Tag Archives: loans

Two Twenty-minute Tasks That Will Boost Your Financial Confidence

Most of the financially successful people we read about in magazines, books or see on social media are often portrayed as charismatic, energized, stage magnets. While a lot of them share many of these characters, what these men and women share more than any other trait is confidence. How did they get this confidence?

Confidence is often portrayed as something you can act or be or do. But while you certainly can “be more confident” simply trying to act this way won’t create the lasting change you’re looking for. When trying to build more personal confidence in yourself you have to be drawing this confidence from somewhere.

For example, while hosting at a sushi restaurant I have often heard fellow employees give me advice to “be more confident.” While I was certainly able to heed their advice and stand up straighter and with more confidence for short periods of time, I never was quite able to stick with it long term.

However the days I found it easy to be confident were the days I was diligently working, succeeding in customer service, and completing restaurant tasks with excellence. In a lot of ways it was a self-feeding cycle. I’d begin my shift with energy and confidence in my abilities and as the shift progressed my confidence would be reinforced by continuous action.

In our financial lives as well confidence can’t come from self-talk alone. Your mind has to feel both the emotional side as well as the logical side telling you to be confident. When you know that you are working hard, and have a plan it becomes easier for your emotional mind to reconcile the feeling of confidence with the logical one. Here are two major tasks you can do that each take about twenty minutes to complete:

1. Make a general (very rough) outline of where you want to be financially.

This doesn’t have to be complicated or long. Just take a piece of scrap paper out or grab your tablet and start brainstorming what kinds of things you really want to get out of your financially life over your lifetime. This task isn’t a one time event. You should be reinforcing this plan as well as refining the details of it, over the course of your life.

However this first basic exercise should catch the gist of where you’d like to be in the next year or two to help you get where you want to be with your long-term goals (5, 10 or more years down the road).

Organize your finances to see where you are

This step is just to catch a brief overview of where you money stands at this point. Get out your bank statements, look at your investment accounts, estimate the rough value of your home and the mortgage you have on it. Once you know your assets, liabilities, and the rough monthly budget you take in (income) and the expense you take out (expenses) you’ll have a very general picture of where you are.

These two, first steps alone will give you a sense of clarity about what really matters to you and where you are financially, thus what is needed to get you to the next step.

4 Aspects of Creating a Financial Forcefield

Who doesn’t like defense? We always talk about it when it comes to football, politics, war and most importantly our personal health. But how often do people talk about defending their finances?

Nearly all the financial advice is geared towards offense (how to make more money and make it grow) but hardly any time is spent on defending what we have. While nothing can ever be 100% safe, there are four steps or assurances you can take that will put you in the best financial position to succeed in your financial offense.

First though, what kind of things are their to defend against? There are three main groups that can sabotage your financial future: The government, other people/businesses and yourself. The four steps I will outline address each of these potential risks…

1. Documentation

While certainly the least exciting form of protection, keeping your records organized can go very far in keeping your legal, and tax responsibilities clean and clear.

2. Legal Entity or Investment Accounts Choice

Where you keep your money can be even more important than how you invest it. Whether you’re a business looking for legal protection (deciding between an LCC or C Corp.) or you’re an individual deciding how to protect your assets against taxes (Taxable Account vs IRA vs Roth IRA), deciding where to hold your resources can become increasingly important as assets grow.

Proper Reserves

Most people in the U.S. don’t have even a couple thousand dollars in case of emergency. What kind of protection do you think they have against unforeseen financial bumps in the road? Not much. Businesses need reserves as well. Setting aside money each month in what’s called a sinking fund (an account designated for a specific purpose) is a responsible step for any business or person.

Insurance

The last of the four main lines of defense is insurance. Why isn’t insurance first on the list? Because by nature, insurance is meant to be a last resort. Using the first three steps and therefore not relying entirely on insurance is a fantastic way to secure yourself. However if all else fails insurance is a great last line of defense.

Conclusion

In each of these categories there are many specifics that I don’t have space to get into. However talking with your financial  or tax advisor about these things is certainly an overarching prerequisite to each of these forms of defense. Never take anything for granted. Finance is just as much defense as it is offense.

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.

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.

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…