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!
What is a budget?
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.
How to create your budget
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.
Leverage your budget
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.
Here’s what it looks like…
Employee | Entrepreneur
Freelancer | Investor
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.
That’s not just your morning alarm, set for 6:15am each and every darn weekday.
It’s a starter’s pistol. The rat race has begun.
The rat race is a behavior experiment. Scientists condition rats to run races, solve puzzles, complete mazes, do tricks, reproduce, not reproduce, and a host of other feats.
How? By dangling a treat in front of them. Perform the tasks. Get the reward.
Many are caught in a human rat race. They’re told that to be an adult they need a credit card, a car, a mortgage, and a 9 to 5 job.
So they jump through the hoops, solve the puzzles, and perform the tasks to get that treat—their paycheck.
That paycheck gets consumed by their basic needs, their payment plans, and their lifestyle.
And the cycle continues. Jump through hoops. Get paid. Spend. Jump through more hoops. Ad infinitum.
Bigger “treats” help—like a bonus or a raise—but only for a little while. Eventually, they get consumed by increasingly extravagant spending. It’s why people with high incomes stay trapped in the rat race.
The result? You keep running a pointless and repetitive race that leads nowhere.
Is it any surprise, then, that there’s a “great resignation” happening? Or that businesses can’t find employees?
Maybe it’s because people are finally waking up to the truth—they’ve been playing someone else’s game. They’ve been making someone else rich. And now they’re ready for a new and better opportunity.
But you look around and your heart sinks. You haven’t moved an inch! You’re exactly where you started.
That’s what happens to Alice in Through the Looking-Glass. The Red Queen, who’s dragging Alice by the hand, delivers this infamous line: “Now, here, you see, it takes all the running you can do, to keep in the same place.”
Sound familiar? That’s because there is an effect called The Red Queen Problem. And it can mean the difference between success and failure for your business.
The Red Queen Problem originated in evolutionary biology. It’s the hypothesis that evolution in one species pressures other species to evolve.
Think about a peaceful savannah. All the creatures are in equilibrium—half the time the cheetahs catch the gazelles, half the time the gazelle escapes.
But imagine that one day, a cheetah shows up that’s built a little differently—she can outrun every gazelle on the plain. So can her kids, and her grandkids, and her nieces and nephews.
Suddenly, there’s dramatic pressure on the gazelles. The theory is that they have to literally pick up the pace or face extinction. If the fastest gazelles survive, they’ll have fast children, and balance will be restored.
But now an arms race has begun. All the other predators—and their prey—face the exact same pressure to speed up or die.
The same is true in business.
There’s a constant evolutionary arms race of reinvention. One business develops a groundbreaking process or product, and all their competitors must adapt or face extinction.
In short, stagnation is destruction. Innovation is keeping up. Your growth and evolution is likely the result of growth and evolution among your competitors. As the Red Queen said, “it takes all the running you can do, to keep in the same place.”
But make no mistake—the sooner you reinvent, the greater the rewards. That faster cheetah on the plain? She instantly shoots up the food chain, securing her species’ place.
Again, the same is true in business. The first businesses to mass produce personal computers, or create cloud software, or redefine socialization have had massive advantages.
The goal is to be the one in the lead, the one who dictates how others adapt.
So are you leading? Or are you adapting?
It was no 2020, thank goodness. But there were enough ups, downs, and head scratchers to warrant a retrospective.
These are the top financial literacy stories of 2021.
Memes rocked the financial industry. You read that correctly—memes.
It began with struggling companies like Gamestop and AMC soaring in value. The cause? Rabid speculation fueled primarily by Reddit. There was little rhyme and even less reason to the frenzy, with devastating results—the boom became a bust that wiped out $167 billion of wealth.¹
And notice, that’s not even counting the rollercoaster year that cryptocurrency enthusiasts have “enjoyed.”
Memes also literally became hot commodities in the form of NFTs (Non-Fungible Tokens).
What’s an NFT? In short, it’s an image that’s modified with blockchain. The blockchain makes the image a one-of-a-kind collector’s item since it’s possible to verify the image’s identity. Think of it as a mix of cryptocurrency and trading cards.
That means almost any digital image has the potential to become incredibly valuable. For instance, one NFT sold in 2021 for $69.3 million.²
And it makes sense why people have turned en masse to memes to build wealth. They don’t know how money works. They’ve never been taught how to build a financial legacy. And deep down, they know it. So when something, anything, comes along that looks like an opportunity to stick it to the man, they take it. The results are predictable… and often tragic.
The housing market caught on fire. Speaking of extravagant pricing, the housing market boomed in 2021. The numbers speak for themselves. Rent increased 16.4% from January to October.³ More dramatically, home prices surged almost 20% between August 2020 and August 2021.⁴
The housing market serves as a window into other forces impacting consumers. Inflation raised the cost of almost everything in the last half of 2021. And with the supply chain in chaos, it seems possible that prices will continue to rise in 2022.
That makes financial literacy more critical than ever. Families have less and less margin for error, and common milestones seem harder to reach. Without the right knowledge and strategies, building wealth may be increasingly difficult.
Financial illiteracy cost Americans billions. An annual survey by the National Financial Educators Council revealed that financial illiteracy cost the average American $1,634 in 2021.⁵ That’s a total of $415 billion.
Worst of all, that’s likely an underestimate. Think of what $1,634 could do if it were put to work building wealth in a business or retirement account. That’s the true cost of financial illiteracy—both in the short-term AND building wealth long-term.
What are your top financial literacy stories from 2021? Do you foresee any exciting changes in 2022?
¹ “Meme Stocks Lose $167 Billion as Reddit Crowd Preaches Defiance,” Sarah Ponczek, Katharine Gemmell, and Charlie Wells, Bloomberg Wealth, Feb 2, 2021, https://www.bloomberg.com/news/articles/2021-02-02/moonshot-stocks-lose-167-billion-as-crowd-preaches-defiance
² “Top 5 Non-Fungible Tokens (NFTs) of 2021,” Rakesh Sharma, Investopedia, Dec 15, 2021, https://www.investopedia.com/most-expensive-nfts-2021-5211768
³ “Biden’s next inflation threat: The rent is too damn high,” Katy O’Donnell and Victoria Guida, Politico, Nov 10, 2021, https://www.politico.com/news/2021/11/10/rent-inflation-biden-520642#:~:text=The%20Apartment%20List%20annual%20National,expected%20to%20continue%20for%20years
⁴ “Home price growth is finally decelerating—and it’s just the start,” Lance Lambert, Fortune, Dec 6, 2021, https://fortune.com/2021/12/06/housing-market-slowing-heading-into-2022/
What’s your favorite thing about the holidays? Maybe it’s family, tradition, generosity, or even nostalgia.
Your answer is a window into your values. That’s what makes the holidays so special—they’re opportunities to reconnect with what’s important to you.
But here’s the truth—that connection isn’t reserved for the holidays. In fact, it can be yours year-round.
This holiday season, make note when you sense that connection. Look for it while you’re celebrating holiday traditions with your family. Or notice someone’s expression when they open that gift, the one they’ve wanted for years. Or any child’s face when they’re mesmerized by the lights in the neighborhood.
Next, strategize about how you can have more of what you value in life. Maybe you need an opportunity that gives you more time with your family. Maybe you need an income boost to afford greater generosity. It’s likely that you’ll need to make financial moves in addition to personal moves.
Finally, follow through. That might involve taking massive leaps forward. It may involve a small, unassuming step. Whatever it is, start working towards that sense of connection.
So here’s wishing you a holiday full of what matters most. And may you have the courage to chase those things in the upcoming year.
That’s right—with the magic of the internet, you can be in debt to faceless strangers instead of faceless institutions.
One moment while I get my tongue out of my cheek…
But seriously, peer-to-peer lending—or P2P—is exploding. It’s grown from a $3.5 billion market in 2013 to a $67.93 billion market in 2019.¹
Why? Because P2P lending seems like a decentralized alternative to traditional banks and credit unions.
Here’s how it works…
P2P lending platforms serve as a meeting point for borrowers and lenders.
Lenders give the platform cash that gets loaned out at interest.
Borrowers apply for loans to cover a variety of expenses.
Lenders earn money as borrowers pay back their debt.
No middleman. Just straightforward lending and borrowing.
Think of it as crowdfunding, but for debt.
And make no mistake—there’s a P2P lending platform for every loan type under the sun, including…
▪ Wedding loans ▪ Car loans ▪ Business loans ▪ Consolidation loans
But here’s the catch—debt is debt.
The IRS. A bookie. A banker. Your neighbor. It doesn’t matter who you owe (unless they’re criminals). What matters is how much of your cash flow is being consumed by debt.
Can P2P lending platforms offer competitive interest rates? Sure! But they can also offer ridiculous interest rates, just like everywhere else.
Can P2P lending platforms offer lenders opportunities to earn compound interest? Of course! But they also come with risks.
In other words, P2P lending is not a revolution in the financial system. In fact, two leading P2P platforms have actually become banks.²
Rather, they’re simply options for borrowing and lending to consider with your financial professional.
¹ “19 P2P Investing Statistics You Need to Know for 2021,” Swaper, Feb 22, 2021 https://swaper.com/blog/p2p-investing-statistics/
² “Peer-to-peer lending’s demise is cautionary tale,” Liam Proud, Reuters, Dec 13, 2021 https://www.reuters.com/markets/asia/peer-to-peer-lendings-demise-is-cautionary-tale-2021-12-13/
From January to October 2021, rent skyrocketed 16.4.¹ And the market hasn’t cooled off—housing costs increased for renters 0.3% between September and October alone.²
It briefly looked like the housing market boom was temporary. There were plenty of rumors that the bubble was about to burst. Queue the comparisons to the 2007-2008 housing bubble!
But prices have kept on rising. In fact, Americans have come to expect it—on average, they anticipate a 10% increase in 2022.³ Financial institutions agree—the Federal Reserve Bank of Dallas predicts the surge to continue until December 2023.⁴
Why? Because of a perfect storm of…
• Supply chain woes • Housing shortages • Historically low interest rates • First-time home buyers
In other words, houses are in high demand, but there aren’t enough available and they’re expensive to build.
And those problems aren’t likely to be resolved anytime soon.
But take all that with a grain of salt. If there’s anything that the last two years have proven, it’s that anything is possible.
For now, it’s best practice to prepare your budget for rising rents.
¹ “Biden’s next inflation threat: The rent is too damn high,” Katy O’Donnell and Victoria Guida, Politico, Nov 10, 2021, https://www.politico.com/news/2021/11/10/rent-inflation-biden-520642
² “Biden’s next inflation threat,” O’Donnell and Guida
³ “Biden’s next inflation threat,” O’Donnell and Guida
⁴ “Biden’s next inflation threat,” O’Donnell and Guida
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 process. Maybe your strategy for carrying out business is flawed and needs to be retooled.
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.
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?
If so, let’s chat. Consider me your sounding board for your anxieties about the transition from employee to entrepreneur. I can help you process your fears and flesh out a vision for your business.
You just need the practical know-how to overcome your fears and start the journey.
The goal of this article is to empower you to take bold action.
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.
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!
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:
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.
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
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
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
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.
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.
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.