Category Archives: Personal Finance

3 Things to Value More Than $1M

As the U.S. continuous its decade-long economic improvement, it’s hard for many of the younger folks to remember a time where fear was prevalent and jobs were scarce. While I was much younger in 08 and 09 I remember the feeling and conversation around money during that period.

Not only am I confident that hard times will hit the U.S. economy again, I suspect (based on history) that some sort of crash or drawback isn’t too far away. Simply looking back at the last couple decades of market crashes gives us some picture of how rare the past 10 years have been.

We’ve seen relatively low turmoil in the market, particularly stocks. Except for a few difficult weeks, the U.S. stock markets haven’t experienced a real drawback since the mortgage meltdown. But just 5 or 6 years before that the markets were down in 2002. And just two years before that the markets were down in the technology bubble of 2000.

Consistently throughout history we’ve had market crashes or corrections every six to 10 years. Here we are in 2018, with trade fears on the horizon, wondering if another crash is near. It’s been about a decade.

With all the turmoil, fear, anxiety and uncertainty in the markets, it’s very easy to become focused so much on the world of money that 1) we lose historical perspective on a potential loss, but 2) we lose life perspective on the true importance of money as it relates to our life.

Which matters more, a 50% drop in the Stockmarket (which won’t be a permanent loss unless you panic and sell) or a loss of a close loved one? While most people would value the close relationship above a temporary financial loss, it’s strange that so many of us put more energy worrying about areas of finance we can’t control and less time improving our current relationships.

Don’t get me wrong, money is important. Money has power, both in our life (to buy things and help others we care about) and in politics (to influence people), but there are three big things more important than money we can’t forget:

1) God

2) Close relationships (friends and family)

3) Health (physical and emotional)

Deepening these areas of your life both in depth (deepened commitment and improvement) and in length (time spent improving and investing in) is a great first step in not only improving these three areas but also setting yourself up to improve the 4th area: Money.

Next time you’re planning or prioritizing your life in a way that isn’t consistent with your values, remember in what order your values lie.

The 3 Areas of Personal Finance and How To Master Them

I want to discuss the three factors that determine where you are financially: Inflow, Outflow and Accumulation. Inflow can be regarded as the personal income your household takes in. Outflow, on the other hand, can be broken down into four areas: Living expenses, taxes, optional expenses and giving. Accumulation can be broken down into saving and investing.

Inflow (income):

When most people think of income they think of a job. But this isn’t always the case. Many people have rental income, stock dividends, royalties, and passive income from businesses. Income earned at a job, however, is the most common source of financial inflow.

Outflow:

Outflow is the consequence of living in a monetary society. Everything costs money. Food, storage, shelter, transportation and even water. Being weary of how you spend money as well as prioritizing the things that are important, is a must for anyone wanting to live according to their values.

What’s the best way to decrease unnecessary spending? Getting a B–U–D–G–E–T. I know what you’re thinking. “It can’t make much difference anyway,” you’re telling yourself. “I only spend money on things I need.” The surprising thing is the most people, as soon as they get on a written budget, are able to eliminate expenses they knew they had.

@AfricanSoulGoddess wrote a very insightful post on this topic titled Best budgeting: Personal finance.

Growth and Accumulation:

This is the final aspect of your finances. In this area you are beginning to experience a little success. This is the area in which the Billionaires and Millionaires of the world were made.

As income flows in, most people spend most of it on outflow (whether necessities, optional spending, taxes or giving). While each of these things are part of any healthy financial plan, contributing to a retirement account or other investment account should be coming right off the top of your paycheck!

Not only is setting up an automatic withdraw helpful, but it could mean the difference between retiring at 55 or 65. Don’t believe me? Do that math. If you’re receiving a 10% return on your money your money is doubling every 7.2 years. That means if you postpone or weaken your contributions by even 7 years you’ll be losing out on almost half of what you could’ve had.

In retrospect, most people will look back and regret not contributing more. So for those who have time on their side, now is the time to start preparing for your future.

What Every Single Rich Person Has – And How To Get It

As the years roll by most people find that they continue to need to pay the mortgage or rent, buy food, and pay insurance. But There is a moment in everyone’s life, whether in college, after a life changes, or in old age, when the money coming in is less than the money that needs to go out.

Rich people don’t have this problem. While they certainly have their own financial problems coming in many different directions and flavors, lack of cashflow isn’t one of them.

However, no matter how much wealth, or how deep their pocket book, rich people all have one thing in common. This similarity runs through the tech titans, the real estate tycoons and the financial gurus. What is this key ingredient? Leverage.

Leverage, is actually a general term. There are many contexts in which leverage can be used and what it can mean. This kind of leverage to which I am referring is in the context of effort and resources – not necessarily debt.

In this context we use googles definition. Leverage is to: “use (something) to maximum advantage.”

You’re probably wondering what leverage has to do with Mark Cuban, Donald Bren, or Bill Gates. Mark Zuckerberg, for example, utilized the leverage of personal engagement to bring attention to his platform, in a way never seen before.

Leverage in the context of the rich is the act of utilizing resources in order to maximize and grow the results. The Rich in every industry have learned to use their effort, along with the effort of others to build great companies. Warren Buffet leveraged his money (in a non-debt way) to turn it into something bigger than he could have every achieved on his own by working a regular job.

So, how can you utilize this strategy of leverage? It starts with finding your “niche” or the thing that you believe you can provide the most value to people than any other. Pick thing one thing and begin building your skills and network in this area. As soon as you see some progress begin to leverage other people’s time, money, resources and connections in a way to build your brand.

Don’t make this one-sided. These should be give and take relationships in which you provide as much value or more to the other person. Often leverage involves borrowing each others skills in a net positive way. Begin learning about your area of interest and learn how best to use the power of leverage…

Financial Steps to Take in Every Economic Season

As the US economy continues its steady recovery from the 08 crash, many people have started to worry about the next economic disaster. When will it happen?

To be honest no one, not even the Fed Chair or the Billionaire class, or economists know when a crash will occur. However, simply looking back at history, it wouldn’t be far fetched for a crash to happen sometime in the next few years.

Going back to our Nation’s founding, we’ve experienced all seasons of the economic cycle consistently over and over again. Some cycles have been longer than others, some have been more dramatic, and various sectors and asset classes have experienced the results at slightly different times. But we know a crash is coming – sometime.

The following are the four economic seasons and where we’re at right now:

Spring: A period of time in which business recovery increases, job growth rebounds, home foreclosures slow, and generally consumer confidence and credit stops diminishing.

Summer: A period of months or years in which the economy, stocks, real estate prices, and even consumer confidence grow. This period usually lasts the longest of the four seasons.

Autumn: The season in which consumers are overly, even extremely confident. Disposable incomes are rising, stocks are selling rapidly higher, and home mortgage applications continue to rise. At the end of Autumn a cooling in economic expansion begins. That’s when the temperature starts dropping…

Winter: This period is by far the most difficult on the average consumer and investor. Prices in real estate and stocks drop, consumer confidence plummets, credit dries up and the media starts panicking.

Which season are we in? While it’s difficult to say, we certainly aren’t in Spring or winter, which means we’re either in late summer or early autumn.

How do we deal with change? Is there a way to behave in each economic season?

The answer is that number one you shouldn’t behave in a groupthink mentality. Don’t follow the heard. In fact when everyone is behaving a certain way, consider doing the opposite. When everyone is selling stocks, consider buying. When people are retracting and reacting to the disaster, try to expand.

While this strategy isn’t best 100% of the time, even seeing things through this perspective can open your eyes to which actions are best to take.

Outside of being a contrarian, simply focusing on your life and less on the economy can go a long way. Just because “everyone” is getting laid-off at work that doesn’t mean you won’t find work. You might have to work extra hard, but try to get out of that mindset of thinking that what’s going on in the world has to be true for your life – it doesn’t.

The ultimate outcome of your financial life in both great and horrible times is up to you.

7 Financial Levels – And How To Get To The Top

Here in the US, with higher standards of living than pretty much any other place on earth, Americans have surprising difficulty getting their finances to a healthy point. But here’s the truth: I believe with all my heart that it is possible for anyone who has time, mental health, and true commitment to become a multi-millionaire, and even potentially a deca millionaire within their life.

I have broken down the levels of net worth by category. The numbers I chose are somewhat subjective. But I believe they paint a picture of what true riches look like here in the US.

Before I start the list, I want to clarify what net worth is. Net worth is the value of everything you own, minus what you owe. For this example I have decided to focus solely on financial assets (not clothes, furniture, or cars), which are things like that can be sold at roughly what they’re worth (like houses, stocks, bonds, etc…)

1. Upside-down Wealth – Net worth anything less than $0:

This is a position that many young people, particularly college graduates find themselves in. They get out college with loans, no money and therefore are upside-down with wealth. How can you move up to the next level? Work your way into a job, continue to live like a college student and pay off those loans.

2. Poor (real or fake?) – Net worth between $0 and $10,000:

If you find yourself in this circumstance you have to pick one of two decisions: 1) are you going to stay here forever, or 2) are you going to make the move to the next level? This is a position many people are in. Maybe they have a house, but have only a few thousand dollars of equity. Or maybe they are just starting out in the workplace. Either way, being “poor” should not only be a temporary situation, you should run from it as fast as possible.

You know what you need to do: get a better job, live on less, and begin paying off consumer debts.

3. Currently Broke – Net worth between $10,000 and $50,000:

No one I know wants to be here long. At this point you have enough to feel a little room in your finances, but even just a new roof and a few bad emergencies can wipe you out completely. While stopping by broke on your way up the levels is a necessity, staying here for longer than you need to is too risky.

4. Middle Class – Net worth between $50,000 and $500,000:

The most sought after class of all the classes is the middle class. This is what the “typical” two parent, two kid household is supposed to look like. Maybe you own a home, a couple cars, have a retirement account, yet carry a small credit card balance.

Middle class can feel nice… while you’re working. But what happens when you’re 70 years old and think, “I can’t keep working forever”? You need more wealth to be able to have the flexibility and peace of mind that’s necessary for a happy life. Here you can stand on your two feet financially speaking, but you know there’s something more.

5. Upper-middle Class – Net worth between $500,000 and $1.5M:

Almost everyone knows it – $1M isn’t as much as it used to be. But it definitely isn’t easy to achieve. When you’re net wroth approaches $1M it’s easy to think, “I’ve made it.” But really you haven’t – yet.

The truth is, what happens when you want to help someone else out financially? Or what if you want to explore Europe for a few weeks? Or what if you want to retire a decade early? It’s harder than ever to do those things on $1M.

6. Well-Off – Net worth between $1.5M and $10M:

It is completely feasible for most people in their mid 20’s or 30’s to reach this level in their lifetime. It simply takes hard work, steady contributions to retirement accounts, and a full-blown commitment.

7. Rich – Net worth anything more than $10M.

By now you know what you’re doing. You may not know everything, but you have a skill set that is very useful to say the least. You have discipline. Use this discipline into the future on whatever goals you set for yourself.

I hope this exploration of levels has helped you conceptualize where you’re at and what you can become. It’s never too late or early to start. Right now has never been better.

3 Things Wealthy People Tell Themselves

There are a lot of things that define success. Some value family, others experiences, still others put popularity and fame above everything else. But here in the U.S.(and I’m sure other countries) people emphasize wealth in the tier of importance.

When it comes to making wealth, building wealth and keeping wealth, there are certain activities and habits that set certain people apart from others. One of the biggest habits is internal dialogue. What we tell ourselves, and thus act upon, is the biggest factor that determines where we end up in life.

If you keep telling yourself that your opinion doesn’t matter or that no one will ever listen to you, this will probably come true for you. If, however, you optimistically believe, deep in your heart, that you deserve to be listened to by others, there’s a good chance more people will listen.

In the same way, what you tell yourself about money will probably, for the most part, become a self-fulfilling prophecy. So be careful. Here are three things that I have seen firsthand from a couple millionaires I have had the pleasure of meeting:

  1. You deserve the opportunity to be wealthy (if you put in the work)

Notice I didn’t say you deserve to be wealthy. This isn’t an entitlement mentality. It’s more of a self-worth manifestation. If you truly believe that you are worth it – you will put in the work. If you don’t think that you deserve a shot at becoming wealthy, you are less likely to put the work that goes into making that happen.

2.  Becoming wealthy isn’t luck, it’s a combination of work, smarts, perseverance, and time

One thing that the millionaires I have met, read from, and learned from have all had in common is a true belief in cause and effect. They never thought luck was something to lean on or be expected. While they did get lucky at certain points, they recognized that the luck was more a consequence of years of hard work, and less a result of blind chance.

3.  I don’t have to be like everyone else.

It’s true. Some people think that being like everyone else is just a given. If people sleep in to 10am, eat crappy food, and watch youtube in their free time, that doesn’t mean you have to. The truth is that most people in the U.S. as well as the world, haven’t made the true commitment to excellence in every area of their lives that millionaires have. You can be different.

These three things are just a start. Not only is it in the realm of possibility to become a millionaire, it is becoming easier than ever. Granted, it isn’t going to be easy.

The Cost of Not Spending

Often when it comes to money we get the basic financial advice of reducing spending, increasing income, and investing the difference. However there is an extreme that this can be taken to.

Most have heard the tale, “A Christmas Carol”. In it, Ebenezer Scrooge is portrayed as an old single bachelor who has been hoarding his money, keeping to himself, and worrying pretty much only about himself. While we’d like to think we’re exempt from this behavior, it can become difficult at times to see that we’ve started to show some of his characteristics.

For example some people think that it’s a smart life choice to not tip. A guy I used to work with told me he “didn’t do tips because they don’t need it.” I understand decreasing the tip for bad service, but doing so for other reasons is being cheap. Understand, that’s how many of those people make their money.

Another area where people often lack clarity is in the area of giving. Some think, that by giving, they’re somehow benefiting themselves. While it’s certainly true that giving all your money away isn’t a smart life choice for pretty much everyone, there are genuine benefits to honest, purposeful giving.

Giving doesn’t have to be financial either. I was quietly reading in the park once, in downtown Lansing, when a homeless dude walked up to me. We talked for a while, and I feel that the encouragement I gave him, as well as the insights and story he gave me, were a mutually beneficial exchange.

Whatever your philosophy on giving, tipping, and sharing, keep in mind that sometimes there’s a non-financial cost to not giving.

Everything Wrong With Making a Lot of Money

Let’s say you get out of college and are starting your first “real” job. You’re a young doctor so you already start out making more than the average person. Or maybe you’re middle aged and making the most money you’ve ever made in your life. Let’s just say you make a lot of money.

Where does the money go? Well most people who make a lot have a lot of expensive education required to get the job in the first place. That means student loans. If you were disciplined enough or lucky enough that your parents payed for you, then you won’t be in the same boat as most people.

Other wise, though, you’ll have student loans to pay on. That’s expense number one. The second big expense is more of an optional thing but most high-payed professionals usually opt in. It’s called lifestyle extravaganza.

Most doctors, lawyers, or well-payed professionals start seeing the bigger paychecks and begin making larger purchases to live up to what other people expect of them. It’s less of need for comfort than a need to impress and fit in with what people expect of them. “I have more income,” they tell themselves. “Why not?”

While most of us would like to think that these people are banking dough(and a lot of them are), most of the time, that’s simply not the case. People who make a lot of money are just like everyone else, they want to fit in.

The problem is they’re missing a valuable opportunity. Having a high income is not only a great thing for lifestyle, it can become a fabulous thing for your finances. Simply keeping your lifestyle low and investing the difference can make huge differences over 10 year timeframes. Still not convinced?

It might be hard to believe but putting off buying that boat today could mean, 10 years down the road, being able to purchase any home you want. Compound interest is simply that powerful.

Not only does making a lot of money come with disadvantages like the expectation of lavish lifestyle and larger student loan debt, it can also turn into a financial blessing if you manage your money well and stay disciplined. Just because you make double as much money as someone doesn’t mean it’s smart to buy a home double as large.

So if you are in the situation of making good money, be weary of the obstacles that stand in your way to having a better future. Realize what your income could turn into – both good and bad. And for students who think more income equals more net worth, be careful…

Why Students Should Work In College

I can tell you why you’re not working hard enough. There are a lot of people who know how to work intelligently, with both work and life in general. They only engage in activities that are precisely planned and efficiently organized. These are often the well-educated people, those who know the best, smartest use of time. But often they spend a lot of it relaxing or enjoying fun activities.

Then there are the hard workers. They’re the people who do the heavy lifting. They end each day both physically and mentally exhausted. These are the people who work 60+ hours per week, striving for some piece of the American dream.

Lastly, but by far the rarest group of them all is the smart-hard worker. This person is someone who not only engages in thoughtful planning, meaningful self-improvement and learning, but also in the daily “grind”, the discipline-filled early mornings, the continuous extension of energy.

By far the last group can achieve the most. Not only do they have the advantages of planning and efficiency, they also spend enough time working that they can begin to get a better grasp of their tasks and gain a larger force of momentum behind them as they get into the swing of things.

One of the best times to make strides towards this happy medium of efficiency (thoughtfulness, planning) and force (work, discipline) is being a student with a job.

Now before you go off and start dismissing this idea as both impractical and stupid, please take this journey with me through my thought process and how I worked 40 to 50 hours per week while going to school full-time (and still spending a little time with family and getting a 3.8 GPA).

First, why work in school? One of the reasons most students work is to both pay for school, and gain valuable work experience in college. I want to add one more reason: better grades. Better grades? Yeah. According to a cnbc.com article there is a correlation between students who work part-time and those who get better grades. The reason this makes sense is that having a job creates a sense of greater responsibility in your life. You not only have a different perspective, but you also have less time to goof off, which makes it easier to get down to business.

I would recommend most students seriously consider working at least 20 hours per week during the semester. Not only will you most likely get better grades, you can also start to see more money coming in to pay expenses.

My challenge: get a job while you’re in school. You might find that you have more confidence, job experience and money.

Should I Invest in Small-Cap or Large-Cap Companies?

If you’re a stock investor you’ve probably asked yourself the question before. While there are many different kinds of stocks, that can be broken down into different categories based on a set of seemingly endless criteria, one of the best ways to set them apart is by market capitalization.

Market capitalization is basically what we mean when we multiply the amount of outstanding shares of a company times the price per share. It’s basically the value that the market is placing on the company at any moment in time.

The two biggest companies Apple and Amazon are inching forward towards reaching $1,000,000,000,000 in market capitalization. Meaning if you multiplied the stock price of either company times the amount of shares of that company, you’d end up with a number just shy of $1Trillion.

This has clearly never happened before but is expected as the market experiences inflation and growth.

So which one is best, small-cap stocks or large-cap stocks? Well there are certainly good individual companies in each category. For example even though apple is a large company, it is a solid investment for appreciation even for an already large company.

What happens is that depending on the economic circumstances and if they’re better for large or small companies each of these asset classes will perform accordingly. Thus, you’ll get periods when large-caps outperform small-caps and vice versa. However, generally in our history, small-cap stocks as a whole have outpaced their large-cap counterparts. The reason? Size.

When you think of a tree, whether an oak, maple or redwood, you can think of the different stages in its life. As a little seed and sapling, trees usually experience either rapid growth when they’re little, or they die off.

The reason there’s so many little trees at the bottom of a forest floor is that most of them don’t survive, but the ones that do usually experience rapid growth. The same is true with companies.

When a company is small it’s just trying to pay the bills, grow revenue and establish credibility that will equate to market share. But often these smaller companies can’t outlast the constant bombardment of competition so they die off.

If you look at the small-capitalization indexes they have tended the out-perform the large-cap indexes like the S&P 500 (an index of the 500 largest companies in the U.S.).

If you’re young and can ride the volatility, go with small cap stocks. If you want to mitigate short-term loss and volatility, large-caps are generally better.

Whichever you choose, good luck.

Disclaimer: The information regarding personal finance found in this blog is not a substitute for professional guidance. By following the guidance in this blog you are doing so at your own risk. This blog is simply the option of one person for informational and educational purposes. Please refer to your personal financial advisor in regards to guidance over your specific situation.