Tag Archives: 1%

3 Finance Habits to Improve Your Bank Account and Your Sanity

In James Clear’s book, Atomic Habits, he concisely illustrates a very important point. Often we think that we need to design the most optimal habits in our lives. For example we need to have a plan to exercise two ours each morning with the proper amount of cardio, aerobic and strength exercises. While doing this can certainly be a great boost of confidence and personal fitness, Clear points out that most of the time we don’t need complex habits – we need two minute habits.

Creating habits is hard enough. For anyone who has tried to change their daily routine for the better, they know how much of a challenge shifting behavior can be. Yet nearly all of us fail. The reason? Our habits aren’t simple enough.

Clear tells us not only to start with two minute habits but to make the cues and catalysts for those habits almost automatic. After all, “You can’t improve a habit that doesn’t exist.”

An area that I have personally been working on is the area of personal finance. I have thought about this topic a great deal in my personal life and have come to the conclusion that there are three key habits for anyone serious about controlling their money:

1) Pay Attention

Tracking your fitness has been shown to produced fitter people. Watching your personal growth has been shown to produce successful people. And measuring your finances has been shown to make richer people. Many studies illustrate this point. Simply staying on top of your bank balances, credit card balances, credit score and retirement accounts will leave you in a much stronger position. The reason is that we tend to improve things we pay attention to.

2) Plan Ahead

Creating a written plan and sticking to it is actually what separates us from animals. We have the ability to plan ahead and participate in what Ray Dalio calls “higher level thinking”. The plan doesn’t have to be complex. You can sit down with your advisor or do it yourself.

3) Learn

This blog isn’t intended to be the sole source of your financial information. But if you combine regular blog and book reading with input from your financial advisor you can improve your knowledge exponentially over time.

Conclusion: 

Do you want to bolster yourself to the top 1% of Americans? Do you want to experience less financial stress and uncertainty? Follow my three-pronged approach to 1) pay attention 2) plan ahead and 3) learn.

Active Mutual Funds Vs Index Funds: Which is Better?

Mutual Funds

A mutual fund is basically an amount of money that is “mutually funded” by a large amount of people. This money is managed by fund managers who require a percentage fee for their labor. The managers invest in securities and as the value of the investments rise or fall, so the equity of the shareholders in the fund rise and fall.

So if you purchased one $1 share of a $100 fund then you own 1% of the overall value of the fund. If the management’s investments of the fund raise the value to $110 then you just made 10% and your share is now worth $1.10.

This is a very simple overview. Clearly the details are much more complex. For example the management fees, taxes and dividends change the return dynamic. But in terms of understanding the basics of mutuals funds, this does the job.

1. Active Mutual Funds

An active mutual fund is one in which the manger(s) work to select the best security investments they think will produce the best returns. They usually charge a higher management fee because of the perceived value and expertise they provide.

2. Index Funds

The alternative is to have a fund set up in a way that involves very little research and work on the part of the management. “But why wouldn’t you want to take of advantage of the manager’s expertise?” you might ask. The answer comes down to two variables: Cost and performance.

Not only do active mangers usually charge higher fees (cost) but they often don’t actually invest in a way that outperforms the market(performance). So the alternative that involves lower cost is called “index investing”.

An index is essentially a set of stocks that meet certain requirements or have certain common characteristics to one another. For example the most popular index, the Standard and Poor’s 500. It’s an index that takes the 500 largest US stocks on the market.

What this means for index investing is that an S&P 500 Index Fund would be managed in a way to match the S&P 500 index. In other words, the mangers would simply try to buy and sell stocks to keep their investments in line with the 500 largest companies on the market. That’s how they can keep their management fees so low – they don’t have a ton of research to do.

Index Options

But there are other indices. S&P 500 is the most popular but there are others like the Dow Jones Industrial Average (DJIA), which is 30 massive companies weighted according to price. The DJIA is the oldest index.

The following are some others that you might like to consider:

The Nasdaq Composite Index

The Nasdaq is actually a stock exchange that predominantly trades technology companies. The index seeks to perform according to the stocks on the exchange.

The Russell 2000

Of the 3000 largest companies in the Russell 3000 (another index), the Russell trades the bottom 2000. Thus, this fund trades mostly smaller to middle size companies.

There are many, many more you can look up on your own. The bottom line is that for most cases index funds provide the better choice.

Reading: Things That Will Change Your Life

As simple as it sounds, reading will change your life.

As I have lived on campus I have seen many different views when it comes to reading. Most students prefer to avoid it altogether if possible. A few people enjoying reading fiction, and then there are the true readers.

As part of this “club” of true readers I have seen firsthand how the books we read can change our life. And I don’t mean just any books, I mean nonfiction. Why nonfiction? There are two reasons nonfiction is more beneficial in our life over fiction:

1. Fact-based learning

When it comes to reading in general you are uncovering stories, facts and emotions. With nonfiction specifically, the base of your reading is centered around actual facts, not something made up.

2. Nonfiction books are often more relatable to real life

Whether it’s a nonfictional story, or a self-help book, reading nonfiction has a much greater footing in reality, and therefore more relevancy in our lives, than simply another story out of someone’s head. And often, depending on if it’s a self-improvement book, you’ll receive applicable steps for your life as well.

Other benefits to reading in general:

a. Learning and experiencing human emotion

This is by far the most dynamic and variable part about reading. As soon as you dive past the writing structure and all the mechanical, necessary aspects of the text, you are left with the “meat on the bone” so to speak. This gives us exposure to real or conjured human emotion, whether you’re reading fiction or nonfiction.

b. Inspiration

When you open the pages to a book, you are often met with unanticipated emotional boosts of energy, or inspiration. It is these sparks that can make all the difference in either our professional or business lives. Mark Cuban, Billionaire and owner of the Dallas Mavericks, is quoted as saying, “I’ll read hours every day because all it takes is one little thing to propel you to the next level.”

c. Literacy

The last major benefit to reading is the learning and literacy is brings to a person’s life. Learning new words, exposure to new ideas, and learning in general all enhance the reader’s perspective and knowledge about the world. The benefits apply whether you’re reading a nonfiction book or not.

Conclusion:

Frankly I don’t dislike fiction either. I certainly have enjoyed many bestsellers over the years like Harry Potter and others, that have inspired and entertained me. However I believe while reading fiction is good, reading nonfiction is better.

Pursue a “Normal” Career or Become an Entrepreneur?

With the rise of social media marketing, the technological advancements with commerce, and the general business sentiment in the U.S. rising, many young people(as well as older people) are finding entrepreneurship as an increasingly appealing life choice. I would say as with most trends, there is both bad and good aspects.

On one hand entrepreneurship is what America is built on. From Ford Motor Co. to Apple Computers, companies that are able to provide what customers want will always succeed. However, there is a new mentality emerging that entrepreneurship is “fun” or that simply by starting a company you are instantly successful.

By very definition only 1% can become the 1%, which is why thousands of businesses fail each year. Starting a business can be exciting, rewarding, and profitable, but it probably won’t be “fun” in the conventional understanding of the word.

When starting a business ask yourself, “why am I starting this business?” This question helps you understand yourself. And then ask, “Is there need for my product or service?” This helps you understand the customer. And lastly ask, “What’s the best (most efficient, effective, and customer-centered) way of bringing my products and services to my market? This question will help you understand your action steps.

After asking those questions you’ll have an idea as to where your mind is at, where the customers’ minds are at, and where your next actions should be. While answering these questions thoroughly might not be easy, it will be highly beneficial to any rising entrepreneur.

Action steps: Ask yourself, “Why am I starting this business?”