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.

Is There a Hole in Your Wallet?

Let’s start with what we know. We know that spending more than you make is not financially sound advice. We know that doing so over long periods of time is not sustainable. But, there is a larger problem that has it’s root in one of the largest problems Americans face. This problem is the lack of self-awareness.

While many Americans are significantly overweight, even more are overweight with their finances. Even if you talk to many employees of banks or financial institutions you’ll find out that most of them struggle with the same everyday issues that we all face.

This problem is rooted in not being aware of what’s going on.

For example menshealth.com published an article detailing a study that found weighing yourself daily can decrease your weight. People who checked their weight daily saw a 2% reduction in total body weight over 6 months. Over longer periods of time the results would be amplified.

Not just in the area of personal fitness, however, is continuous attention beneficial. Examining your finances regularly can be of great importance. Simply looking over your statements briefly each day can change the way you see your financial life.

You might find, once you examine your spending, that there are certain areas that need more attention. For example I wasn’t paying attention to little $5 monthly bill. As soon as I realized what I was getting charged I signed off. While it didn’t save me a lot of money, it’s easy to see how this happens with bigger ticket things.

Bottom line: pay attention to your finances. You may find there’s a hole in your wallet.

Is It Possible to Become a Billionaire?

When most people think of a Billionaire they think of Warren Buffet, Bill Gates, Jeff Bezos, or even Elon Musk. But very few people have heard of Bernard Arnault, Amancio Ortega, or Ma Huateng. These people, not as well known as some of the others, have made their way to the list of top 20 billionaires in recent years.

Bernard Arnault made his money by developing a large company that focuses mostly on luxury items and services. He has a large collection of art and is the richest person in France.

Amancio Ortega built is fortune in fashion. He is the sixth richest person on the globe but likes to keep his personal life private.

Ma Huateng has built his fortune around technology, specifically the internet. He funded Tancent, which is the highest valued company in all of Asia.

Each of these men are relatively unknown by the general U.S. population yet remain powerful, wealthy and esteemed in their area of focus. So the question that comes up is, is it possible to repeat their stories or stories like them?

The answer is yes and no. Each of these people, including the whole Forbes list of billionaires, are remarkably smart, hard working and strategic. Most of them have not only worked hard to get where they are, they have also “sacrificed” basic things that a lot of us feel are regular parts of a typical life like regular free social interaction and time with friends.

For example Elon Must was showering at the YMCA and sleeping in the office at one point.

For for all the self-made billionaires there were times where they were working their butt off. But pretty much everyone has worked their butt off right? True, but these men and women were purposeful about what they worked on, and were smart about being efficient, strategic and passion driven.

So, if it wasn’t necessarily working hard that made these self-made billionaires rich, but a set of internal actions, habits and principles, what does that mean for us? Well first that it’s completely possible, but not likely to reach their level of success in a different area of focus.

Secondly each of these people had some degree of luck, but even with the luck, it’s no surprise that any one of them is where they are today. While each of them had luck they also planted the seeds of success and let the work, perseverance, time and their brains help grow it.

One of the main similarities between all these people is 1) their commitment to improvement, 2) their involvement in business or customer satisfaction, and 3) their intelligent decision making multiplied over many times. If you sprinkle a lot of hard work on the seed you can see how it grew into a large tree. All of these things together equal focus. Being focused on achieving their goals and having a great time doing it seems like a big similarity here too.

So if you’re wondering if there’s a certain industry posed to do the best the answer is probably internet technology or AI or something along those lines. But that’s not the right question to ask. You have to find the one thing that makes you intrigued, and draws you in day after day. If you have a big difficulty even thinking about it each day that’s probably not a good sign.

Bill Gates was into computers. Jeff Bezos was into customer satisfaction and was intrigued and excited for the internet. Elon Must is into science yet balances that intrigue with his drive to make something tangible for the future. It’s not so much the industry you’re in, but the culture you have and surround yourself in of discipline, hard work, passion, improvement, learning, integrity and ultimately intense focus.

Should I Have a Credit Card?

Many people have heard of the Dave Ramsey show. He often speaks of how “cash is king,” debt it dumb, and how everyone should stay out of debt. Dave argues that while some people use the credit score for getting loans, getting jobs, and renting an apartment, there are ways to get around using a credit score.

While this argument is technically true, there are a few difficulties to this. First I want to start by saying that I deeply respect Dave Ramsey and the work he does. The vast majority of his advice I agree with, like getting out of consumer debt, investing for retirement, and budgeting carefully.

However, on this key point I disagree. While not having a credit score at all can certainly work for some people, like those who don’t need many loans, and are willing to work around no credit score, there are times when having a credit score can save a lot of time, hassle and opportunities.

Take buying a home. If you don’t have a credit score you have to either buy a home outright for cash, or you have to go get a loan by doing what’s called manual underwriting. This is when the lender audits you through various lenses and metrics without necessarily looking at your credit score.

They might look at your job history, payment history for rent and other bills, your income, assets and possibly references to gain a picture of whether or not you can pay the mortgage every month. While this can certainly work, it is less streamlined, less predictable, and overall more hassle. That’s fine if your willing to go through the process. But for those who would like a relatively predictable, hassle-free and repeatable loan process this might not be the best option.

Now let’s say you want to forget about credit all together. This is definitely an option. However if you want to get another mortgage, or other debt soon after going through manual underwriting, you may wan to reconsider.

As soon as you get your new loan, it will usually be reported to the credit agencies. After a few months you will probably have a credit score, simply because you now have a loan. Even if you never add more debt to the picture, that mortgage will probably be active on your score for months or years after you get the mortgage.

The bottom line is be aware of having a credit score is something you want to do. For some people who want a simple life with practically no debt this might be a good option. For others who either want to use debt for multiple purchases or start investing in real estate as investments, you might want to reconsider…

 

Get Rid of Your Money

Most Americans don’t have very much in savings. Those that do try to protect the amount they have, whether that’s $1,000 or $100,000. But I have a challenge to everyone who thinks stashing money will make you more secure. What if you got rid of your money, what would you do?

If you had $3,246 in the bank one day and $25.47 in the bank the next you’d probably go into panic mode. Your instincts would start kicking in. You’d figure out how to cut spending, eliminate waste from your life, and earn more income to make the difference. In other words, you’d wake up.

What happens when we have chunks of money sitting in the bank is that we convince ourselves that we’re making it, or that we’re safe. This is dangerous.

Instead, realize that the little money you have in the bank, be it $45 or $45,000 still makes you broke. I know to a lot of people $45,000 is a lot of money, but if you want to change the way you think about money, it starts here. Instead of thinking of what you could buy with $45,000, think of what you’d like to buy.

As soon as you realize that the $36,000 car, $5,000 vacation, and the 25 year retirement are on your list, $45,000 doesn’t seem like very much does it?

I personally have a little over $6K in the bank. Currently I’m gearing up for another year of college. With 2.5 to 3 years left I’m beginning to realize that it’s going to be difficult to get through college with no debt, even with lower costs than most, on just $6K. It’s time to up my game.

I’m going to have to start stashing away for college next year, both by working over the summer, taking odd jobs, and even working during the semester. Having perspective on that $6,000 helps me realize that it’s really not a lot of money – that reaching my goals will require a change in mindset.

For everyone who’s out of college and not saving for something that’s just around the corner, consider getting rid of your money. Now I don’t mean you should go and buy a newer car or travel to Europe. But it’s possible that some day you can do those things if you do what I’m going to suggest you do with the money: invest it.

Investing the money you have other than an emergency fund is a great move. Make sure you have enough money for 3 to 6 months of expenses and everything over that needs to get out of there. Put it into retirement accounts, buy real estate, pick an investment that you feel comfortable with and are ready to pull the trigger on. (just make sure to do your research)

So next time you get a $3,000 bonus, inheritance or gift, consider getting rid of it by paying off debts, securing an emergency fund, and finally putting everything else out the door into the world of investing.

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.

The Art of Being Short

Depending on who you hang out with, a lot of your friends may be taller than you. While it can be fun to poke fun at each other’s heights, (especially when we’re younger) the truth is height can have big impacts on what you become in life.

Generally speaking, the taller you are, the easier it is to garner attention. While attention in and of itself isn’t a prerequisite for success, it certainly helps.

One of my friends, 6 foot 1, has certainly had interesting conversations with me about height and what it means for our potential future. For example, did you know that most U.S. presidents were taller than the average height at their time? Is this just chance?

I don’t think so. I think there is a pattern. Generally, with greater height comes greater self-confidence and potential social skills. And with each of those comes the potential to look, act and be more of a leader.

But what if I’m not tall? Can I still be successful? Definitely. Especially if you understand the reasons behind tall-peoples’ success. Former president James Madison was pretty short. One of the richest people in the 19th century, Andrew Carnegie was short as well. If they can do it, there’s a chance you can too.

Recognize that just because someone is taller doesn’t make them any more of a leader than you. It just means they are perceived to be more of one and therefore have an advantage. The best way to overcome this gap is to step up your game in the realm of social confidence.

Sit up straight. Hold your head high. Act like a leader. Before you know it you’ll be going toe to toe with tall people everywhere.

Don’t Call Me Buddy

I remember lifting a garage door above my head and onto the trailer. I was on the job at a warehouse. It was my second job since leaving Cracker Barrel. I handed the man the paperwork to sign. He grabbed a pen I held out towards him and signed his name and the date.

“Thank you,” I said, grabbing the paper back from him. “Thanks buddy,” the man said.

Have you ever felt disrespected? Or maybe you didn’t feel like you got the proper attention you deserved. Whatever the reason, we’ve all felt like we’ve been treated like less at one point or another.

One of the words that is often used to describe people of lesser status is the word “buddy”. While in the past buddy used to mean a friend or equal, it has started to mean something less than that.

For example I call my little 6 year old brother “buddy”. When he’s all grown up into a man I’m not going to keep calling him that. Simply put, most grown people don’t like being called buddy because when you do, it shows the opposite of respect.

As a younger person I’ve been called buddy a few times by older men. While I don’t like the way it sounds I try to shrug it off as nothing more than a poor choice of words.

When you understand how certain words make you feel, you can watch out for how you use them with others. For example I no longer call people who I view as less responsible as buddy. It’s just not nice.

Whether we realize it or not, calling others buddy can come across as disrespectful and sometimes even a little demeaning. So next time you decide to call someone buddy, be aware of how it comes across.