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.
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.
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.
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
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.
So why does it feel like you have so little control? How many people feel financially helpless? Like there is barely enough to make ends meet and never enough to prepare for the future?
78% of Americans were living paycheck to paycheck before the pandemic hit.¹ That means most of us weren’t in control of our finances. We were just riding the coattails of a fabulous economy.
So what does it take to achieve financial control?
Here are some basic ways to grab the reins of your personal finances!
You should know how much you make. But do you know how much you spend and on what? Discovering that your bank account is empty at the end of each month is one thing. But figuring out where your money is going—that’s something else entirely. This knowledge is what will help equip you to create a strategy and take control of your life.
Start by figuring out how much you spend in total and subtracting that number from how much you make. Then, break down your spending into categories like rent, gas, eating out, entertainment, streaming services, and anything else that takes a chunk out of your normal expenses. It might feel like homework, but hang in there.
Goals are the key to creating an effective financial strategy. You have to know what you’re building towards if you want to develop the best steps and strategies. It’s okay to think simple. Maybe you’re just trying to get out of debt. Perhaps you’re trying to save enough to start a business or buy a home. Or you might be a bit more ambitious and have an eye on a dream retirement that you want to start preparing for now.
Figure out what it is you want and how much it will cost. From there you can use your budget to start cutting back in categories where you spend too much. You might discover that you need to increase your income to accomplish your goals. Map out a few steps that will move you closer to making your dream a reality.
Once you’ve built a strategy based on your goals and budget-fueled insights, the only thing left is to follow through and take action. This isn’t a grandiose, one-time maneuver. This is about little decisions day in and day out that will help make your dreams a reality. That means making small moves like meal prepping at home instead of eating out, or avoiding clothing boutiques in favor of thrift shop finds. Those little acts of discipline are the building blocks of success. You might fall off the wagon every now and again, but that’s okay! Pick yourself up and keep pushing forward.
It’s important to have each of these three components operating together at once. Knowing your financial situation and not doing anything about it may not do anything but cause anxiety. Cutting your spending without an overall vision can lead to pointless frugality and meaningless deprivation. And a goal without insight or action? That’s called a fantasy. Let’s talk about how we can implement all three of these elements into a financial strategy today!
¹ “78% Of Workers Live Paycheck To Paycheck,” Zack Friedman, Forbes, Jan 11, 2019, https://www.forbes.com/sites/zackfriedman/2019/01/11/live-paycheck-to-paycheck-government-shutdown/#3305f4cb4f10
Maybe your numbers never add up or too many expenses are coming “out of the blue”. You might also feel a sense of dread every time you make a purchase. No matter what you do, this whole budgeting thing doesn’t seem to be working.
Hang in there! Here are a few budgeting potholes that might be slowing down your financial goals and how to avoid them!
Budgets are supposed to help you use your money wisely. They should be a positive part of your life—they’re not supposed to make you feel like you’re constantly failing. But sometimes our passion to save money and get our financial house in order gets the better of us, and we set up budgets that are too restrictive. While coming from good intentions, an overly thrifty budget can actually make it harder to achieve your goals. An impossible to follow plan can make you feel discouraged and resentful. You might even decide that it’s not worth the hassle! Try starting with a more reasonable strategy and then build from there!
Sometimes our budgets are just too complicated to actually be useful. Not everyone loves working with numbers, and sometimes fiddling with spreadsheets can get so overwhelming that we just want to quit. Plus, there’s plenty of room for human error! A good option is to investigate free budgeting sites or apps. All you do is punch in the correct numbers and the magic of technology will do the rest!
Life is constantly changing. Your simple, streamlined budget might be perfect for the life of a young single professional, but will it still hold up in five years? Where will the portion of your paycheck that works down your student loans go once you’re debt free? And when will you start saving for a house?
Take some time every few months to review your budget and see what’s changed. Evaluate what you’ve accomplished and areas that need improvement. Ask yourself what your next milestones should be and if those line up with your long-term goals!
Budgeting takes work. But it shouldn’t be a burden. Cut yourself some slack, prune your process, and stay consistent. You might be surprised by the difference filling in budgeting potholes can make in your financial life!
It’s linked to lung cancer and heart disease, and is associated with nearly 1 in 5 deaths in the United States.(1) But smoking damages more than your body. It can also seriously hamper your financial health in ways that might surprise you.
Cigarettes aren’t cheap. Prices per pack vary from $$6.11 in Missouri to $11.96 in New York, but the national average comes out to around $8.(2, 3) Smoking a pack per day will run you $56 per week, $224 per month, and $2,912 per year. Over 20 years you’ll have spent $58,240 on cigarettes. That’s a lot of money to light up!
But smoking carries more subtle costs. Hospital bills, medication, and treatment all cost money, and smoking bumps up your chances of needing those at some point in your future. In total, smoking-related illness costs the United States over $300 billion per year.(4) Smokers also have to face higher insurance costs because of the health risks presented by their habit. All told, smoking one pack per day costs around $15,000 a year, or $40 per pack.(5)
What would you do with $15,000? If you’re smoking a pack per day, your answer is to spend it on a highly addictive chemical that feels great in the moment but will damage your health long-term. But what would happen if you put that $15,000 to work? Could that be the cash you need to start building a business? Maybe that could be the foundation of your child’s college fund or inheritance. That nicotine hit might be what you think you need to destress or get out of bed in the morning, but it’s costing you more than short-term cash. It’s denying you the potential to live on your terms and start building your future.
Quitting cigarettes can feel daunting. They’re an easy coping mechanism that you might depend on. Imagining a day without lighting up with your morning coffee could be downright terrifying. But smoking costs you more than just 6 bucks per pack. It costs you more than your future health. The price of a quick nicotine fix could be stopping you from reaching your full potential and stealing life-changing opportunities.
Trying to quit? Check out these resources from the CDC.
¹ “Health Effects of Cigarette Smoking” CDC, https://www.cdc.gov/tobacco/data_statistics/fact_sheets/health_effects/effects_cig_smoking/index.htm
² “Cigarette Prices by State 2022,” World Population Review, https://worldpopulationreview.com/states/cigarette-prices-by-state/
³ “Economic Trends in Tobacco,” CDC, https://www.cdc.gov/tobacco/data_statistics/fact_sheets/economics/econ_facts/index.htm#
⁴ “ Hidden Costs of Smoking,” American Cancer Society, https://www.washington.edu/admin/hr/benefits/events/flyers/tobacco-free/hidden-cost-of-smoking.pdf
These words have been plastered all over the news and social media feeds for the last two years. And there’s no sign of it stopping.
As individuals and as businesses, we can’t control the economy.
But what we can control is how we respond to it.
The key is to stay focused on your long-term goals, and make sure your actions align with them.
Here are a few tips on how to navigate economic volatility…
1. Check your emotions. Fear is the natural response to economic volatility. What will happen to your job? What will happen to your business? What will happen to your retirement savings?
Know this—one of the worst mistakes you can potentially make is acting rashly on those fears. Volatility creates opportunity. Don’t lose out on potential because of headlines you read. Instead, assess your situation, what you stand to lose, and opportunities you might have.
2. Stay focused on your goals. It’s easy to get caught up in the day-to-day noise of the news. But if you want to help your sanity—and make sound financial decisions—it’s important to keep things in perspective.
How far are you from retirement? What kind of lifestyle do you want in retirement? What’s your strategy for protecting against long-term losses?
If your goals are in line with your current reality, take a deep breath and ride out the storm. If not, it’s time to reevaluate where things stand and make adjustments as necessary.
3. Review your budget and financial strategy. Once you’ve gotten past the initial emotional reaction, it’s time to take a clear-eyed look at your budget and finances.
There are two critical components to examine here—your emergency fund and your debt.
If you have an adequate emergency fund in place, keep it intact. Resist the temptation to tap into your savings to cover short-term losses. You’ll need your emergency fund for different expenses, like emergencies.
As for debt, make sure you’re not overextending yourself with credit cards and loans that only might make sense when the economy is booming. If you lose your job in a downturn, the last thing you want is high-interest debt hanging over you.
4. Meet with your financial professional. It’s simple—a licensed and qualified financial professional can help stop rash financial decision making in its tracks.
A financial professional can help you see the big picture, keep things in perspective, and develop a strategy that can help you stay on track—no matter what the economy throws your way.
While economic volatility can feel frightening, it’s important to stay focused on your long-term goals. Having the right mindset and guidance can help you navigate a crisis with confidence.
And it’s not just a minor price hike. Used cars saw a 66%-110% price increase from December 2019 to December 2021.¹ For comparison, overall prices have increased “only” 12% from 2019 to 2022.²
Why? Like almost everything over the last two years, it all comes back to the pandemic.
Here’s the story…
New cars need microchips. That’s where all the computerized magic happens that consumers have come to expect when they drive out of the dealership.
But chip manufacturers were hit right between the eyes by the pandemic. They faced extensive lockdowns, followed by surging demand once the economy began to recover. Factories were simply unable to produce new cars quickly enough. Consumers needed alternatives. So they started buying used cars, en masse.
Demand shot up. Supply went down. And as a result, prices for used cars have soared.
Fortunately, there may be relief on the horizon. If chip manufacturers reopen and new cars hit the market, used car prices should start to trend downward. J.D. Power estimates the market will stabilize in late 2022 or early 2023.³ Morningstar puts the date in 2023.⁴
But whether those predictions become reality remains to be seen. For now, if you’re in the market for a used car, expect to pay more than you would have just a few years ago.
¹ “When Will Used-Car Prices Drop? 3 Things Car Shoppers Should Know,” Jane Ulitskaya, Cars.com, Feb 3, 2022, https://www.cars.com/articles/when-will-used-car-prices-drop-3-things-car-shoppers-should-know-446525/
² “$1 in 2019 is worth $1.12 today,” in2013dollars.com, https://www.in2013dollars.com/us/inflation/2019?amount=1#:~:text=Core%20inflation%20averaged%203.02%25%20per,2022%2C%20a%20difference%20of%20%240.09
³ “When Will Used-Car Prices Drop? 3 Things Car Shoppers Should Know,” Jane Ulitskaya, Cars.com, Feb 3, 2022, https://www.cars.com/articles/when-will-used-car-prices-drop-3-things-car-shoppers-should-know-446525/
⁴ “Used car prices continue to surge. Here’s why — and when they could come back down,” Mike Stunson, Miami Herald, https://www.miamiherald.com/news/nation-world/national/article257060717.html#storylink=cpy
This isn’t to talk bad about your brain—it’s like a supercomputer ceaselessly working to make sense of the world and keep you safe. The trouble is, sometimes it does this by coming up with shortcuts that feel like they should make sense, but can lead to serious errors.
These mistakes are sometimes called mind traps. They can derail logical thinking and lead you astray. And they can have a big impact on your money.
Here are some of the most common money mind traps, and how you can avoid them!
1. All or nothing thinking. This is a classic example of the “great” being an enemy of the “good”. You might feel that unless you can go all out on saving and building wealth, you might as well do nothing. Go big or go home, right?
It’s an obviously flawed line of thinking. Saving even a little is always better than saving nothing. But the temptation not to is still very, very powerful. Why? It might be because of anxious or perfectionist tendencies. Anything short of perfection seems like failure. And that sense of failure is so uncomfortable that it seems safer to not even start.
But here’s the truth—you’ll never go big unless you start small. Waiting for the stars to align, or even to get all your ducks in a row, will result in permanent inaction.
The solution? Commit to save $20 per month (or whatever amount works with your budget). Read one blog article about money. Follow just one money influencer. You might be surprised by the difference that even just a little change can make!
2. Magical thinking. For example: “I’ll start saving when I get a raise.” Spoiler—you won’t.
Why? Because you didn’t start saving after your last raise. What would make this time any different?
This is magical thinking. This time is going to be different, even if you do nothing different. It’s the hope that circumstances will change on their own, and with them, your behavior.
The solution is to be proactive. If you want to save more money, you have to take action. That might mean reworking your budget or setting up automated transfers into savings. It might mean looking for ways to make more money. But whatever it is, do it now. If the “present you” won’t do it, neither will the “future you”.
3. Catastrophizing & personalizing. Have you ever opened your bank account and thought “This is the end of the world?” It’s happened to everyone at least once. Suddenly, you realize you’re far closer to zero than you realized. Worst of all, you’re not sure why.
To be clear, that’s NOT the end of the world. There could be plenty of good reasons why you’ve spent more this month, and there are plenty of ways to get your financial house back in order.
But that’s not how it feels. It feels like defcon 3. Surely this means that you’ll default on the mortgage, lose the car, and ruin your future.
And that catastrophizing almost always leads to personalization. You start blaming yourself. How could you let this happen again? What’s wrong with you? Those negative voices are off to the races, and it can feel impossible to get them under control. And it’s all because you’re looking at your bank balance with no plan.
The solution is to step back, take a breath, and remember that it’s just a number. It does not define you. Sure, you need to take responsibility for your actions. But follow your train of thought. Where are you jumping to conclusions? What are you assuming? If you can catch yourself in the moment, it’s a lot easier to calm those anxious thoughts before they get out of control.
Mind traps are dangerous because they’re so believable. They seem like rational thoughts, but they’re really just faulty logic that can lead to costly mistakes.
The good news is, once you’re aware of them, you can start to catch yourself in the act. And with practice, it gets easier and easier. So next time you find yourself thinking you have to go big or go home, or that your finances will magically fix themselves, or that you’re a failure, take a moment. Write down your thoughts. And then ask yourself—is this really true? Or is it just a mind trap?
It’s a precarious position—few things are more dangerous than being overconfident AND wrong. It’s a direct path to acting rashly and making big mistakes.
And when it comes to money, those mistakes can be costly.
This isn’t speculation—it’s a scientifically studied phenomenon called the Dunning-Kruger effect. Put simply, it’s the tendency for unskilled people to grossly overestimate their own competence. The lower the skill level, the more likely they are to overestimate themselves.
And that plays out in personal finance time and time again.
Think about that family member with yet another hair-brained business idea. Or the NFT-slinging college student who’s certain that one of the .JPGs on his computer will be worth millions someday.
It’s the same pattern—you learn a factoid about money. “Compound Interest makes your money grow.” “Real estate can be lucrative.” “You need to start saving ASAP.”
You take that information and, instead of using it as a foundation to do more research, you use it as ammunition. Now you’re an expert! And experts don’t need to read or learn—they already know everything.
From there, it’s a slippery slope into dangerous territory.
Next thing you know, you’re swept up in businesses you don’t understand, or handing your money to “gurus” who promise get-rich-quick schemes.
It’s not always so dramatic, of course. Overestimating your financial literacy can manifest in more subtle ways—like not bothering to comparison shop for a mortgage because you’re confident you already know all there is to know about home loans.
But the end result is always the same—you make mistakes, and those mistakes cost you money.
So, how can you avoid falling into the trap of overconfidence?
The first step is to acknowledge that it’s a trap. Be aware of the Dunning-Kruger effect and its impact on your personal finances.
The second step is to commit to lifelong learning. Read books and articles, listen to podcasts, meet with a professional—whatever it takes to continuously expand your knowledge.
And finally, be humble. Recognize that there’s always more to learn, even if you’re already pretty savvy when it comes to money.
If you can do those things, you’ll be on your way to financial success. And that’s something you can feel confident about.
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.
Caring too much about what others think. 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.
Not asking for help when you need it. 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.
Procrastination. 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.
Excited? Afraid? Disappointed? Nothing?
Those feelings can reveal deeper truths about your relationship with money. And that relationship can influence your financial future.
That’s because, despite what people say, money is often wrapped up in feelings about…
That’s why people’s behavior with money is often not well-reasoned. Instead of making measured decisions based on the numbers, people find themselves on autopilot. In other words, they react instead of respond.
Let’s look at some examples…
Let’s say your relationship with money is primarily fear based. Maybe you saw your parents struggle with their finances, and you constantly worry about reliving their experience.
The autopilot response? Frugality and risk-aversion, even if you earn a comfortable wage.
There’s nothing wrong with either of those qualities in moderation. But taken too far, they may seriously damage your personal relationships and prevent you from taking advantage of financial opportunities.
Plus, the constant stress and fear of losing everything might impact your mental and physical health if not properly managed.
There’s also the opposite extreme. What if you use wealth to establish your social status?
You’ll be far more likely to buy things you don’t need to show off to your peers. You may even begin compulsively shopping to cope with stress.
In other words, you may be using money in unhealthy and damaging ways. And the stress and guilt that come from such behavior can seriously harm relationships and your ability to accomplish your goals.
So what’s the solution? What should your feelings toward wealth be?
The starting point must be that money is primarily a tool. It doesn’t define you. It isn’t evil. It’s simply a tool that empowers you to pursue things that you love.
Simply put, money isn’t an end unto itself. It’s a means to an end.
The question is, then what do you love? What do you want to do and see and pursue? And what role will money play in achieving those goals?
Once you reorder your relationship with wealth along those lines, a whole world of possibility may open up like…
But it all starts with understanding your current feelings towards money, and then deciding on what you want your future to look like.
If you need someone to process those feelings with, contact me! I’m here to offer you guidance and support on your journey towards financial stability.
There’s no way to guarantee that it’ll pay off because there are so many unknowns that go into starting a business. But one thing is for sure: If you’re the adventurous type and aren’t afraid to give it your all, you won’t be able to resist the urge to try!
So if you’re thinking about entrepreneurship, here are some factors to consider…
Do you have enough experience in your field?
It’s a fact—entrepreneurs with at least three years of experience in their industry are 85% more likely to succeed.¹ If you haven’t met that threshold, you might not be ready for entrepreneurship just yet! Are you equipped to handle the stress?
Entrepreneurship can be intense. You’re going to be the one who has to problem solve payroll, bookkeeping, marketing, sales, customer service…the list goes on and on.
If you aren’t ready for this kind of pressure, entrepreneurship might not be for you. It may be better to begin developing stress coping strategies now that could serve you well if you pursue entrepreneurship in the future.
Have you developed a professional and personal support network?
Starting your own business is tough. Having a support network can make it easier. Without a positive, supportive circle (in person and online), you run the risk of…
People you know who have already started businesses are great contacts for advice. And if they’re extremely successful, they may even be willing to mentor you as well.
It’s also critical to surround yourself with inspired individuals who can support you in your moments of self-doubt or when you’ve had a failure. These are the people that can help you keep going when things get tough!
Are your personal finances in order?
If you’re paying off massive amounts of debt, have no savings, and are living paycheck-to-paycheck (or worse…borrowing from friends or family), entrepreneurship would likely stress your finances even more. How would you pay your rent or put food on the table if your business underperformed? That’s why it’s best to discover how money works before—not after—you start your business.
This article isn’t meant to discourage you from going out on your own and forging your own business path—entrepreneurship is an incredible opportunity to chase your dreams and build wealth! Rather, it’s supposed to help you succeed. The sooner you start addressing the factors in this article, the sooner you can start building the business you’ve always wanted!
¹ “The Average Age Of A Successful Startup Founder Is 45,” Entrepreneur Middle East, George Hojeige, Feb 5, 2020, https://www.entrepreneur.com/article/345884
It helps protect your family during the grieving process, gives them time to figure out their next steps, and can provide income to cover normal bills, your mortgage, and other unforeseen expenses.
Here are some guidelines to help you figure out how much is enough to help keep your family’s future safe.
Who needs life insurance? A good rule of thumb is that you should get life insurance if you have financial dependents. That can range from children to spouses to retired parents. It’s worth remembering that you might provide financial support to loved ones in unexpected ways. A stay-at-home parent, for instance, may cover childcare or education costs. Be sure to take careful consideration when deciding who should get coverage!
What does life insurance cover? Life insurance can be used to cover a variety of unexpected expenses. Funeral costs or debts can potentially be financial and emotional strains, as can the loss of a steady income and employer-provided benefits. Think of life insurance as a buffer in these situations. It can give you a line of defense from financial concerns while you process your loss and plan for the future.
How much life insurance do you need? Everyone’s situation is different, so consider who would be financially impacted in your absence and what their needs would be.
If you’re single with no children, you may only need enough insurance to cover funeral costs and pay off any debts.
If you’re married with children, consider how long it might take your spouse to get back on their feet and be able to support your family, how much childcare and living expenses might be, and how much your children would need to attend college and start a life of their own. A rule of thumb is to purchase 10 times as much life insurance as income you would make in a year. For instance, you would probably buy a $500,000 life insurance policy if you make $50,000 a year. (Note: Be sure to talk with a qualified and licensed life insurance professional before you make any decisions.)
An older person with no kids at home may want to leave behind an inheritance for their children and grandchildren, or ensure that their spouse is cared for in their golden years.
A business owner will need a solid strategy for what would happen to the business in the event of their death, as well as enough life insurance to help ensure that employees are paid and the business can either be transferred or closed with costs covered.
Life insurance may not be anyone’s favorite topic, but it can be a lifeline to your family in the event that you are taken from them too soon. With a well thought out life insurance policy for you and your situation, you can rest knowing that your family’s future has been prepared for.
But that doesn’t stop “budget” from being an intimidating word to many people. Some folks may think it means scrimping on everything and never going out for a night on the town. It doesn’t! Budgeting simply means that you know where your money is going and you have a way to track it.
The aim with budgeting is to be aware of your spending, plan for your expenses1, and make sure you have enough saved to pursue your goals.
Without a budget, it can be easy for expenses to climb beyond your ability to pay for them. You break out the plastic and before you know it you’ve spent fifty bucks on drinks and appetizers with the gang after work. These habits might leave you with a lot of accumulated debt. Plus, without a budget, you may not be saving for a rainy day, vacation, or your retirement. A budget allows you to enact a strategy to help pursue your goals. But what if you’ve never had a budget? Where should you start? Here’s a quick step-by-step guide on how to get your budgeting habit off the ground!
Track your expenses every day. Start by tracking your expenses. Write down everything you buy, including memberships, online streaming services, and subscriptions. It’s not complicated to do with popular mobile and web applications. You can also buy a small notebook to keep track of each purchase. Even if it’s a small pack of gum from the gas station or a quick coffee at the corner shop, jot it down. Keep track of the big stuff too, like your rent and bill payments.
Add up expenses every week and develop categories. Once you’ve collected enough data, it’s time to figure out where exactly your paycheck is going. Start with adding up your expenses every week. How much are you spending? What are you spending money on? As you add your spending up, start developing categories. The goal is to organize all your expenses so you can see what you’re spending money on. For example, if you eat out a few times per week, group those expenses under a category called “Eating Out”. Get as general or as specific as you wish. Maybe throwing all your food purchases into one bucket is all you need, or you may want to break it down by location - grocery store, big box store, restaurants, etc.
Create a monthly list of expenses. Once you’ve recorded your expenses for a full month, it’s time to create a monthly list. Now you might also have more clarity on how you want to set up your categories. Next, total each category for the month.
Adjust your spending as necessary. Compare your total expenses with your income. There are two possible outcomes. You may be spending within your income or spending outside your income. If you’re spending within your income, create a category for savings if you don’t have one. It’s a good idea to create a separate savings category for large future purchases too, like a home or a vacation. If you find you’re spending too much, you may need to cut back spending in some categories. The beauty of a budget is that once you see how much you’re spending, and on what, you’ll be able to strategize where you need to cut back.
Keep going. Once you develop the habit of budgeting, it should become part of your routine. You can look forward to working on your savings and developing a retirement strategy, but don’t forget to budget in a little fun too!
¹Jeremy Vohwinkle, “Make a Personal Budget in 6 Steps: A Step-by-Step Guide to Make a Budget,” The Balance (March 6, 2020).
Do you ever feel like no matter how much money you make, it never seems like enough? You’re not alone. A recent survey found that more than half of middle-income families didn’t have three months of expenses saved.¹ Debt and spending can be out of control for many reasons—the economy, our upbringing, or even because we’re hardwired to want more. This article explores three bad habits that may be hurting your financial situation. You might be surprised by what they are!
Treating credit cards like free money. When you’re tempted to buy something and don’t have the cash, it’s easy to just use credit. But instant gratification can have serious consequences. Little by little, you may find yourself racking up more and more debt. Paying your monthly credit card bill can start requiring all of your cash flow… and maybe more. Yikes.
The solution? Limit your credit card usage as much as possible. Make a habit of only using your credit card for certain low-dollar items, like gas. If you can’t buy your impulse purchase in cash, go home!
Trying to buy happiness. It’s tempting to think that you’re going to be happy if you buy one thing or another. But what happens when the newness wears off? Suddenly, you have a closet full of clothes and shoes that really aren’t making you any happier! The same is true of houses, cars, gadgets, anything you can think of. Buying things to keep up appearances or just because you think they’ll make you fulfilled is a recipe for overspending on things that, ultimately, don’t matter.
The key is to find happiness beyond your material possessions. That’s no small task, and there’s no set road map for it. But it’s absolutely critical to find a source of meaning that isn’t tied to stuff and things. You could be happier—and more financially stable—for it.
Ignoring your financial situation. Let’s face it—finances can be scary! Overwhelming debt, paying for college, and feeling out of your depth are uncomfortable emotions. And ignoring and denying uncomfortable feelings is often a first line of defense.
But it’s a dangerous game. Ignoring what the numbers tell you can lead you deeper and deeper into financial instability. You could be setting up a much harder path for yourself in the future than if you tackled your financial situation now.
Tackling your financial fears isn’t always easy. It might require serious soul searching. Just know these three things…
Acknowledging the problem is the first step. Once you can admit that your finances need help, you’re ready to start making positive changes.
Seeking help is always wise. Whether it’s a friend, spouse, qualified counselor, or financial professional, enlisting help can give you the courage you need to face your fears.
You can do this! It might not feel like it, but you have what it takes to confront this challenge… and win! Don’t lose hope, and start moving forward.
Managing your money wisely requires more than knowing different techniques and strategies. It takes maturity. The more you invest in making improvements to your life overall, the better emotionally equipped you’ll be to navigate the world of personal finances.
¹ “A year after COVID, personal finances are not so grim for millions of Americans,” Jessica Menton, USA TODAY, Apr 9, 2021, https://www.usatoday.com/in-depth/money/2021/04/09/irs-stimulus-check-2021-third-covid-payment-unemployment-benefits/7015277002/
There’s something liberating about closing one chapter of your life and beginning a new one. You realize that this year doesn’t have to be like last year, and that there are countless possibilities for growth.
Now is the perfect time to write a new financial chapter of your life.
In the mindset of new beginnings, the first thing is to forgive yourself for the mistakes of the past and start fresh. Now is your chance to set yourself up for financial success this year and potentially for years to come. Here are three simple steps you can take starting January 1st that might make this new chapter of your life the best one yet!
Automate wise money decisions ASAP. What if there were a way to go to the gym once that somehow made you steadily stronger throughout the year? One workout would be all you need to achieve your lifting goals!
That’s exactly what automating savings and bill payments does for your finances.
All you have to do is determine how much you want to save and where, set up automatic deposits, and watch your savings grow. It’s like making a year’s worth of wise financial decisions in one fell swoop!
Give your debt the cold shoulder. Debt doesn’t have to dictate your story in the new year. You can reclaim your cash flow from monthly payments and devote it to building wealth. Resolve to reduce how much you owe over the next 12 months, and then implement one of these two powerful debt strategies…
Arrange your debts on a sheet of paper, starting with the highest interest rate and working down. Direct as much financial firepower as you can at that first debt. Once you’ve cleared it, use the extra resources you’ve freed up to crush the next one even faster. This strategy is called the Debt Avalanche.
Arrange your debts on a sheet paper, starting with the smallest debt and working up to the largest. Eliminate the smallest debt first and then work up to the largest debt. This is called the Debt Snowball. It can be a slower strategy over the long-haul, but it can sometimes provide more motivation to keep going because you’re knocking out smaller goals faster.
Start a side hustle. You might not have thought much about this before, but you may have what it takes to create a successful side hustle. Just take a moment and think about your hobbies and skills. Love playing guitar? Start teaching lessons, or see if you can start gigging at weddings or events. Are you an embroidery master? Start selling your creations online. Your potential to transform your existing talents into income streams is only limited by your imagination!
Start this new year strong. Automate a year’s worth of wise financial decisions ASAP, and then evaluate what your next steps should be. You may even want to meet with a qualified and licensed financial professional to help you uncover strategies and techniques that can further reduce your debt and increase your cash flow. Whatever you choose, you’ll have set yourself up for a year full of potential for financial success!
Auto leasing has been popular for several decades, but many people still aren’t sure about the sensibility of leasing vs. buying a car, how the math works, and which is really the better value.
Should you lease a car? In many cases, you can lease a car for less than the monthly payment for financing the exact same car. This is because with leasing, you never build any equity in the vehicle. Essentially, you are renting the vehicle for a predetermined number of miles per year with a promise that you’ll take good care of it and won’t let your kids spill ice cream on the seats. (After all, it’s not really your car.)
At the end of the lease – most often 2 or 3 years – you’ll have the option to buy the car. At this point, in many cases you would be able to find a comparable car for a few thousand less than the residual value on the car you leased. After the lease has expired, most people choose to lease another newer car, rather than buy the car they leased.
If you don’t drive many miles, there may be some advantages to leasing over buying, particularly if you prefer to drive something newer or if you need a late-model car for business reasons. As a bonus, for short-term or standard leases, the car is usually under warranty for the duration of the lease and maintenance costs are typically only for minor service items.
Should you buy a car? If you’re like most people, when you buy a car, you’ll probably need to finance it rather than plunk down a lump sum in cash. Rates are relatively low, but you can still expect to pay a few thousand dollars in interest costs over the course of the loan. Longer loans have higher rates and more expensive vehicles can make the interest costs add up quickly. Still, at the end of the loan, you own the car.
Older cars usually have higher maintenance costs, but it may be less expensive to keep a car with under 150,000 miles and pay for any repairs, rather than make payments on a new car. Cars are also running reliably much longer now. The average age of cars and light trucks on the roads currently is up to 12 years, which means if you had a 5-year loan, you could be driving for 7 years (or more) without having to make a car payment.[i]
So a big part of the savings in buying a car vs. leasing can occur if you keep the car for several years after it’s paid off. Cars depreciate most rapidly during the first 5 years of ownership, meaning you could take a big hit on the trade-in value during that time. Keeping the car for a bit longer puts you into a period where the car is depreciating less rapidly and you can benefit financially from not having a car payment. But if you think you might be tempted to trade the car in after 5 years (and you typically drive under 15,000 miles per year), you may want to take a closer look at leasing.
Keeping your car for 10 years How would you like to “make” an extra $28,000 over the next 10 years? That’s enough to buy another car! All things being equal (you make the same modest down payment on a leased car as a financed car), and assuming an average auto loan rate for a $30,000 vehicle, you can save nearly $28,000 in a decade by buying and keeping your car for 10 years instead of leasing a car every 3 years. And that savings applies to each car you own.[ii] (This calculation also assumes maintenance costs.)
Your savings will vary based on the type of car and its price of course, but buying a car and keeping it for a while after it’s paid off can “yield” handsome dividends.
Getting behind the wheel It’s really up to your personal preference whether you buy or lease. If you like to rotate your vehicles so you can enjoy a new car every few years and not have to worry so much about maintenance, then leasing may be a better option. However, if you like the idea of not having to make a car payment for a good portion of the life of your car, then buying may be the right choice.
Either way, before you take the keys and drive off the lot, make sure to ask your dealer any questions you have, so you can fully understand all the terms and any underlying costs for your situation.
[i] “Vehicles on the road keep getting older, and COVID could push the age higher,” Eric D. Lawrence, Detriot Free Press, Jul 28, 2020, https://www.freep.com/story/money/cars/2020/07/28/covid-average-vehicle-age-12-years/5519557002/ [ii] “Buy Vs. Lease Calculator,” Lauren Barret, Money Under 30, Nov 8, 2020 https://www.moneyunder30.com/buy-vs-lease-calculator*
It makes up nearly a quarter of the global economy and has a GDP of roughly $21.44 trillion.¹ But that statistic doesn’t tell the whole story. The truth is that only a few Americans have truly mastered how money works and the rest are lagging behind. Despite having the largest economy, the U.S. ranks 13th in GDP per capita.²
And it all begins with the state of financial literacy.
Knowing how money works has never been more important. But it’s becoming an increasingly rare skill among Americans. Here’s a quick look at the significance of financial literacy in the modern world and how ignorance is hampering our ability to build wealth.
The importance of financial literacy is increasing. Americans are faced with a complex world. We have access to unlimited information on everything under the sun, endless opinions on every issue, and infinite options for entertainment. Money is no exception. The two tried and true safety nets of the past—social security and pension plans—can fall short, so we need to figure out how to provide for our own futures. The options for how to save and grow our money are myriad. Now it’s on us to figure out how to build wealth, save for retirement, and leave money behind for our kids.
Understanding how money works isn’t just helpful for achieving those goals. It’s absolutely mandatory. Saving, budgeting, and the power of compound interest are just a few of the concepts that you’ll need to master before you can start building your financial future.
Financial literacy is decreasing. Americans are less able to plan and provide for their futures than ever. Financial literacy slid from 42% to 34% between 2009 and 2018.³ And that number is significantly lower for Millennials than for the rest of the population, with only 17% able to answer 4 out of 5 basic questions about finances.⁴ That ignorance shows in our decision making and our inability to build wealth. A stunning 33% of Americans have nothing set aside for retirement.⁵ 44% don’t have enough saved to cover a $1,000 emergency.⁶ We’re surrounded by money and opportunity but don’t have the knowledge to convert them into personal wealth.
There are several reasons why financial literacy could be decreasing. Financial education is not widely taught in public schools, with less than half of states requiring a personal finance course for a highschool diploma.⁷ Perhaps we’ve just been slow to keep up with the rapid changes in the global economy. Or maybe some people benefit from having a large chunk of the population stay in financial ignorance. The lack of financial literacy is most likely a combination of all these reasons! The real question is, do you know how money works? And if not, where will you learn?
¹ Caleb Silver, “The Top 20 Economies in the World,” Investopdia, Updated Mar. 18, 2020, https://www.investopedia.com/insights/worlds-top-economies/
² “GDP per Capita,” Worldometers, https://www.worldometers.info/gdp/gdp-per-capita/
³ Andrew Keshner, “Financial literacy skills have taken a nose dive since the Great Recession,” MarketWatch, June 27, 2019, https://www.marketwatch.com/story/americans-financial-literacy-skills-have-plummeted-since-the-great-recession-2019-06-26
⁴ Keshner, “Financial literacy skills have taken a nose dive,” MarketWatch.
⁵ Dani Pascarella, “4 Stats That Reveal How Badly America Is Failing At Financial Literacy,” Forbes, Apr. 3, 2018,https://www.forbes.com/sites/danipascarella/2018/04/03/4-stats-that-reveal-how-badly-america-is-failing-at-financial-literacy/#69cecb072bb7
⁶ Pascarella, “4 Stats That Reveal How Badly America Is Failing At Financial Literacy,” Forbes.
⁷ Ann Carrns, “More States Require Students to Learn About Money Matters,” The New York Times, Feb. 8, 2020, https://www.nytimes.com/2020/02/07/your-money/states-financial-education.html
Habits are behaviors that we do so frequently that they feel second nature. So your friend who’s woken up at 5:00 AM to work out for so long that it seems normal to him? He’s unlocked the power of habit to wake up, get out of bed, and make it happen.
Healthy money habits are the same way; they open up a whole new world of financial fitness! Here are a few great habits you can start today.
Begin with a Budget <br> Developing a budgeting habit is foundational. Consistently seeing where your money is going gives you the power to see what needs to change. Notice in your budget that fast food is hogging your paycheck? Budgeting allows you to see how it’s holding you back and figure out a solution to the problem. The knowledge a budget gives you is the key to help you make wise money decisions.
Pay Yourself First <br> Once you’re budgeting regularly, you can start seeing who ends up with your money at the end of the day. Is it you? Or someone else? One of the best habits you can establish is making sure you pay yourself by saving. Instead of spending first and setting aside what’s left over, put part of your money into a savings account as soon as you get your paycheck. It’s a simple shift in mindset that can make a big difference!
Automate Everything <br> And what easier way to pay yourself first than by automatically depositing cash in your savings account? Making as much of your saving automatic helps make saving something that you don’t even think about. It can be much easier to have healthy financial habits if everything happens seamlessly and with as little effort as possible on your part.
Healthy financial habits may not seem big. But sometimes those little victories can make a big difference over the span of several years. Why not try working a few of these habits into your routine and see if they make a difference?
Unexpected expenses, market fluctuations, or a sudden job loss could leave you financially vulnerable. Here are some tips to help you get ready for your bank account’s rainy days!
Know the difference between a rainy day fund and an emergency fund … but have both! <br> People often use the terms interchangeably, but there are some big differences between a rainy day fund and an emergency fund. A rainy day fund is typically designed to cover a relatively small unexpected cost, like a car repair or minor medical bills. Emergency funds are supposed to help cover expenses that might accumulate during a long period of unemployment or if you experience serious health complications. Both funds are important for preparing for your financial future—it’s never too early to start building them.
Tackle your debt now <br> Just because you can manage your debt now doesn’t mean you’ll be able to in the future. Prioritizing debt reduction, especially if you have student loans or credit card debit, can go a long way toward helping you prepare for an unexpected financial emergency. It never hurts to come up with a budget that includes paying down debt and to set a date for when you want to be debt-free!
Learn skills to bolster your employability <br> One of the worst things that can blindside you is unemployment. That’s why taking steps now to help with a potential future job search can be so important. Look into free online educational resources and classes, and investigate certifications. Those can go a long way towards diversifying your skillset (and can look great on a resume).
None of these tips will do you much good unless you get the ball rolling on them now. The best time to prepare for an emergency is before the shock and stress set in!