You’re not afraid of emergencies. Between life insurance and your fully stocked emergency fund, you and your family are prepared for the financial ups and downs of life.
You’re not afraid of losing your job. You have enough saved for retirement already that you don’t depend on your paycheck. Besides, you may even have a side source of income (or three) to help make ends meet!
You certainly aren’t afraid to splurge on yourself. That’s right—you can spend your discretionary funds on the things you love and care about, footloose and fancy free.
You’re not afraid of your future. Why? Because you have a strategy in place, and you’re sticking to it. And you’re on track to retire with wealth instead of want.
Sure, there are metrics and benchmarks and numbers you should be concerned with. Ask a financial professional about what those would look like for you and your situation. They’re different for each person.
But the feeling is always the same—the end of fear, and a sense of peace. You’re ready to focus on the people and things that matter most.
Are you financially free? What steps have you taken to eliminate fear of emergencies, losing your job, treating yourself, and preparing for your future?
It makes sense. Life is hectic. Schedules are full. Sometimes, you feel like you hardly have a second to brush your teeth, much less have time to sit down and enjoy a heart-to-heart conversation with a friend. And so important decisions get pushed further and further into the future.
That’s fine in some cases. Do you need to decide how to organize your garage right now, at this very moment? No, probably not.
But with something like your finances, procrastination can cause disaster. Why? Because time is the secret ingredient for building wealth. The sooner you start saving, the greater your money’s growth potential. Likewise, the sooner you get your debt under control, the more manageable it becomes.
And with your money, the stakes couldn’t be higher. After all, it’s your future prosperity and well-being that could be at risk. Procrastination is downright dangerous.
That urgency, however, doesn’t make it easier to start saving. In fact, you may have noticed that finances suffer more from procrastination than anything else.
There’s a very good reason for that. Procrastination is driven, above all else, by perfectionism. Failing feels awful, especially when you know the stakes are high. Your brain sees the discomfort of trying to master your finances and failing, and decides that it would feel safer to not try at all.
It’s a critical miscalculation. Making an attempt to master your finances can at least help move you closer to your goals. Procrastinating never does.
Think of it like this—50% success is better than 0% success.
The key to beating procrastinating, then, is to conquer the perfectionist mindset and fear of failure. It’s no small feat. Those habits of mind are often deeply ingrained. They won’t vanish overnight. But there are some simple steps you can take, like…
Break big goals down into small steps. This relieves the overwhelm that many feel when facing important tasks. As you knock out those small steps, you’ll feel empowered to keep moving forward.
Don’t go it alone. Procrastination thrives in isolation. Seek out a friend, loved one, or co-worker to help hold you accountable and share the load—even if it’s just a weekly check-in to see how each other are doing.
Work in short, uninterrupted bursts. Set a timer. Put down the phone. Work. After about 15 minutes, you’ll notice something strange happening. Time starts to either speed up or slow down. Distracting thoughts vanish. The lines between you, your focus, and the task at hand start to evaporate. You feel awesome. This is called a flow state, and it’s the key to productivity. Make it your friend, and you’ll probably notice that procrastination becomes rarer and rarer.
Now that you know the cause of procrastination, try these tips for yourself. Set a 30 minute timer. Then, break your finances into tiny action steps like checking your bank account, automating saving, and budgeting. Work on each item in a quick burst until you’ve made some progress. Then, talk to a friend about your results!
Just like that, you’ve made serious headway towards beating procrastination and building wealth. Look at you go!
“But what exactly is passive income?” they asked. A simple Google search revealed thousands of articles with a common theme—passive income is money you make while you sleep!
But is passive income really possible, or does it just live in the dreams of people looking for a way to make money without working?
To answer that question, let’s look at what passive income is (and isn’t). Then you can see if it will work for you!
Passive income, generally speaking, is a product or service that requires an upfront investment of time, effort, or wealth to create.
- Rental properties that require wealth to purchase, and are cared for by a property manager while creating rental income - Books, music, and courses that required time and creativity to create and now generate income without regular upkeep - Investing wealth in a business as a silent partner and taking a slice of their revenue
Can those income sources generate cash flow while you sleep? Of course! But notice that all of those opportunities require either work or resources that can only be acquired by work.
Does that mean you shouldn’t prioritize passive income sources? No! They can sometimes provide the financial stability you need.
Just don’t expect a passive income stream to effortlessly appear in your lap.
Remember, there is no such thing as free money. All wealth building opportunities require time, effort, and energy to reach their full potential.
If you want to learn more about creating passive income sources, contact me. We can review your talents, your situation, and your dreams to determine smart strategies for developing passive income.
If you’re a parent, you have the power to influence your kids more than anyone or anything else. Your child’s response to conflict, their career, their relationships, their hobbies, their values, their politics, the core of who they are can all be shaped by you, the parent.
The same is true of your mindset towards money. The way you deal with your finances can have a profound impact on how your children deal with theirs.
Research has shown that most people start learning about money by age 3. By age 7, their attitudes about money are set.¹
What do you remember between ages 3 and 7? Probably very little on the conscious level. But you may carry some of their habits around with you…
You probably remember if your parents had frugal or flippant attitudes about money.
You probably remember if your parents fought about money.
You probably remember trying to persuade your parents to buy you things… or if your words fell on deaf ears.
On some level, you probably feel all those things now when money comes up in conversation. When your stress vanishes after buying a new toy. Or your heart sinks when you check your bank account. Or you get a head rush of discomfort when your coworker starts talking about the size of their investment portfolio.
Here’s another fact—almost no one is happy with the financial education they got growing up. 83% of parents wish they had learned more about money when they were kids.²They’re eager to avoid mistakes from their own childhood. But there’s just one problem…
Do they actually know how money works?
It’s unlikely. A 2020 global survey revealed that only 15% of young adults were financially literate.1 Translation—85% of adults, through no fault of their own, are poised to repeat their own parents’ mistakes.
That’s why reaching families with financial education is foundational to our mission. If parents get a financial education, their children are far better positioned to build wealth. And if families can learn how money works together, they can remove emotional obstacles and grow closer together, as well.
That’s why financial education is central to my mission. Because once families know how money works, they’re far less likely to be taken advantage of. They start making decisions that favor their futures, not someone else’s.
And when that happens to enough families, the financial industry will never be the same.
But by definition, your job ceases to become your source of income once you retire.
Instead, you’ll need to tap into new forms of cash flow that, most likely, will need to be prepared beforehand.
Here are the most common sources of retirement income. Take note, because they could be critical to your retirement strategy.
It’s simple—you pay into social security via your taxes, and you’re entitled to a monthly check from Uncle Sam once you retire. It’s no wonder why it’s the most commonly utilized source of retirement income.
Just know that social security alone may not afford you the retirement lifestyle you desire—the average monthly payment is only $1,543.¹ Fortunately, it’s far from your only option.
These types of accounts might be via your employer or you might have one independently. They are also popular options because they can benefit from the power of compound interest. The assumption is that when you retire, you’ll have grown enough wealth to live on for the rest of your life.
But they aren’t retirement silver bullets. They often are exposed to risk, meaning you can lose money as well as earn it. They also might be subject to different tax scenarios that aren’t necessarily favorable.
If you have a retirement savings account of any kind, meet with a licensed and qualified financial professional. They can evaluate how it fits into your overarching financial strategy.
Although they are riskier and more complex, these assets can also be powerful retirement tools.
If you own a business or real estate, it’s possible that they can sustain the income generated by their revenue and rents, respectively, through retirement. Best of all, they may only require minimal upkeep on your part!
Again, starting a business and buying properties for income carry considerable risks. It’s wise to consult with a financial professional and find experienced mentorship before relying on them for retirement cash flow.
Like it or not, some people will have to find opportunities to sustain their lifestyle through retirement. It’s not an ideal solution, but it may be necessary, depending on your financial situation.
You may even discover that post-retirement work becomes an opportunity to pursue other hobbies, passions, or interests. Retirement can be about altering the way you live, not just having less to do.
You can’t prepare for retirement if you don’t know what to prepare for. And that means knowing and understanding your options for creating a sustainable retirement income. If unsure of how you’ll accomplish that feat, sit down with your financial professional. They can help you evaluate your position and create a realistic strategy that can truly prepare you for retirement.
This article is for informational purposes only and is not intended to promote any certain products, plans, or policies that may be available to you. Any examples used in this article are hypothetical. Before enacting a savings or retirement strategy, or purchasing a life insurance policy, seek the advice of a licensed and qualified financial professional, accountant, and/or tax expert to discuss your options.
¹ “How much Social Security will I get?” AARP, https://www.aarp.org/retirement/social-security/questions-answers/how-much-social-security-will-i-get.html
Ask a friend this question—“what would you do with $1 million?”
Your friend will pause, look at the ceiling for a moment, repeat the question to themselves, and then say something like…
“Well, the first thing I would do is plan a trip to Europe. I’ve always wanted to go, but I’ve never been able to afford it.”
“Down payment on a new house. Definitely. We’ve outgrown our place and we’re ready for the forever home.”
Or, if they’re really savvy…
“First, I’d knock out all my debt. Then, I’d use half of what’s left to generate compound interest. Then, I’d see about a condo down in Florida.”
These responses are well and good. But they show that your friend is no entrepreneur.
An entrepreneur would instantly respond…
“I’d use it for the business.”
Translation—they’d use the money to make more money.
Maybe they’d use the money to hire an ad agency to run a marketing campaign, driving revenue through the roof.
Maybe they’d use the money to hire more workers, exponentially increasing their ability to serve clients.
Maybe they’d use the money to purchase software or hire a third party to streamline their workflow, boosting their efficiency.
Everyone views money as a tool. It solves problems. Living in a house that’s too small? That’s a big problem. And money can easily solve it.
But entrepreneurs see money as a tool to earn even more money.
To start thinking like an entrepreneur, ask yourself this question—how can I use my money to start making more money? There are only a few answers to that question, and the right one will lead you down the path of starting your own business.
It’s a common mindset, and it keeps many from reaching their financial goals. But the truth is, you don’t have to be born into money or have some special talent to create wealth. It all comes down to making a commitment to start building your fortune today.
So why do so many people put off working to create wealth until later in life? There are many reasons, but chief among them is fear.
What if you save your money in the wrong place and lose everything?
What if you can’t access money when you need it?
What if you confirm a deep-seated suspicion that you don’t really know what you’re doing?
But here’s the truth—you’re better positioned to start building wealth today than you ever will be again. That’s because your money has more time to grow and compound today than it will in the future.
That’s especially true in your 20’s and 30’s. But it’s also true if you’re 45 or 55. The best time to build wealth is right now, this very moment.
So what can you do? How can you leverage time to start building wealth? Here are a few simple financial concepts you can use right away.
Create an emergency fund. I know it seems counterintuitive, especially if your credit is in shambles or you have a lot of debt to pay off. But the truth is, building an emergency fund is one of the best ways to begin building wealth because it gives you a margin of safety. If you have money set aside for a rainy day, you won’t have to turn to credit cards or high interest loans when life throws you a curveball. Instead, you can take care of things with your own savings and move on.
Automate saving right now. The best way to start building wealth is to put something away every month. Forget about how much you’re putting away or your interest rate. For now, just put something away, even if it’s just $5. You can work with a financial professional to boost those numbers later on. The important thing is to start now.
If you want to learn more about how to start building wealth today, let’s chat. I’d love to help you set some goals and create a plan for getting there. We all deserve financial security, regardless of our age or income level. So let’s find out how you can get started today.
Whether you’re in your 20’s and paying off student loans or in your 40’s and trying to save for retirement, financial decisions can be complicated.
The good news? There are steps you can take to avoid mistakes and help your peace of mind when it comes to money management. Here are some of the most common financial blunders people make, and tips on how to avoid them.
This may be the tough love you need to hear. No one judges what you drive. Or the watch on your wrist. Or the size of your home. And the one-in-a-million person who does? They’re probably someone with WAY bigger problems than your 2006 economy car that still gets great gas mileage.
But that fear is powerful for a reason. It’s been carefully nurtured by TV commercials and Instagram accounts with a singular goal—to make you buy things you don’t really need.
Know this—you’ll gain far more respect by attending to your own financial situation than by desperately trying to keep up appearances.
Let’s face it—mastering your finances is symbolic of becoming an adult. You’re supposed to know how to run a budget, save for retirement, and somehow have enough left over for a nice summer vacation. There’s tremendous internal pressure to act like you know what you’re doing.
But were you ever taught how money works? Did any teacher, professor, or mentor sit you down and explain the Rule of 72, the Power of Compound Interest, or the Time Value of Money? If you’re like most, the answer is no. It’s a cruel double-bind—to feel good about yourself, you must master skills no one has ever taught you.
This keeps you from asking for help. You get caught in shame, denial, and confusion. It’s hard to admit that you don’t know something that seems so basic, so essential.
But rest assured—you’re not the only one. And the right mentor or financial professional will listen to your story without judgment and seek to help you.
There are few things more daunting than staring at a pile of bills, an empty bank account, or an intimidating stack of paperwork. You know what you have to do. But it doesn’t happen because you’re so overwhelmed by the task ahead. And it’s especially daunting if you’ve never been taught how money works—you don’t even know where to start!
But nothing causes financial pain quite like procrastination. That’s because it causes exponential damage. Your bills pile up. Your interest rates rise. Your savings fall drastically behind, and you must save far more to catch up.
The antidote? Break tasks down into smaller, manageable steps. Maybe that means signing up for an online budget app or working with a financial professional. It might mean automating $15 per month into an emergency fund, or cooking one dinner at home each week.
It doesn’t matter how small the task is, as long as it helps put money back in your pocket and stops the scourge of procrastination.
In conclusion, making financial mistakes is something that can happen to anyone. By knowing some of the most common financial mistakes people make and what you can do to avoid them, you’ll probably have more peace of mind when it comes to money management.
Think about any business. It could be a lemonade stand. It could be Amazon.
Each of those businesses solves a problem.
The lemonade stand solves the problem of feeling dehydrated on a hot summer day. How? With a refreshing mix of sugar, citrus, and cold water. One sip, and you’re a new person. It’s a feeling people will pay 50 cents, or even a dollar, to achieve.
Amazon solved a problem people didn’t even realize existed—the inconvenience of shopping in brick-and-mortar stores. It turns out that driving from location to location was a time-consuming hassle, and there was no guarantee the store would have what you needed. Amazon eliminated those problems entirely with an all-encompassing online marketplace. And they’ve been richly rewarded—just look at Jeff Bezos’s net worth!
Your current job is likely solving a problem for your boss. You have skills that your boss needs for their business to run, but that they don’t have the time to develop or apply themselves. And in return for solving that problem for 40 hours per week, they give you a salary.
The takeaway? Don’t just develop skills—identify problems. Once you see obstacles, you can leverage your skills to overcome them. That’s where money comes from.
If you want to maintain a budget and save money, then you need a plan. The first step is understanding the basics—what is a budget? How does it work? What are the benefits of having one?
To effectively manage your monthly budget, you must take certain steps from day one. This article will provide some helpful tips and tricks on how to get started and keep going strong until payday rolls around!
A budget is a plan. It helps you set limits for your spending, so that you can track your income and expenses. Maintaining a budget keeps you aware of when you are spending too much or if there are areas where your money could be saved.
It can also help you understand your spending habits as well as identify problems, such as giving in to too many sales or buying expensive lattes every day. With a clear understanding of how you spend money every month, you may be able to reduce expenses and even start saving for luxuries or emergencies. You can’t have a goal of saving for your next summer vacation if you don’t know how much money you’re spending now.
The first step is to set goals for yourself for income and spending. When it comes to income, you need to consider all the ways you get paid. What is your salary—after taxes and any other contributions you make, like to a 401(k)? Is your employer cutting back your hours? Do you have another source of income such as a side job or freelance work?
Be completely honest with yourself about how much money you have coming in. Once this figure is known, you can assess your spending and determine how much of your income goes towards them every month.
Next, make a list of all fixed monthly bills, such as rent or loan repayments. Then make a list of variable expenses, such as groceries or gas. Lastly, make a list of all your monthly discretionary spending, or ‘fun money’.
If you struggle with this last step, look at your bank statements. It’s the easiest way to find a complete record of your spending. This will help you pinpoint the areas that you could cut down on or even eliminate.
Now that you have your budget, you can take action. You can save money by leveraging your budget to meet your monthly goals.
The first way is to leverage your income. If you have a job, talk to your employer about working extra hours, or ask for a raise. This will give you more money right out of the gate.
Beyond the extra income from a job, there are many other ways to add to your budget.
You can start small and pick up some side work—babysitting, dog walking, delivering pizzas, etc. If you can turn your free time into money, go for it! This all depends on your financial situation and what you feel comfortable with, so take the time to plan accordingly.
You can also think about reducing your expenses. Cutting back on luxury items can save money every month without having to work an extra job. Just think of all the things you could do with the money that’s currently going towards cable TV or eating out every day for lunch!
Don’t forget to have some fun every once in a while. Just find creative ways to have it on a budget. Plan more outings with friends like playing tennis or frisbee in the park, rather than going to the club every evening. Your community is bound to have some free local events going on, especially in warmer weather.
A budget is a way for you to track your expenses and income each month. You can leverage your budget in a number of ways, by increasing income or decreasing expenses—or both! With this knowledge, you’ll be able to save more and plan for the future.
It’s a concept pioneered by Robert Kiyosaki of Rich Dad Poor Dad fame. And it’s one of the best explanations of creating income around.
The employee and freelancer trade their time for money.
The entrepreneur and investor create or purchase income generating assets.
Think about what an employee does. They show up, punch in, and work for a set number of hours. In exchange, they either get paid by the hour or a set annual salary.
If they’re extra conscientious and prove their worth to their employer, they may get a raise or bonus as a reward. But their income is entirely dependent on the good graces and success of their boss. They never directly enjoy the fruits of their labor.
The same is true for the freelancer. Sure, they may enjoy greater independence than an employee, but they’re still trading their time for money. Think of them as a mercenary rather than a soldier.
Compare that with the entrepreneur. The difference is that the entrepreneur creates a system for delivering a service that’s duplicatable.
Let’s say you start a lemonade stand. You put up a few bucks to buy some lemons, sugar, cups, a cooler, and stand. It’s a risk—there’s no guarantee you’ll have any customers.
Fortunately, it’s a hit—the neighbors line up to enjoy your refreshing beverage!
After a few days, you’re swimming in cash. In fact, you earn enough to open another lemonade stand. So you buy the same supplies, and hire a friend to run the new location. Just like that, you’ve scaled your lemonade business.
Eventually, you have so many lemonade stands that you don’t have to manage one yourself. Instead, through initiative and upfront commitment, you’ve created an income stream. That’s how entrepreneurship works.
But now suppose that a friend comes along. She’s been eyeing your success and wants in. She’ll put up the cash to open another ten lemonade stands across the neighborhood (it’s a BIG neighborhood).
In exchange, she gets a slice of the profits from all the stands. She takes on some risk by giving you money in exchange for some income. In other words, she’s an investor. She’s using her money to earn more money.
There are two critical points to notice about the entrepreneur and the investor.
1. They take risks. Being an employee is relatively predictable—if your employer continues to do well, you’ll give X amount of time, and you’ll get X amount of money. But starting a business is a risk. Giving money to an entrepreneur is a risk. Entrepreneurs and investors commit resources to projects with no guarantee of success.
2. They have far greater potential. There are only so many hours you can trade for money. When successful, entrepreneurs and investors have far more resources at their disposal to trade for money.
Simply put, entrepreneurs and investors face greater risks, and greater potential rewards.
Which quadrant generates most of your income? Is there a quadrant you would like to explore further?
You’re done with the 9-to-5, and ready to transition from employee to entrepreneur.
But there’s one last hurdle—how will you pay for it?
Starting a business requires resources. Whether it’s a laptop, store front, circular saw, or musical instrument, you’ll need tools to ply your trade. You’ll also need to consider the cost of hiring employees as your business grows!
There are three common strategies entrepreneurs leverage to raise money for starting a business…
1. Raise capital. Trade ownership of your business for money.
2. Borrow money. Pay interest for money.
3. Self-fund. Cover business expenses yourself.
There’s no right way to fund your business. But there are clear pros and cons to each approach. Let’s explore them further so you can have a better idea of which may be best for you!
1. Raise capital. This strategy involves scouting out wealthy individuals and institutions to give you money to fund your business. But it’s no free lunch. In exchange for funding, investors want a slice of your company. As your business grows, so does their profit.
That gives them a powerful say in the management of your business. If you raise capital this way, you may find these stakeholders calling the shots and pulling the strings instead of you.
Plus, raising capital simply is out of reach for most entrepreneurs. Unless you’re disrupting a major industry and have extensive experience, the risk-reward situation may not make sense for potential investors.
2. Borrow money. It’s straightforward—you ask a lending institution or friend for money that you’ll pay back with interest. Both parties take a calculated risk that your business will increase its value enough to repay the loan. It’s a simple, time-tested strategy for funding a new business.
The advantage of getting a business loan is that it keeps you in full control of your business. No board of directors or controlling shareholders!
But business loans require planning to manage. Your business will need to consistently make payments, meaning you’ll need to consistently earn profit. That’s rarely a surefire proposition when you’re first starting out.
So while debt can help your business expand and hire new talent, it’s typically wise to hold off on borrowing until later.
3. Self-fund. This is far and away the most realistic strategy for most entrepreneurs. It’s exactly what it sounds like—pay the upfront costs of starting a business yourself.
No debt. No working for someone else. You’re completely free to run your business. You’re also completely financially responsible for the outcome.
Will you be able to buy a storefront outright? Or start a competitive car manufacturer? Probably not. But there are dozens, if not hundreds, of opportunities that require far less capital.
Look around. You may have the tools you need to start a business at your fingertips! In fact, if you’re reading this article on a laptop or desktop, you’re positioned to start an online business right now. All you need is a service to provide clients.
The takeaway? The funding your business needs will depend on your situation. Challenging an established industry with a revolutionary approach? Then you may need outside funding. But if you’re like many, you have all the tools and resources you need to start your business.
In the years when there was an abundance of crops, it was wise to store up as much as possible in preparation for the years of famine. However, if instead of saving you ate it all up during the 7 years of abundance, the result would be starvation for you and your family during the 7 lean years. This might be an extreme example in our modern, First World society, but are you “eating it all up” now and not storing enough away for your retirement?
The definition of retirement we’ll be using is: “An indefinite period in which one is no longer actively producing income but rather relies on income generated from pensions and/or personal savings.”
According to this definition, the “years of plenty” would be the years that you are still working and generating income. While you still have regular income, you can set aside a portion of it to save for retirement. This amount is called the “Personal Savings Rate.”
According to the latest statistics, the monthly personal savings rate for Americans has plummeted to 2.4% of their income.¹ For much of the past decade it’s hovered around 7% to 8%, briefly spiking during the first months of the COVID-19 Pandemic to over 30%.
Suppose you’re looking to retire for at least 10 years (e.g., from 65 years old to 75 years old). Even if you’re planning to live on only half of the income that you were making prior to retirement, you would need to save up 5 years worth of income to last for the 10 years of your retirement. Just raw saving at average rate without the power of interest would take years before it became the wealth most people need to retire.
So unless you’ve found the elixir of everlasting life, we’re going to need to do some serious “saving” of the personal savings rate. Is there a solution to this dilemma? Yes. If you’re looking for possible ways to store up and prepare for your retirement, I’d be happy to have that conversation with you today.
¹ “Personal Saving Rate,” U.S. Bureau of Economic Analysis, Federal Reserve Bank of St. Louis, Dec 23, 2022, http://bit.ly/2qSGrR3.
It turns out that all of the above can be damaging to your health. The first two may come as no surprise, but it turns out people who experience “negative wealth shock” are 50% more likely to die in the following 20 years than their neighbors.¹ That’s an insane uptick! So why are the numbers so high?
Let’s start by defining negative wealth shock.
It can happen when someone loses 75% or more of their wealth. Imagine if you woke up one day and discovered that your $100,000 nest egg had dropped to $25,000. That’s the level of loss needed to be considered negative wealth shock.
Obviously, a loss of that magnitude would be emotionally devastating.
But why does it seem to have such an impact on mortality?
Part of it might have to do with losing access to medical services. People with less money can’t visit the doctor as often and sometimes can’t afford the treatment they need.
It’s also worth considering that dangerous health conditions sometimes result in negative wealth shock.² Perhaps the statistic says more about the seriousness of staying healthy than it does staying rich!
However, there’s also a strong likelihood that losing the vast majority of one’s wealth causes dangerous levels of stress. For example, The Great Recession of 2007 to 2009 actually increased the risk for heart attacks and depression.³
Unfortunately, negative wealth shock is astoundingly common.
A survey discovered that a quarter of participants had experienced it.⁴ Americans aren’t just losing vast amounts of money. They’re experiencing devastating emotional, mental, and ultimately physical damage that could cost them their lives.
So how can you prevent a traumatic negative wealth shock?
First, determine how volatile your net worth is. Is all your wealth concentrated in one investment? What would happen if that investment crashed?
Second, discover how sturdy your protection is. How would you pay the bills if you were out of work or unable to work? Do you have the savings and insurance to protect you and your family?
Third, assess how stable your income is. Would your paycheck vanish if you couldn’t work or if your employer went belly up? Or do you have a team and system in place that could keep you financially afloat?
How did you answer these questions? Let’s talk if you feel that you’re vulnerable to a negative wealth shock. We can brainstorm strategies to insulate your wealth against the worst and protect it for your future.
¹ ⁻ ⁴ “Financial Ruin Can Be Hazardous To Your Health,” Rob Stein, NPR, April 3, 2018, https://www.npr.org/sections/health-shots/2018/04/03/598881797/financial-ruin-can-be-hazardous-to-your-health
Will your plans be durable enough to withstand your working years and sustain you through your retirement? The answers to the following questions can help give you clarity on if your retirement strategy has what it takes!
Not all savings vehicles are created equal. For instance, stashing all your cash in a mattress until retirement is a great way to torpedo the value of your savings. Why? Because inflation will slowly but surely reduce the value of each dollar you earn today. The same goes for low-interest saving options like CDs, bonds, and checking accounts. Even a 401(k) might not be enough!
Realistically, you want to put your money in a place where it can leverage compound interest. That means the cash you save generates interest, and all the interest you earn also generates interest. Interest earning interest on interest eventually unleashes a huge tidal wave of wealth creation that can help carry you through your final years.
Nobody wants to take a pay cut when they retire. But that’s exactly what people relying on Social Security will do; it’s only designed to replace 40% of your annual income!¹ Instead, it’s better to live off of 80% of your salary.²
So what does that number look like now? Assuming you live 30 years after retiring, how much would you need to save before you hit that goal? If you make $60,000, 80% of your income is $48,000. You would need $1,440,000 saved to maintain your lifestyle for three decades.
Once you have that number estimated, determine how much you’ll need to save starting today. You can use a nifty compound interest calculator like this one to get an idea of how much that will be!
There are few surprises nastier than saving for decades only to have the government bite a huge chunk out of your nest egg at the finish line. We won’t dive into the details of taxes now, but you need to decide when you’ll pay Uncle Sam his share. You can either:
Pay now. CDs and Roth IRAs are options where you pay your taxes, then save the money. You end up only paying the tax rate of today.
Pay later. You don’t pay any taxes now, but you cough up a percentage of whatever you earn in the long haul at a future rate. This is how a 401(k) works.
Pay never. No, you don’t have to hire a Swiss lawyer and hide your money on an island to do this. Ask a licensed and qualified professional about legal ways to achieve tax free growth.
Whatever option you choose, make sure you understand its implications for how much you’ll have when you need it.
It’s always best to review your strategy with a licensed and qualified professional. They’ll have insights and knowledge to help you achieve the retirement of your dreams.
¹ “How Much Can I Receive From My Social Security Retirement Benefit?,” Wendy Connett, Investopedia, October 14, 2022, https://www.investopedia.com/ask/answers/102814/what-maximum-i-can-receive-my-social-security-retirement-benefit.asp#:~:text=The%20maximum%20monthly%20Social%20Security%20benefit%20that%20an%20individual%20can,the%20maximum%20amount%20is%20%242%2C324
² “How Much Money Do You Need to Retire?,” John Waggoner, AARP, Sep 17, 2020, https://www.aarp.org/retirement/planning-for-retirement/info-2020/how-much-money-do-you-need-to-retire/?cmp=RDRCT-3c5a7391-20200917
Americans spend about 34% of their income on servicing their mortgages, car loans, and, of course, credit cards.¹
Assuming a household income of $68,703, that translates to roughly $23,359 going down the drain each and every year.²
Obviously, converting that money from debt maintenance to wealth building would be a dream come true for most Americans. But there’s more at stake here than retirement strategies.
Take the example from above. A third of your income is going towards debt and the rest is split up between everyday living and transportation expenses. You feel you can make ends meet as long as the money keeps coming in.
But what happens if a recession causes massive layoffs? Or if a pandemic shuts down the economy for months?
The sad fact is that the hamster wheel of debt prevents a huge chunk of Americans from saving enough to cover even a brief window of unemployment, let alone a shutdown!
That lack of financial security can have serious repercussions, including bankruptcy. And feeling like you’re always one unexpected emergency away from a financial crisis can result in a myriad of mental health issues. Numerous studies have shown that high levels of debt increase anxiety, depression, anger, and even divorce.³
Conquering debt isn’t about changing numbers on a page. It’s about reclaiming your peace. It’s about securing financial stability for you and your family. Your income is a powerful tool if you can protect it from lenders.
If you’re stressed about debt and seeking some relief, let me know. We can review your situation together and come up with a game plan that will recover the financial security that’s rightfully yours.
¹ “Study: Americans Spend One-Third of Their Income on Debt,” Maurie Backman, The Ascent, Mar 6, 2020, https://www.fool.com/the-ascent/credit-cards/articles/study-americans-spend-one-third-of-their-income-on-debt/#:~:text=And%20recent%20data%20from%20Northwestern,feel%20guilty%20about%20their%20predicament
² “Income and Poverty in the United States: 2019,” Jessica Semega, Melissa Kollar, Emily A. Shrider, and John Creamer, United States Census Bureau, Sept 15, 2020, https://www.census.gov/library/publications/2020/demo/p60-270.html#:~:text=Median%20household%20income%20was%20%2468%2C703,and%20Table%20A%2D1)
³ “The Emotional Effects of Debt,” Kristen Kuchar, The Simple Dollar, Oct 28, 2019, https://www.thesimpledollar.com/credit/manage-debt/the-emotional-effects-of-debt/#:~:text=In%20that%20study%2C%20Gathergood%20found,including%20depression%20and%20severe%20anxiety.&text=The%20study%20also%20reported%20that,stress%20also%20report%20severe%20anxiety.
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:
Remember, the most important person you owe money to is you. Prioritize your own savings and use your income to build wealth for yourself.
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.
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!
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!
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.
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!
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.
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.
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.
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.
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.
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.
Some downturns can be seen from a mile away. Others, like the Great Recession and the Coronavirus lockdowns, are black swan events—they catch even the experts off guard.
But they don’t have to find YOU unprepared.
Here’s a quick checklist to help you assess your recession readiness.
Without well-stocked emergency savings, losing your job could spell disaster for your finances—you’d be forced to rely on credit to cover even basic expenses. When you re-enter the workforce, a huge chunk of your income would go straight towards paying down debt instead of building wealth.
That’s why it’s critical to save three to six months of income asap. It may be the cushion you need to soften the blow of unemployment, should it come your way.
Recessions don’t discriminate. They affect everyone from the poorest to the wealthiest. But one group weathers downturns better than most—those with multiple streams of income.
If you have more than one source of income, you’re less likely to feel the full brunt of a recession. If one stream dries up, ideally you would have others to fall back on.
What does that look like? For many, it means a side hustle. Some create products like books, online guides, etc., or they might do something like acquire rental properties. These types of businesses typically only require a one-time effort to produce or purchase but will yield recurring income.
If you’re ambitious, you could create a business to generate income that far exceeds your personal labor. It’s not for the faint of heart. But with the right strategy and mentorship, it could lend your finances an extra layer of protection.
Just as you diversify your income streams, you should also diversify your savings. That way, if one account loses value, you have others to fall back on.
What could that look like? That depends on your situation. It’s why talking to a licensed and qualified financial professional is a must—they can help tailor your strategy to meet your specific goals.
The wealthy have long known that recessions can be opportunities. With the right strategy, you may actually come out ahead financially.
But in order to take advantage of those opportunities, you need to have cash on hand. That way, when others are forced to sell at a discount, you can scoop up assets at a fraction of their true value.
So if you want to be in a position to take advantage of a downturn, make sure you have ample cash on hand. That way, when an opportunity comes knocking, you’ll be ready to answer.
No one can predict the future. But by following these tips, you can prepare your finances for whatever the economy throws your way.