes of that paycheck?

It goes right back to people just like your boss.

The owner of your favorite coffee shop gets a piece.

Whoever dreamed up your favorite streaming service gets a piece.

Your landlord gets a huge piece.

And your credit card provider? They gobble up whatever’s left.

Everyone gets rich while you’re left scrambling to make ends meet. You get another paycheck and the cycle repeats.

So how do you escape this endless cycle and begin building wealth?

Before you do anything else, you’ve got to pay yourself first.

Start treating your personal savings as the most important bill to pay. Here’s the simplest way:

• Decide how much you want to pay yourself each month and adjust your budget accordingly
• Set-up a recurring automatic payment from your checking account to your savings account. Schedule it right after your payday.
• Pay rent, utility bills, and buy groceries after your automatic transaction goes through
• Use whatever is left for your lifestyle

Remember, the most important person you owe money to is you. Prioritize your own savings and use your income to build wealth for yourself.

## One Simple Rule For House Hunters

### The real estate market has witnessed a wild year.

All the ups and downs and uncertainty about the future have made it hard to tell if now is the time to buy or if it’s better to wait things out!

Fortunately, there’s a simple principle that can bring some clarity to your house hunting process. The 30/30/3 Rule can help you determine the right amount of house for you, whatever your stage of life! It’s composed of three mini-rules that we’ll explore one at time.

#### Don’t spend more than 30% of your gross income on mortgage payments.

In other words, don’t sign away too big of a portion of your income in mortgage payments. This rule makes sure you have a healthy chunk of your cash flow available for other essential spending and building wealth. There’s definitely wiggle room to pay more as income increases, but 30% of your gross income is still a good target!

#### Have 30% of the home’s value saved in cash before you buy.

Banking up a solid stash of cash before you purchase can protect you from several threats. Using about 20% of that cash as a down payment can get you lower mortgage rates and dodge private mortgage insurance.² Also, keeping a 10% buffer provides you with a useful line of defense against unexpected repairs and appliance replacements. Just remember to keep your housing fund away from risk. Think of it as an emergency fund for your house rather than a savings vehicle!

#### Avoid houses over 3X your gross annual income.

This one is simple—Don’t buy a house you can’t afford! Do you make \$50,000 per year? Shoot for a maximum \$150,000 price tag. This is a simple way of narrowing your house hunting and managing your overall debt.

#### Why The Rule Works.

Let’s say you’re earning an income of \$60,000 per year, or \$5,000 per month. You read the headlines about the housing market and decide to snatch up a home. An opportunity presents itself—there’s a gorgeous home in a good neighborhood that’s selling for \$180,000 (3X your annual income, and almost impossible to find) with a 7.3% interest rate (the national average). With monthly payments of \$1,365 per month, you’ll only be handing over 27% of your income to the bank. Over \$3,500 dollars of cash flow would be at your disposal!

What if you had the same income level but were looking at a house worth \$360,000 (6X your annual income)? You’ll be forking over nearly half your income for your house. That’s a huge amount of firepower that could be used to build wealth or start a business!

Don’t forget to review your home buying plan with a financial professional who can help put this helpful principle into practice!

## In Praise of Failure

### Failure is the greatest teacher.

There’s nothing else like it to seize your attention. It’s hard to look away from a trainwreck. It’s even harder when you’re the one driving the train.

Failure leaves you reeling. It forces you to ask a critical question—”what went wrong?”

The answer can reveal some powerful truths.

It reveals truths about your assumptions. Flawed strategies stem from faulty assumptions. What are you assuming about people or the world that led to your failure?

It reveals truths about your character. Assumptions don’t appear from nowhere. They’re shaped by experiences and core beliefs about what’s right, wrong, and how the world works. Failure exposes those character forming beliefs like nothing else.

Simply put, failure cuts right to the core of who you are. And that can be a powerful and positive experience, if you’ll listen to it.

So get out there. Drop the ball. Spill some milk. Botch something.

And don’t be afraid to call it like it is—when it’s clear that you’re failing, acknowledge it and jump ship.

Then, ask yourself “what went wrong?” Be brutally honest. Take notes. Adjust as needed. And then get back out there.

You’ll find that you’re far stronger than you’ve been led to believe, and that you grow more resilient the more you attempt.

So here’s to failure. May you have enough that it paves the way to your greatest success.

## The Greatest Obstacle to Entrepreneurship

### Let’s face it—a side gig sounds like a dream come true. What’s not to love about being your own boss?

But if working for yourself is so awesome, why do so few take the plunge?

The reason is simple—uncertainty.

It makes sense. School taught you how to scribble notes and pass tests, not start a business.

And that uncertainty creates anxiety.

Picture yourself as a business owner. What would it look like?

If you’re like many, you saw flashes of expensive cars, meetings, and… nothing. Entrepreneurship is such a foreign experience that you don’t even know how to process it.

And that leads to the ultimate uncertainty—what if you fail?

What will others think if your business goes under? How will you feel about yourself? Will you be able to pay the bills?

In short, entrepreneurship feels like a black box of something that’s best left alone.

Sound familiar? There are two antidotes to the uncertainty of entrepreneurship…

#### Embrace uncertainty.

The next time you feel a twinge of fear, pause. What are you afraid of happening? What could go wrong? Maybe it’s something valid. Or likely, it’s something you can overcome. Train yourself to observe and question your fear. You’ll grow more and more confident taking calculated risks. You may even find yourself ready to start a part-time side hustle!

#### Find support.

Facing uncertainty is far easier when you’re surrounded by support. Friends, family, and mentors can provide an emotional safety net should things go south. They can also offer wisdom and counsel that can mean the difference between success and failure.

Where do you stand on entrepreneurship? Do you want to start a business, but can’t see what it would look like?

## How to Choose a Side Gig

### You want to increase your income and be your own boss. Who doesn’t?

You just need the practical know-how to overcome your fears and start the journey.

So turn off the YouTube self-improvement videos and fire up Google Docs. Here’s how to choose the right side gig for you.

#### Step 1: List your hobbies.

Passions can make excellent side gigs. Why? Because they leverage skills you currently have, and are already commanding your attention and interest. Those are critical ingredients for success.

It doesn’t matter how niche or obscure your hobby might be. Write it down. In fact, the more oddball your interest, the more potential you may have to monetize it.

#### Step 2: Evaluate the market.

Simply put, can your skills solve a problem for people? If so, then you have a potential client base at your fingertips.

Those problems may not seem obvious at first. But you may be surprised by what people will pay for your service or product.

Not knowing how to play an instrument is a huge roadblock for music lovers.

Lacking time to decorate, clean, and organize is a persistent dilemma for type A personalities.

Social Media illiteracy is a massive headache for older people starting small businesses.

All of those problems are opportunities to boost your income, if you have the skills to solve them. It just takes some time and creativity to identify problems.

#### Step 3: Size up the competition.

But here’s the catch—there might be hundreds, or even thousands, of others seeking to solve the same problems as you. In fact, your competitors might already have a well-established grip on your target market.

However, if your skills or niche are highly specific, you could have a rare opportunity on your hands that no one is fulfilling, or that no one is fulfilling well. You could eventually scale your side gig income to replace your day job!

This leads to a critical principle for deciding which side gig is right for you…

Opportunity lies at the intersection of high demand and low supply.

The more people demand a service, and the fewer competitors already providing it, the greater your likelihood of success.

There’s just one factor left to consider…

#### Step 4: Weigh costs against rewards.

Starting a business requires a combination of time, effort, and money. No exceptions. The question is whether—and when—the rewards will outweigh the costs.

Starting a car manufacturing business? Good luck—you’ll require a huge amount of capital, and won’t see profits for years.

Refurbing curbside furniture with tools and skills your grandpa left you? Hats off—your startup costs are almost zero, beyond some time and energy.

• In summary, you want a side gig that…
• Aligns with your skills and passions
• Solves a problem for enough people
• Has few competitors
• Offers high rewards with low costs

Which side gig fits these parameters for you? Whatever it is, let’s chat about it. We can discuss what it would look like for you to start pursuing it today!

## Why You Need An Insurance Review

### Insurance is intended to protect your assets and to help cover certain risks.

Policies may have standardized language, but each insurance policy should be tailored to your needs as they are today.

A lot can change in a short amount of time. An annual insurance review is a good habit to develop to help ensure your coverage still addresses your needs.

Life changes, and then changes again, and again. There are some obvious reasons to review your life insurance coverage, like if you’re getting married or having a baby – but there are also some less obvious reasons that may change your coverage requirements, like changing jobs or experiencing a significant change in income.

Here are some of the reasons you might consider adjusting your coverage:

• You got married
• You got divorced
• You started a family
• You lost weight or quit smoking
• You bought a house
• You paid off your house
• You borrowed money
• You retired

Depending on what has changed, it may be time to increase your coverage, supplement coverage with another policy, change to a different type of policy, or begin to move some money into savings or update your retirement strategy.

Have you updated your beneficiaries? Did you get married or divorced? Did you start a family? It’s time to update your beneficiaries. Life can change quickly. One thing that can happen is that policyholders may forget to update the beneficiaries for their policies. A beneficiary is the person or persons who will receive the death benefit from your life insurance policy. If there is a life insurance claim, the insurance company must follow the instructions you give when you assign beneficiaries – even if your intent may have been that someone else should be the beneficiary now. Fortunately, this can be remedied.

How long has it been since you first set up a policy? How long has it been since your last insurance review? What has changed in your life since the last time you reviewed your policies?

Your insurance needs have probably changed as well, so now is the time to make sure you have the coverage you need.

## Life Without (Credit Card) Debt

### Our parents, uncles, aunts, and maybe even our grandparents tried to warn us about credit cards.

In some cases, the warnings might have been heeded but in other cases, we may have learned the cost of credit the hard way.

Using credit isn’t necessarily a bad thing, but it may be a costly thing – and sometimes even a risky thing. The interest from credit card balances can be like a ball and chain that might never seem to go away. And your financial strategy for the future may seem like a distant horizon that’s always out of reach.

It is possible to live without credit cards if you choose to do so, but it can take discipline if you’ve developed the credit habit.

#### It’s budgeting time.

Here’s some tough love. If you don’t have one already, you should hunker down and create a budget. In the beginning it doesn’t have to be complicated. First just try to determine how much you’re spending on food, utilities, transportation, and other essentials. Next, consider what you’re spending on the non-essentials – be honest with yourself!

In making a budget, you should become acutely aware of your spending habits and you’ll give yourself a chance to think about what your priorities really are. Is it really more important to spend \$5-6 per day on coffee at the corner shop, or would you rather put that money towards some new clothes?

Try to set up a budget that has as strict allowances as you can handle for non-essential purchases until you can get your existing balances under control. Always keep in mind that an item you bought with credit “because it was on sale” might not end up being such a great deal if you have to pay interest on it for months (or even years).

#### Hide the plastic.

Part of the reason we use credit cards is because they are right there in our wallets or automatically stored on our favorite shopping websites, making them easy to use. (That’s the point, right?) Fortunately, this is also easy to help fix. Put your credit cards away in a safe place at home and save them for a real emergency. Don’t save them on websites you use.

Don’t worry about actually canceling them or cutting them up. Unless there’s an annual fee for owning the card, canceling the card might not help you financially or help boost your credit score.¹

#### Pay down your credit card debt.

When you’re working on your budget, decide how much extra money you can afford to pay toward your credit card balances. If you just pay the minimum payment, even small balances may not get paid off for years. Try to prioritize extra payments to help the balances go down and eventually get paid off.

#### Save for things you want to purchase.

Make some room in your budget for some of the purchases you used to make with a credit card. If an item you’re eyeing costs \$100, ask yourself if you can save \$50 per month and purchase it in two months rather than immediately. Also, consider using the 30-day rule. If you see something you want – or even something you think you’ll need – wait 30 days. If the 30 days go by and you still need or want it, make sure it makes sense within your budget.

#### Save one card for occasional use.

Having a solid credit history is important, so once your credit balances are under control, you may want to use one card in a disciplined way within your budget. In this case, you would just use the card for routine expenses that you are able to pay off in full at the end of the month.

Living without credit cards completely, or at least for the most part, is possible. Sticking to a budget, paying down debt, and having a solid savings strategy for the future will help make your discipline worth it!

¹ “How to repair your credit and improve your FICO® Scores,” myFico, https://www.myfico.com/credit-education/improve-your-credit-score

## Self-Improvement Advice You Can Leverage Today

In 2020, the self-improvement industry was estimated to be worth \$10.4 billion in the United States.¹

But here’s the catch—most of the advice you get from self-improvement gurus is either really simple or so generic as to be useless.

So here are five completely free self-improvement moves you can make that can actually help you feel better, starting today.

#### Get some sun.

Sunlight, especially in the morning, offers a host of benefits, including…²

• Stronger eyes (just don’t look straight into the sun!)

• Healthy weight loss

• Stronger immunity

• Boosted emotional well-being

• Higher quality sleep

As a rule of thumb, try to get sunlight before noon for between 5 to 30 minutes. Don’t wear sunglasses or view the sunlight through a window, and get out of the shade for maximum results.

That’s it. Spend 5 minutes each day in the sun and see if you notice results!

Getting better sleep can transform your life. It can improve everything from mood to focus to your ability to build muscle.³

But it’s often low on the priority list. How many times have you heard your overachieving friend say “I’ll sleep when I’m dead”?

Don’t be like them! Implement these simple strategies to get the rest you deserve…

• Get sunlight early in the day, preferably within 60 minutes of waking
• Dim the lights before bed, no phones an hour before sleep
• Keep your room cool and dark

Above all, aim for 8 hours of sleep each night!

Let’s face it—self-improvement can swiftly become counterproductive. At first, you get that rush. You’re setting goals and crushing them. You’re noticing improvements in mood, your productivity, your physique. It’s like the answer you’ve been waiting for!

But reality slowly settles back in. You start noticing inefficiencies in your routine. Bad habits creep back in. The world is still on fire. You’re still human.

That’s where you have a choice. You can throw yourself deeper into the self-improvement rabbit hole, optimizing every moment in the hope that one day, you’ll finally feel “okay”.

Or, you learn the ultimate self-improvement technique of them all—self-acceptance. Sure, you make tweaks and deal with problems. But you acknowledge that, at the end of the day, you’re still human. You take the good with the bad. You do your best to treat other people—and yourself—right.

So wake up tomorrow and get some sun, first thing. Before bed, dim the lights well in advance and turn on the fan. Wake up and see how you feel. And if these tips don’t fix all your problems (they probably won’t), don’t sweat it—celebrate your progress, and remember that you’re still human. And that’s a good thing, because that means you’re, well, you!

¹ “\$10.4 Billion Self-Improvement Market Pivots to Virtual Delivery During the Pandemic,” John LaRosa, MarketResearch.com, Aug 2, 2021 https://blog.marketresearch.com/10.4-billion-self-improvement-market-pivots-to-virtual-delivery-during-the-pandemic

² “Sunlight and Your Health,” Poonam Sachdev, WebMD, Feb 22, 2022 https://www.webmd.com/a-to-z-guides/ss/slideshow-sunlight-health-effects

³ “Surprising Reasons to Get More Sleep,” Rachel Reiff Ellis, WebMD, Jun 12, 2021 https://www.webmd.com/sleep-disorders/benefits-sleep-more

## Buy Life Insurance Before the Baby

### Many people buy life insurance after they have had a big change in their life. They want to make sure that there will be money for their family if something happens to them. That includes changes like…

• Getting married
• Loss of a loved one
• The birth of a baby

You can get life insurance for a baby after it is born or even while the baby is still in the uterus. But it’s best to get it before you have children.

Why? Because pregnancies can cause complications for the mother – for both her own health and the initial medical exam for a policy. Red flags for insurance providers include:

• Preeclampsia (occurs in 1 in 25 of all pregnancies)¹

• Gestational Diabetes Mellitus (affects 2-10% of women)²

• High cholesterol (rises during pregnancy and breastfeeding)³

• A C-section (accounts for 32% of all deliveries)⁴

Furthermore, the benefits of youth are a powerful incentive to get life insurance for both the mother and father.

The younger you are, the easier it is to get life insurance. This can financially protect your family if you or your spouse have an unexpected event in their life.

If you are a new parent or thinking about becoming one, contact me to open up insurance for your soon-to-be growing family. We can discuss what options would be best for you.

¹ “Everything you need to know about preeclampsia,” Medical News Today, https://www.medicalnewstoday.com/articles/252025#Summary

² “Gestational Diabetes,” CDC, Aug 10, 2021, https://www.cdc.gov/diabetes/basics/gestational.html

³ “How to Manage Your Cholesterol Levels During Pregnancy,” Judith Marcin, M.D., Anna Schaefer, Healthline, https://www.healthline.com/health/pregnancy/manage-cholesterol-levels-during-pregnancy

⁴ “Births – Method of Delivery,” CDC, Oct 20, 2021, https://www.cdc.gov/nchs/fastats/delivery.htm

## Toxic Financial Habits

### As well-intentioned as we might be, we sometimes get in our own way when it comes to improving our financial health.

Much like physical health, financial health can be affected by binging, carelessness, or simply not knowing what can cause harm. But there’s a light at the end of the tunnel – as with physical health, it’s possible to reverse the downward trend if you can break your harmful habits.

#### Not budgeting

A household without a budget is like a ship without a rudder, drifting aimlessly and – sooner or later – it might sink or run aground in shallow waters. Small expenses and indulgences can add up to big money over the course of a month or a year.

In nearly every household, it might be possible to find some extra money just by cutting back on non-essential spending. A budget is your way of telling yourself that you may be able to have nice things if you’re disciplined about your finances.

#### Frequent use of credit cards.

Credit cards always seem to get picked on when discussing personal finances, and often, they deserve the flack they get. Not having a budget can be a common reason for using credit, contributing to an average credit card debt of \$6,913 for balance-carrying households.¹ At an average interest rate of over 16%, credit card debt is usually the highest interest expense in a household, several times higher than auto loans, home loans, and student loans.²

The good news is that with a little discipline, you can start to pay down your credit card debt and help reduce your interest expense.

#### Mum’s the word.

No matter how much income you have, money can be a stressful topic in families. This can lead to one of two potentially harmful habits.

First, talking about the family finances is often simply avoided. Conversations about kids and work and what movie you want to watch happen, but conversations about money can get swept under the rug.

Are you a “saver” and your partner a “spender”? Is it the opposite? Maybe you’re both spenders or both savers. Talking (and listening) about yourself and your significant other’s tendencies can be insightful and help avoid conflicts about your finances.

If you’re like most households, having an occasional chat about the budget may help keep your family on track with your goals – or help you identify new goals – or maybe set some goals if you don’t have any.

Second, financial matters can be confusing – which may cause stress – especially once you get past the basics. This may tempt you to ignore the subject or to think “I’ll get around to it one day”.

But getting a budget and a financial strategy in place sooner rather than later may actually help you reduce stress. Think of it as “That’s one thing off my mind now!”

Taking the time to understand your money situation and getting a budget in place is the first step to put your financial house in order. As you learn more and apply changes – even small ones – you might see your efforts start to make a difference!

¹ “2020 American Household Credit Card Debt Study,” Erin El Issa, Nerdwallet, Jan 12, 2021 https://www.nerdwallet.com/blog/average-credit-card-debt-household/

² “2020 American Household Credit Card Debt Study,” Erin El Issa

## How To Spend Your Windfall

### If you come into some extra money, how should you spend it?

On one hand you may have some debt you’d like to knock out, or you might feel like you should divert the money into your emergency savings or retirement fund.

They’re both solid choices, but which is better? That depends largely on your interest rates.

#### High Interest Rate.

The sooner you eliminate high interest rate debt, the better. Credit cards and personal loans can swiftly spiral out into crushing financial burdens. Even the highest income gets stretched thin if the interest rate is too high!

So if you fall into some extra cash and you’re faced with high interest debt, consider the peace of mind debt freedom would bring. It may be far more valuable than some zeros in a retirement account.

#### Low Interest Rate.

On the other hand, sometimes interest rates are low enough to warrant building up an emergency savings fund instead of paying down existing debt. An example is if you have a long-term, fixed-rate loan, like a mortgage.

The idea is that money borrowed for emergencies, rather than non-emergencies, will be expensive, because emergency borrowing may have no collateral and probably very high interest rates (like payday loans or credit cards).

So it might be better to divert your new-found funds to a savings account, even if you aren’t reducing your interest burden, because the alternative during an emergency might mean paying 20%+ rather than 0% on your own money (or 3-5% if you consider the interest you pay on the current loan).

#### Raw Dollar Amounts.

Relatively large loans might have low interest rates, but the actual total interest amount you’ll pay over time might be quite a sum. In that case, it might be better to gradually divert some of your bonus money to an emergency account while simultaneously starting to pay down debt to reduce your interest. A good rule of thumb is that if debt repayments comprise a big percentage of your income, pay down the debt, even if the interest rate is low.

#### The Best for You.

While it’s always important to reduce debt as fast as possible to help achieve financial independence, it’s also important to have some money set aside for use in emergencies.

If you do receive an unexpected windfall, it will be worth it to take a little time to think about a strategy for how it can best be used for the maximum long term benefit for you and your family.

## Unwinding Yourself Into Stress

### Americans carry a stunning amount in credit card debt— \$895 billion as of June 2021.¹

You read that right: \$895 billion. And that’s after decreasing in 2020 due to the pandemic.

It seems like many have ended up being owned by a tiny piece of plastic rather than the other way around.

How much have you or a loved one contributed to that number? Whether it’s \$10 or \$10,000, there are a couple simple tricks to get and keep yourself out of credit card debt.

The first step is to be aware of how and when you’re using your credit card. It’s so easy – especially on a night out when you’re trying to unwind – to mindlessly hand over your card to pay the bill. And for most people, paying with credit has become their preferred, if not exclusive, payment option. Dinner, drinks, Ubers, a concert, a movie, a sporting event – it’s going to add up.

And when that credit card bill comes, you could end up feeling more wound up than you did before you tried to unwind.

Paying attention to when, what for, and how often you hand over your credit card is crucial to getting out from under credit card debt.

Here are 2 tips to keep yourself on track on a night out.

1. Consider your budget. You might cringe at the word “budget”, but it’s not an enemy who never wants you to have any fun. Considering your budget doesn’t mean you can never enjoy a night out with friends or coworkers. It simply means that an evening of great food, fun activities, and making memories must be considered in the context of your long-term goals. Start thinking of your budget as a tough-loving friend who’ll be there for you for the long haul.

Before you plan a night out:

• Know exactly how much you can spend before you leave the house or your office, and keep track of your spending as your evening progresses.
• Try using an app on your phone or even write your expenses on a napkin or the back of your hand – whatever it takes to keep your spending in check.
• Once you have reached your limit for the evening – stop.

2. Cash, not plastic (wherever possible). Once you know what your budget for a night out is, get it in cash or use a debit card. When you pay your bill with cash, it’s a concrete transaction. You’re directly involved in the physical exchange of your money for goods and services. In the case that an establishment or service will only take credit, just keep track of it (app, napkin, back of your hand, etc.), and leave the cash equivalent in your wallet.

You can still enjoy a night on the town, get out from under credit card debt, and be better prepared for the future with a carefully planned financial strategy. Contact me today, and together we’ll assess where you are on your financial journey and what steps you can take to get where you want to go – hopefully by happy hour!

¹ “2020 American Household Credit Card Debt Study,” Erin El Issa, Nerdwallet, Jan 12, 2021, https://www.nerdwallet.com/blog/average-credit-card-debt-household/

## Life Insurance From Work May Not Be Enough

### In some industries, the competition for good employees is as big a battle as the competition for customers.

As part of a benefits package to attract and keep talented people, many employers offer life insurance coverage. If it’s free – as the life policy often is – there’s really no reason not to take the benefit. Free is (usually) good. But free can be costly if it prevents you from seeing the big picture.

Here are a few important reasons why a life insurance policy offered through your employer shouldn’t be the only safety net you have for your family.

#### 1. The Coverage Amount Probably Isn’t Enough.

Life insurance can serve many purposes, but two of the main reasons people buy life insurance are to pay for final expenses and to provide income replacement.

Let’s say you make around \$50,000 per year. Maybe it’s less, maybe it’s more, but we tend to spend according to our income (or higher) so higher incomes usually mean higher mortgages, higher car payments, etc. It’s all relative.

In many cases, group life insurance policies offered through employers are limited to 1 or 2 years of salary (usually rounded to the nearest \$1,000), as a death benefit. (The term “death benefit” is just another name for the coverage amount.)

In this example, a group life policy through an employer may only pay a \$50,000 death benefit, of which \$10,000 to \$15,000 could go toward burial expenses. That leaves \$35,000 to \$40,000 to meet the needs of your spouse and family – who will probably still have a mortgage, car payment, loans, and everyday living expenses. But they’ll have one less income to cover these. If your family is relying solely on the death benefit from an employer policy, there may not be enough left over to support your loved ones.

#### 2. A Group Life Policy Has Limited Usefulness.

The policy offered through an employer is usually a term life insurance policy for a relatively low amount. One thing to keep in mind is that the group term policy doesn’t build cash value like other types of life policies can. This makes it an ineffective way to transfer wealth to heirs because of its limited value.

Again, and to be fair, if the group policy is free, the price is right. The good news is that you can buy additional policies to help ensure your family isn’t put into an impossible situation at an already difficult time.

#### 3. You Don’t Own The Life insurance Policy.

Because your employer owns the policy, you have no say in the type of policy or the coverage amount. In some cases, you might be able to buy supplemental insurance through the group plan, but there might be limitations on choices.

Consider building a coverage strategy with policies you own that can be tailored to your specific needs. Keep the group policy as “supplemental” coverage.

#### 4. If You Change Jobs, You Lose Your Coverage.

This is even worse than it sounds. The obvious problem is that if you leave your job, are fired, or are laid off, the employer-provided life insurance coverage will be gone. Your new employer may or may not offer a group life policy as a benefit.

The other issue is less obvious.

Life insurance gets more expensive as we get older and, as perfectly imperfect humans, we tend to develop health conditions as we age that can lead to more expensive policies or even make us uninsurable. If you’re lulled into a false sense of security by an employer group policy, you might not buy proper coverage when you’re younger, when coverage might be less expensive and easier to get.

#### As with most things, it’s best to look at the big picture with life insurance.

A group life policy offered through an employer isn’t a bad thing – and at no cost to the employee, the price is certainly attractive. But it probably isn’t enough coverage for most families. Think of a group policy as extra coverage. Then we can work together to design a more comprehensive life insurance strategy for your family that will help meet their needs and yours.

## Life Insurance That Lasts a Lifetime

### Most people, when they think of life insurance, might think of two types: Term Life Insurance and Whole Life Insurance.

There are two types of policies, but it’s more accurate to think of them as temporary or permanent. It’s kind of like renting an apartment vs. buying a home. When you rent, it’s probably going to be temporary, depending on your situation. However when you buy a house, the feeling is more like you’re settling down and you’ll be there for the long-haul. When you rent, you don’t build value. But when you buy, you can build more equity in your home the longer you own it.

Permanent life insurance can build a cash value, something a term policy can’t do. A term life policy only has monetary value when it pays a death benefit in a covered claim. Temporary and permanent policies also have some types of their own.

For example, term life insurance can include living benefits or critical illness coverage, as well as group term life insurance and key person life insurance, which is sometimes used in businesses. These are all designed to be temporary coverage. Here’s why. The policy might guarantee premiums for 10 years – or as long as 30 years – but after its term has expired, a term policy can become price-prohibitive. For this reason the coverage is, for all practical purposes, considered temporary.

Permanent Life Insurance: Designed to Last a Lifetime

As its name suggests, permanent life insurance is built to last. It’s a common perception that permanent life insurance and whole life insurance are synonymous, but whole life insurance is just one type of permanent life insurance.

At first glance, a permanent life insurance policy can seem more expensive than a term policy, but you’d have to consider the big picture to be fair in comparing the two options. Over the course of a full lifetime, permanent life insurance can be less costly – in part – because term policies become expensive if you require coverage after the initial term has expired. An investment element also helps to build cash value in a permanent life insurance policy, taking pressure off premiums to provide coverage.

If I’ve left you scratching your head over your options, no worries! Understanding the benefits of each type is important, and choosing which policy is best for you is a uniquely personal experience. Contact me, and we’ll review your options to find the right strategy for you and your family.

## Learn Skills Fast

### Mastering a skill takes time, effort, and sometimes money.

Hours of dedicated learning, training, and mentorship are required to move from amateur to expert. But who has the time for that? Most of us are still figuring out our careers or how to be a better parent or partner. With our busy lives, acquiring an additional skill—no matter how beneficial or fulfilling it may be—can seem like a fantasy.

#### But what if there were a way to quickly become competent at a skill?

It turns out that there are some simple steps you can take to jumpstart your learning process. Here are some tips for quick skill acquisition!

#### Work backwards.

Skills are typically composed of smaller processes. For instance, playing a song on piano requires a few different abilities. You must be able to move each finger to the right keys at the right time, you should probably know how to read music, and possess a sense of when to play more loudly or softly. Trying to play a song without some command of those capabilities can feel overwhelming or impossible!

That’s why it’s useful to start with the end product and work backwards to discover the little skills you need to master. Once you see the micro-processes involved, you can start working forward. This might feel silly at first. Jumping between the same few notes over and over again until you’ve got them down isn’t the most glamorous endeavor! But it lays the foundation for a more complicated and satisfying skill that will pay off in the long run.

It’s easy to think making progress will be a straight line. We’re building up our little skills, getting better and better with each practice session. But pretty soon we hit a wall. There’s a problem that seems we can’t overcome. We might even start backsliding or feeling like we’re getting worse!

Don’t sweat a roadblock. It’s perfectly normal to hit a plateau when you’re trying to acquire a skill. Take a break from practice, go for a walk or take a nap, and get back to it with a fresh perspective. You might be surprised by how much learning occurs when you allow your brain to relax and process.

As nice as it sounds, multitasking simply does not work. There’s overwhelming evidence that it actually slows down your brain and wildly reduces efficiency.¹ Multitasking must be avoided at all costs when you’re trying to quickly learn a new skill. Try setting aside some undistracted time every morning or evening for a few weeks to work on your skill. That means leaving your phone in another room, turning off the TV, and telling your family that you’ll be busy for a while. Get in the zone and start practicing!

An hour every evening for a month won’t transform you into a Picasso. You’re not shooting to be a virtuoso. Instead, these tips and strategies may help you quickly acquire competence in just about anything you set your mind to. So draw up a list of some skills you want to develop and start learning!

Sources:

## Morning Habits You Can Start Tomorrow

### Most of our mornings aren’t very fun. We roll out of bed, maybe hit snooze a few times, and then crawl into work feeling groggy at best.

But it doesn’t have to be like this. The morning hours can be times of relaxation, focus, and self-improvement. Here are a few practical habits that can take your mornings from pointless to productive!

Go to bed early. Stayed up too late watching just one more episode of your favorite show? Don’t expect to wake up feeling motivated. A productive morning starts the night before. Try to stay away from screens before going to bed (at least one hour) and make sure you turn in at a reasonable time. You may also want to dial back when you wake up. Having a quiet hour or two before everyone else wakes up is a great way of freeing up time to invest in things you care about. Just remember that your new sleep schedule will take some time to adjust to!

Exercise first thing. One of the best habits to fill your new-found morning hours is exercise. It’s a great way to get your blood flowing and boost your energy. Plus, the feeling that you’ve accomplished something can help carry you through the day and boost your confidence.