With interest rates as high as it is currently, if you have not looked into the possibility of opening a high yield savings account, you should. As the Federal Reserve raises interest rates, so goes the interest rates offered by banks. However, not all banks are created equal. Your typical brick and mortar banks may still be offering interest rates below one percent. However, if you perform a quick search, you can easily find banks offering significantly higher interest rates. Consider taking advantage of these interest rates as one aspect when building a diverse financial portfolio.
The Federal Reserve
The Federal Reserve, in an attempt to combat inflation, has raised interest rates some 5.25 percentage points since March 2022. The increase in interest rates have reduced inflation from 9% to about 3%. This increase in interest rates have led to a number of kick on effects. For one, an increase in interest rates increases to cost of borrowing money. For example, borrowing money to purchase a car or a home have become significantly more expensive. However, the raise in interest rates have been a boon for savers. Especially those with funds in high yield savings accounts. The higher the interest rate, the faster savings grow.
The higher the interest rate, the faster your money will grow. This is compounded with a high yield savings account. This is a result of compound interest. As you may know, compound interest is interest calculated on the initial principal and the accumulated interest of previous periods. As such, this is a cycle of earning “interest on interest.” Compound interest will make a deposit grow at a faster rate than simple interest, which is interest calculated only on the principal amount. As such, the higher the interest rate, the harder your money works for you.
The national average interest rate on savings account is jut about 0.42%. Most high yield savings accounts offer interest rates that are more than 12 times this rate. Once you have decided that you will take advantage of these higher interest rates, you will then have to decide which bank is right for you.
As high yield savings accounts are typically offered by online banks, it is almost a given that there will be no local physical locations. As such, besides the interest rate, consider ease of use, account accessibility, monthly fees and minimum balance requirements when selecting a high yield savings account.
Conclusion
As the Federal Reserve raises interest rates, so goes the interest rates offered by banks. As you know, not all banks are created equal. Your typical brick and mortar banks may still be offering interest rates below one percent. However, if you perform a quick search, you can easily find banks offering significantly higher interest rates. Consider taking advantage of these interest rates in building a diverse financial portfolio.
There is a saying that the best job to have is one that you do not need. I did not believe this at first. For the most part, I viewed this saying as just a cliche. Similar to if you love what you do you will never work another day. But guess what, it is true. The truth is, if you do not need a job, it forces you to do something that you love. Therefore, once you do not need a job, what ever you do will be something that you love. To find and do the best job, you must have a job that you do not need.
Your Early Career
It is highly unlikely that you will love your job early in your career. The fact is, for many of us, the first job serves a very specific purpose. First, to pay the bills and second, to gain experience. For the most part, you do not want to stay in the same passion for 5, 10 or 15 years. To learn and gain experience, a lot of what you will be doing is grunt work. For your first few jobs, it is likely that you will be doing the tedious and repetitive tasks that those above you do not want to do.
As you gain experience, you begin to do more of the fun things. This could generically be strategy, interacting with clients, or running deals. But with more experience comes more money and responsibilities.
You Can Have Your Best Job In 10 Years Or Less
If you play your cards right, it will take maybe 10 years to get to your best job. If you work hard, save, live below your means and diligently invest, there is a high likelihood that in 10 to 15 years you can be financially free or at least be a good way there.
Financial freedom brings the best. While it is great to be fully financially independent, you do not need to entirely have financial independence to get the best job of your life. Imagine the following scenario. You have expenditures of about $50K per year. Over the first 10-15 years of your working life you happen to amass let’s say $500,000. Based on the 4% rule, if you are able to live on $20K per year, you are financially independent.
Not many folks can live on $20K. But if you have $50K expenditure per year, and have cover for $20K because of the $500K you have, you really need only a $30K per year salary to make your expenditures. Which then means that if you do not like your job, you can get another one that you truly love so long as it brings home at least $30K per year. This is the benefit of having financial independence.
This calculation works at all levels. The more you save and invest, the less you rely on the job you have. Therefore, you can actually do a job that you truly like and be the absolute best at it. Further, with financial independence you have no need to put up with BS from superiors or colleagues. You are able to true do what you love.
Generally, financial independence is when you enough money to live the life you want without income from a job. If you do not need to rely on a job and you are working, you will only continue to do that job if you actually love it. This is why one of the side effects of financial independence is that then you are able to have the best job.
Think about it. If you did not need the money from your job, would you continue to do it. If the answer is yes, the reason is typically that you actually love your job. You love the people you are working with and the work that you are doing. Here, it is not about the money.
On the other hand, if your answer is no, once you have financial independence or your are close to it, why continue to do work you hate. Quit and find something that you love to do. Life is short, you owe it to your self to spend the limited lime you have on this rock doing something that impacts the world and that you love to do.
Conclusion
There is a saying that the best job to have is one that you do not need. I did not believe this at first. For the most part, I viewed this saying as just a cliche. Similar to if you love what you do you will never work another day. But guess what, it is true. The truth is, if you do not need a job, it forces you to do something that you love. Therefore, once you do not need a job, what ever you do will be something that you love. To find and do the best job, you must have a job that you do not need. Financial independence allows you to do what you love.
It is interesting, and most likely you have also noticed. During boom periods, there tends to be a lot more noise from internet financial gurus. It could be a matter of folks being willing to share their experiences as the market booms. More specifically, there is typically a weekly or almost daily update about individual net worth. But what happens when the stock market begins to go south? Most, will stop sharing. A lot of internet financial gurus become very quiet. No one likes to share that they are losing money and if they are following their own advice, they are. But that is the big question, are internet financial gurus following their own advice?
Financial Gurus
During boom times, it is very easy to say keep buying, or buy the dip. But when the market is heading into recession territory, this becomes very difficult. Right or wrong, the more you buy the more you are losing in the short term as the stock market goes into the red. Also, the dip keeps getting dippier. So this is a very difficult message. As such, many internet financial gurus will stay quiet during these times, even if they are following their own advice.
Look At Your Statements
As the stock market goes south, are you looking at your account statements? It is interesting that as soon as we get wind of the stock market going down, we begin to develop this ability to not check our accounts. Do check your accounts. This is not to provide a reason to sell, but it is important to know what is going on in your accounts. Do not be afraid to look at your loses on paper. The stock market goes up and it will go down, and it will go up again.
The same messages that financial gurus disclose during boom times are also applicable during a recession. If the information was true/false then, it is true/false during a recession as well.
Do Not Buy Individual Stocks, Buy Index Funds
As we have discussed before, a monkey can be a better stock picker than a human. So it is advisable, unless you are Warren Buffet, buy index funds. But when the stock market is going down, it can be difficult to stick to this strategy. But a clever man once said to be fearful when others are greedy, and greedy when others are fearful.
Stick to your strategy but use the market conditions, information, and your own situation to adjust your strategy. A stock market down turn does not mean that you should abandon your current strategy. In effect, if you truly believe in what you are doing, continue to do it and modify as information changes. This is also a matter of doing your research before you implement any strategy such that you are able to plan ahead and handle different situations.
Recessions Are Filled With Opportunity
As the past has shown, recessions are filled with opportunities. If you are in a stable financial position, you have no doubt pay down debt and has bulked up your assets. These are two basic steps that will prepare you for a recession. Especially if you are in a high interest rate environment. More specifically, because banks will quickly raise interest rates on credit instruments, do not maintain balances if at all possible. If you have low to no debt, this is not something that you will have to worry about. Again, many of the statements made by financial gurus during boom time may be applicable as a recession approaches. Save, pay down debt, invest. This works no matter how good or bad the stock market is doing.
If there is a recession and people are losing their jobs, having cash on hand is one way to ensure that you will be able to navigate such a situation for a year or two. Another advantage of having funds in the bank during a recession is the increased interest rates of online banks as the stock market falls. During such a time, interest rates are typically increased.
There are many lesson to learn from recessions. If you are fortunate enough to still have your job during a recession, where you are consistently bringing in money, continue to save and invest. Avoid trying to time the market, because guess what, you likely cannot. Many have tired and have failed. Instead, consider dollar cost averaging and ride out the recession. No matter the economic condition, continue your journey to financial independence.
Conclusion
During boom periods, there tends to be a lot more noise from internet financial gurus. It could be a matter of folks being willing to share their experiences as the market booms. More specifically, there is typically a weekly or almost daily update about individual net worth. But what happens when the stock market begins to go south? Most, will stop sharing. A lot of internet financial gurus become very quiet. No one likes to share that they are losing money. But no matter the economic condition, continue on your path to financial independence no matter the rate of chatter.
Quickly calculate your net worth. After calculating your net worth, divide your net worth by your average spend per year. The resulting number of years is what you have bought back. If you decide to quit your job today, this is how long you could potentially go without working if all else stays constant. Now knowing this, how many years have you bought back? Buying time is akin to financial independence. At a certain point, you will have bought back so much time that you will no longer need to work. This is the aim.
On a basic level, your net worth is equal to your assets minus your liabilities. Unsurprisingly, the younger you are, the more likely that your net worth will be zero or below. But this does not mean that you should keep the full picture of your financial situation in the background. Knowledge is power!
By knowing your net worth, you are able to gauge where you are as an individual. By knowing your net worth, you can individually gauge your progress towards your financial goals. Having a home or a specific car may be a goal, but your ultimate financial goals are inextricably link to your net worth, not a salary, home or a car. It is important to know your net worth because with this information, you can knowledgeably plot your financial path forward. If you do not know what your current financial situation is, how can you plan your financial future? How can you determine how and where to allocate funds? The fact is, you cannot plan your financial future without knowing your net worth. Know your net worth, use money as the tool it is and buy time.
Money Is A Tool
Money is truly nothing but a tool. As such, you should aim to use your money to accomplish tasks. This should be done the same way that you use other tools. For example, if you have a hammer, it does not just sit around and do nothing. The hammer is always kept in working condition ready to bang in nails. In the same manner, money does no good just sitting around. Money should be in working condition and ready to be applied to accomplish tasks. For you who are financial minded, the game of money is about buying time. Each dollar you spending is time you are losing and each dollar you earn is time you are gaining. The time you gain is related to time that you need not work.
View Your Money As Buying Time
Each dollar you spend, consider how long you will need to work to get that money back. I guarantee that you will not buy certain items if this analysis is done before each purchase you make. If you are making $10 an hour, that $200 shoe is equal to 20 hours of your time. With taxes and other deductions from your paycheck, it is actually a bit more of your time. Now, when looked at in these terms, is that $200 shoe really worth it? Is it really worth more than 20 hours of your time? This same calculation work if you are making $50 an hour or $100 an hour. Is that item worth your time? Buy an item or buy time? The answer is simple, buy time.
Buying Time Gives You Freedom
Knowing that you have bought back 2, 3, 4 years gives you confidence. If there is a recession, you have time to do what is necessary with no need to panic. Because you have bought time, you will not lose your home or other possessions. Buying time provides a security blanket, you are able to pay your bills and if needed, you have enough for any emergency that arises. You have the money, you have the time. This is the difference between those who live pay check to pay check and those with money in the bank. One group is critically worried about keeping their jobs, while the other group have their head up and looking for better opportunities. It is much more difficult to seek opportunities and take advantage of them when they arise if you are in a place of financial survival.
The more time you have bought back, the easier it is to pursue your dreams and take advantage of opportunities as they arise.
Conclusion
Calculate your net worth. After calculating your net worth, divide your net worth by your average spend per year. The resulting number of years is what you have bought back. If you decide to quit your job today, this is how long you could potentially go without working if all else stays constant. Now knowing this, how many years have you bought back? Buying time is akin to financial independence. At a certain point, you will have bought back so much time that you will no longer need to work. This is the aim. Journey to financial independence.
As interest rates increase and the stock market falls, more and more pundits are pushing I Bonds. So let us dig into I Bonds and why it may be an option for those looking for a return on investment as the stock market falls.
What are I Bonds?
I Bonds are savings bonds that earns interest based on combining a fixed rate and a variable inflation rate. To simplify, bonds are debt instrument issued by governments, corporations, and other entities to raise money. For the most part, bonds are issued and have a set period to mature. Over that time, interest is typically calculated based on the purchase value. In the case of I Bonds, the time to maturation is 30 years, unless you cash them first. As I Bonds are back by the US government, they are essentially risk free.
In view of the effects of inflation on interest rates and the low risk, I Bonds are very attractive in high inflation periods. For I Bonds, the interest payment increases or decreases based on the official inflation rate.
Interest Rates
I Bonds feature a combination of a fixed rate that stays the same for the life of the bond and a variable inflation rate that is set twice a year. The variable inflation rate is based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers. As far as timing, the U.S. Treasury changes the inflation rate component of I Bonds every May and November.
If you purchase a new I Bond in April or October you will get the “old” rate for the first six months of ownership, and then in the second six months of ownership, you will get the rate that was announced a month after the I Bond was purchased.
Once the interest rates are determined, interest is earned on the bond every month. The interest is compounded semiannually (twice a year: the interest the bond earned in the previous six months is added to the bond’s principal value, thereafter, the interest for the next six months is calculated using this adjusted principal.) The total interest and principal are paid out when you cash the bond.
Today, June 2022, I bonds currently have a fixed rate of 0%, but a variable inflation rate of 9.62%. I Bonds are becoming popular because where else will you get such a return currently? So how do you purchase I Bonds?
Purchasing I Bonds
Two of the easiest ways to purchase I Bonds are via the US TreasuryDirect website or via mail when you file your federal tax return. Electronically, the minimum that can be purchase is $25 via the US TreasuryDirect website and $50 via the paper route. On the other hand, the maximum that can be purchase via the US TreasuryDirect website is $10,000 total each calendar year and $5,000 total each calendar year via the paper route.
When Can You Redeem I Bonds
I Bonds earn interest for 30 years unless you cash them first. An important aspect of I Bonds is that I Bonds cannot be redeemed within a year after purchase. If you will need your funds in the next year, I Bonds may not be the best vehicle for you. Note that you can cash I Bonds after one year, however, there is a penalty. If you cash your I Bonds before five years, you lose the previous three months of interest. As an example, if you cash an I Bond after 20 months, you will only get the first 17 months of interest.
Conclusion
During this inflationary period where the stock market is correcting, it is difficult to find a financial winner. To protect your portfolio against inflation, I Bonds may be a winner, at least in the short term. I Bonds are backed by the US government, as such, there is very little risk. Further, the value of I Bonds do not go down. More importantly, I Bonds are currently offering a 9.6% return. Based on your financial position and strategy, I Bonds may be right for you.
It does not matter how much is forgiven and it really does not matter the reason. Forgiving student loans is a divisive issue. There is one main group that will directly benefit from student loan forgiveness. This group includes those for whom student loans are forgiven. On the other hand, there will aways be a number of groups that will be aggrieved. This group of the aggrieved includes at least those who have paid off their student loans, those who never took out student loans and those who did not have the opportunity to take out student loans because they did not attend college.
Student Loan Forgiveness
There is a student loan problem. Some students were victims of predatory lending from opportunist institutions. In some cases, students were given loans and then obtained worthless degrees. In some cases, the institutions were not up to par academically. For some, the college was closed down and students were stuck with student loans but no degree. For others, student loan terms were not clearly explained and students now owe more than they borrowed. In all cases, for those affected, it is likely that they are stuck with a mountain of student loans and no true path to ever pay off the borrowed amount plus the accruing interest.
On balance, should these students have done their due diligence? Should these students have read the fine print and better understood what they were signing up for? Also, should there have been more government oversight to prevent institutions from selling these subprime student loans to vulnerable students? Something to think about.
Students Who Paid Back Their Student Loans
There are some students and adults who have now paid back their student loans. Essentially, they made it a priority to not take out more than they needed during their school years. Many of these individuals did not attend their dream school because of the cost. Instead, they settled for a less expensive option. They may have also worked extra jobs. Some did not take fancy spring break trips while in college. Others have forgone buying nicer homes or cars. Instead of spending, these students were cost conscious. They buckled down and payed back their student loans.
How would you feel if you were one of these students when you hear of others getting student loan forgiveness? You will likely feel robbed. You have made the sacrifices and paid back what you owed. Now, you are being penalized for your diligence, being proactive and responsible. Would you view this a being fair?
Students Who Did Not Take Out Student Loans
Let’s face it, we live in an unequal society. There are a group of students who attended college and did not have the need to take out student loans. This could have been a result of their parents saving over time and allocating funds specifically for college. For others, their parents were in the position to pay their tuition as they went through college. Still, there are many who simply worked during college and were able to make enough to pay their costs or obtained scholarships.
For those who prepaid for college, those who worked multiple jobs to pay their tuition, and those who studied and obtained scholarships, how is student loan forgiveness viewed? Will they view student loan forgiveness as a penalty? Why work hard during college and forgo all the parties, why prepay for college, why work hard and obtain scholarships when the student loans will be forgiven anyway?
Those Who Did Not Attend College
Of the groups that will likely view student loan forgiveness in a bad light, those who did not attend college will likely be the most upset. They are the most likely to be upset because as tax payers, they may view student loan forgiveness as paying for something they did not have the opportunity to part take in. These individuals are essentially paying for someone else’s college education or mistake. They may also see student loan forgiveness being applied to college educated citizens as causing a further divide between the have and the have nots. Some who will be helped by student loan forgiveness, where they attended reputable colleges, may end up earning more than those who did not attend college. So in effect, as a tax payer, those who did not attend college would be further subsidizing these individual’s lifestyle. For many, this will be viewed as being unfair.
The Greater Good
No matter your stance on student loan forgiveness, one thing to consider in this student loan forgiveness debate is the greater good. Will forgiving a portion of student loans help the overall society in general terms. If citizens are not buried by student loan payments, will this translate into increase economic activity as more funds will be available to spend. If this works perfectly, all of society will benefit. However, will this affect personal responsibility and the motivation to live within ones means if there is a possibility that your debt will be forgiven?
Whatever the decision with regard to student loan forgiveness, one thing is for sure, the debate will continue.
There is a lot to note when interest rate changes. Rising interest rates typically result in lower stock market returns and an increase in bank lending rates. For many savers, rising interest rates typically translates to increase interest payments on savings and certificate of deposit accounts. However, one of the most interest thing to watch when interest rates increase is the speed at which banks raise interest rates on deposit accounts. The speed of raising interest rates on deposit accounts is typically inverse to the speed at which interest rates are reduced. Why? The answer is simple. This is the business model of banks.
Falling Interest Rates
Once interest rates are reduced, banks are typically the fastest to reduce interest rates on savings and certificates of deposit accounts. The speed of interest rate change is much slower with regard to the interest rates on loans. The reason for this is quite simple. Banks are able to make more money this way. By reducing interest rates on what has to be paid out (interest on deposit accounts), banks are paying out less to customers, while keeping the interest rates on loans high. In this case, banks are obtaining funds from the central bank at a low rate, lending the money at a high rate and paying customers at a low rate. This tactic maximizes the gains of banks.
Rising Interest Rates
On the other hand, when interest rates begin to rise, banks are the fastest to raise interest rates on specific instruments. Specifically, banks quickly raise interest rates on loans but are delayed on raising interest rates for savings and certificates of deposit accounts. Again, this is the business model. Banks obtain money from the central bank at a specific rate. Banks then charge customers on loans more than the rate a which they obtain money from the central bank and pay out less to customers for certificate of deposit and savings accounts.
The Business Model
The best business you can run is one that gains a return no matter what the economic environment. Banks are in this position. Banks have found a way to gain no matter what the economic situation. Interest rates go up, banks make a profit. Interest rates go down, banks make a profit. This dynamic is not news to anyone who tracks the industry. Banks are positioned to benefit from fatter lending margins as the central bank raises rates.
What Can Consumers Do
Consumers can also play this game to their advantage. One of the many things that consumers can do as interest rates changes is to borrow or to refinance any loans they may have when interest rates are low. Know that the market operates in cycles. Interest rates typically will rise when there is a lot of easy money and/or inflation. As the central bank attempts to restrict inflation, the central bank will increase interest rates. On the other hand, interest rates are reduced if there is a recession or too little money or economic activity. Here, the central bank tries to stimulate the economy by lowering interest rates and increasing the money supply. Consumers need to pay attention to this cycle and act accordingly.
Online Banks
To take advantage of higher interest rates, consumers can also search for online banks. Online banks typically pay interest rates that are multiples of that of the typical brick and mortar banks. But also, online banks tend to increase interest rates on deposit accounts at a faster rate and to higher levels as compared to brick and mortar banks.
Consumers should be careful when locking in interest rates on certificates of deposit. When interest rates are risings, when you lock in a rate, you may miss out as interest rates further increases.
Conclusion
Rising interest rates typically result in lower stock market returns and an increase in bank lending rates. For many savers, rising interest rates typically translates to increase interest payments on savings and certificate of deposit accounts. However, one of the most interest thing to watch when interest rates increase is the speed at which banks raise interest rates on deposit accounts. The speed of raising interest rates on deposit accounts is typically inverse to the speed at which interest rates are reduced. Why? The answer is simple. This is the business model of banks.
Play the game and put your money where you will get a better return. This is often referred to as the only free lunch in finance. Increase your returns without increasing risk.
Without a basic understanding of simple financial concepts, good luck. It will be almost impossible to achieve your financial objectives. Everyday we make decisions about banking, budgeting, saving, credit, debt, and investing. Financial literacy enables you to make informed financial decisions that will propel you toward financial stability and achieving your financial goals.
Financial Literacy
There is currently no one definition for financial literacy. However, generally, financial literacy is the ability to understand and use personal financial management, budgeting, and investing to your financial advantage. Simply put, financial literacy is having the knowledge to know what to do in a financial sense. This does not necessarily mean that every financial decision will result in success. But over time, it is likely that you will improve your financial situation.
Why Is Financial Literacy Important
Financial literacy is important because it results in budgeting, being prepared for emergencies, and limiting debt. These are the financial forces that we deal with on a daily basis. But more importunely, the financial decisions we make today compounds. The decisions we make today are more important than ever because of the limited safety net available for retirement.
Most pension plans have been replaced by 401Ks. Unlike pension plans, 401K plans leave the bulk of the decision making and planning to the employee. Without proper financial knowledge, many will be saddled with debt and be ill-prepared for retirement.
Lack Of Financial Literacy Is Expensive
Not being financially literate is expensive. Some consequences of lacking financial literacy appears in everyday life. These consequences show themselves in increase costs that can be locked in for decades. For example, higher transaction fees, banking charges, higher interest rates on debt, and loses in the stock market. Financial ignorance also compounds as you will not understanding the concept of compounding. Compounding in view of debt and also in view of income/interest. In a recent survey, it is estimated that financial illiteracy costed Americans about $353 Billion in 2021 alone. That is a crazy amount of money. That is a nontrivial amount of funds.
The Solution
The solution to lack of financial literacy is simple, educate yourself. It is to you and your family’s benefit to be financially literate. Financial decisions not only affect you, but also those around you.
Financial education resources are available. Best of all, a lot of the information is free. You have this blog as an example and hundreds of others that you can subscribe to or follow. If you want to learn the thoughts of the biggest financial titans in the world today, just search for it. Financial literacy comes down to how important it is to you. Believe me, it should be at the top of your to do list.
For the same reasons why a coach is likely not the best player on a team, financial literacy alone will not be enough to win the financial game of life. Knowledge alone is not enough.
Financial Literacy Alone Is Not Enough
While financial literacy is important, it is not enough. To achieve your financial goals, you need a climate that facilitates wealth generation. This means that the country/jurisdiction that you are in has to facilitate wealth generation. You have to have access to tools and resources to build wealth. For example, in starting a business, you need to have/have access to capital, general money management, supply chain and transportation infrastructure. Financial literacy alone will not overcome infrastructure deficiencies.
Financial education is important, but you must also tackle your beliefs and attitude toward money. Having the financial knowledge alone will not change your attitude.
Additionally, having knowledge does not mean taking action. You, yes you have to take action. You have to put your plans in motion. Start today. Take action. Use money as a tool and other resources around you to move toward your financial goals.
Conclusion
Everyday we make decisions about banking, budgeting, saving, credit, debt, and investing. Financial literacy enables you to make informed financial decisions that will propel you toward financial stability and achieving your financial goals.
Below, is the reproduced S&P Global FinLit Survey. Take the test. Answers are given below. Are you financially literate?
Financial Literacy Test (S&P Global FinLit Survey)
RISK DIVERSIFICATION
1. Suppose you have some money. Is it safer to put your money into one business or investment, or to put your money into multiple businesses or investments?
one business or investment;
multiple businesses or investments;
don’t know
INFLATION
2. Suppose over the next 10 years the prices of the things you buy double. If your income also doubles, will you be able to buy less than you can buy today, the same as you can buy today, or more than you can buy today?
less;
the same;
more;
don’t know
NUMERACY (INTEREST)
3. Suppose you need to borrow 100 US dollars. Which is the lower amount to pay back: 105 US dollars or 100 US dollars plus three percent?
105 US dollars;
100 US dollars plus three percent;
don’t know
COMPOUND INTEREST
4. Suppose you put money in the bank for two years and the bank agrees to add 15 percent per year to your account. Will the bank add more money to your account the second year than it did the first year, or will it add the same amount of money both years?
more;
the same;
don’t know
5. Suppose you had 100 US dollars in a savings account and the bank adds 10 percent per year to the account. How much money would you have in the account after five years if you did not remove any money from the account?
more than 150 dollars;
exactly 150 dollars;
less than 150 dollars;
don’t know.
A person is typically defined as financially literate when he or she correctly answers at least three out of the four financial concepts described above. What was your result?
Ever since I understood the concept that buying a lottery ticket gives you the chance of winning millions, I wanted to win the lottery. As I got older, I realized that the probability of winning was extremely low, as such, I rarely ever play. When I do play, I see it as a donation to the State’s education system as a percentage of the lottery usually funds education. For the lucky few who plays and wins, congratulations. However, for winners there is happiness, that is typically followed by sorrow and many times tragedy. It makes you wonder, why does such tragedy follow many lottery winners? Looking at the financial side, why do lottery winners go broke?
Lottery Winners Go Broke Because Of Inexperience Money
A lot of lottery winners are not math or financial whiz. The fact is, the more educated you are, the less likely you are to play the lottery. It is simple, you understand that the odds of winning is extremely low and as such you do not play.
Those who win the lottery, tends to be those playing the lottery which is in effect proportionally not the most educated with regard to finances. Most lottery winners have the issue of having a large sum of money and not knowing how to maintain it.
Many lottery winners fall prey to their wildest financial dreams. The dream of having one or more mac mansions, new expensive cars and other toys that are wanted but not needed. With a scarcity mentality, many lottery winners are frivolous with lottery winnings. Some winners see their winnings as “free money” to be spent. While individual purchases may not put a dent in the overall winnings, they can quickly add up if winners don’t keep a close eye on what they are spending. A bigger home comes with a bigger bill to upkeep. Luxury cars come with larger insurance and repair bills.
The Payout Is Not As Much As You Think
When taking the payout from the lottery, winners usually have a choice. The choice is typically between taking a lump-sum or a fixed payment overtime. If you take the lump-sum, sometimes it is only around 60-75% of the advertised prize. This can leave winners with a lot less money than they expected. Then do not forget about the taxes. In most jurisdictions, lottery winnings are taxed. As such, in the end, while you will have a huge sum of money, the sum may not be as large as others think it is. Therefore, it may be bit more difficult to rebuff family and friends when they falsely believe that you have a lot more than you actually do.
Lottery Winners Go Broke Because Everyone Knows That You Won
In many places, a condition of winning the lottery is that your name is made public. Many lotteries do require that basic information about winners are made public. For example, name, city and the amount won.
When every one knows that you won millions of dollars, you will have long lost friends and family coming out of the woodwork. They will all come calling. Many new lottery winners will not be well equipped to say no to friends and family. Once family and friends learn of the windfall, they will have expectations of what they should be entitled to.
But also, there are complete strangers who targets lottery winners. Some with sad stories, others with investment ideas and still others who aims to rob, maim or kill lottery winners.
Typically, lottery winners go broke as a result of a million cuts. One bad investment idea or falling for one sad story will likely not completely deplete the millions won. However, not paying attention and learning to manage your money will eventually lead to bankruptcy or worst.
Addiction
There is the saying that money does not buy happiness, it only amplifies who you are. A jerk before having a lot of money, will likely be a jerk with lots of money after winning the lottery. If you were previously prone to addiction prior to winning the lottery, now you are a wealthy individual who is prone to addition with the financial means to support that addiction. If you were an alcoholic before winning the lottery, you are now a very rich alcoholic. For those with addition issues or tendencies, winning the lottery and having the financial resources to support an addition habit is dangerous and can be deadly.
For those who cannot handle stress, winning the lottery will add a lot of stress. There is some stress that comes with having the money. You will like be stressed about how to maintain it, how to manage it, how to handle the constant requests for handouts, and how to face resentment (because it will come from family and friends). For many, alcohol and drugs are the remedies often sought with stress. It is not uncommon for many lottery winners to blow huge sums of their winnings on drugs and alcohol. At times, this is in an attempt to cope with their new lives as lottery winners.
Not Asking For Help
As mentioned above, many lottery winners were not finance majors in college. As such it is probably in their best interest to seek advice from qualified financial professionals. However, despite the fact that sudden wealth can cause lots of financial complications, very few lottery winners seek professional help. Very few lottery winners seek out professional advice on how to grow and or maintain their wealth. Without the requisite knowledge of how to manage such an instant inflow of funds, many lottery winners mismanage their money and go broke.
Conclusion
With winning the lottery or with any other instant financial windfall, be careful what you wish for. Many lottery winners go broke. By not being able to handle the stresses of winning the lottery, you could end up being a lottery winner that goes broke or worst.
At some point in our lives, if you are an employee, a worker for pay, you will miss out on a promotion in view of someone else. This other person may be a current coworker or someone from outside the company. In either case, it will leave you wondering, why. Especially if you believe that the person receiving the promotion is less experienced and/or less qualified.
Be Graceful
Once a promotion has been given to another, congratulate that person. Rise above your feelings of disappointment and be professional. No matter how you may be feeling, your reputation matters. Do not come off as unprofessional or as someone who do not know how to deal with disappointment. By not being graceful or lashing out because you were passed over for a promotion, you may be confirming that you are not mature enough for the role. Be graceful, even if it is difficult.
Evaluate Why You Did Not Get The Promotion
If you missed out on a promotion, you will be hurt. This feeling is normal. It does not matter whether or not you really wanted the position or not. Just being rejected will have an effect. While you may be hurt, you must try to be objective. Was the chosen person better for the role? Where you misled about what is required for the role? Do you think that you were treated unfairly in any way?
If in the end you were objectively not the best person for the position, if you really want this position, it is time for you to add to your skillset. Work toward a direction that will get you where you need to be.
On the other hand, if you were truly the better person, find out why you did not get the role. Is there a bit of favoritism or some other isms at play? Did you have the credentials, but others did not believe that you were qualified or ready? If this is the situation, it may be time to begin advocating for yourself. Begin to show who you really are and what you know. At times, the most qualified person may not get the position. The role typically goes to those who promote themselves. Lots of idiots have been promoted because they know how to play the game.
Ask For Feedback
Ask for feedback. If you did not get a role that you believe that you are qualified for, ask for feedback. Note that most managers are terrible at giving feedback, so try to read between the lines. At times, when you ask for feedback, your manager may justify the case for the other person being promoted, without actually giving you the feedback you asked for. So read between the lines.
Some managers will provide adequate feedback and provide a roadmap to being promoted. This rarely occurs, but it does. When you have such a manager, you are very lucky. You are more so lucky if the roadmap provided actually leads to a promotion.
Some managers will flat out tell you that you did not get the promotion because you are needed in your current role. If this happens to you, it may be time to leave. It essentially means that you are too good at your job. The company is not incline to promote you and train two people to do your work, when they can simply keep you at that position.
Some managers may even say that you will be up next or there was a business need for a specific skillset or there will be more opportunities in the near future. It will really be up to you to believe if this is truly the case or not. Many employees have been strung along in the past with the promise of a position opening up or an opportunity that is just on the horizon. Be careful in how you approach these promises. Many times, these promises are only lip service for you to calm down and to move beyond your disappointment.
Review The Landscape
In your evaluation of why you did not receive the promotion, review the landscape. Were you best placed for the role? For example, were you told not to apply, encourage not to apply or told that there are certain requirements but then the chosen individual did not fit the announced requirements? There could be more at play here.
Take a step back and look at the individuals in the role that you did not receive. The requirements posted about the role may just be a preference but not really a requirement. The most important characteristics may not actually be posted. By looking at who previously occupied the role, or who currently occupies that role, you can gain a lot of information.
Some corporations have a certain type that is elevated to certain positions. That may be education level, select schooling, sex, race or demeanor. When you look at the role you missed out on, do you fit? This is a real question and you must be honest with yourself? If you do not fit the role, it may be time to leave as it is unlikely that you will ever be elevated to that position.
Improve Yourself
If you received a road map that will lead to a promotion, if you believe that the recommended action would lead to a promotion, follow that path. Also, seek to improve yourself for the job you want with your current company but also for another company. Work to improve yourself not only for a promotion but also to better yourself. Take additional classes in an area. Volunteer for new assignments. Work across departments. Make your resume the best it can be for your future role or new job that you may be interviewing for in the near future.
Didn’t Get The Promotion, Leave!
If you believe that you were wronged, or you see your non promotion as a pattern of activities, begin your task of leaving. Many times when we work for a company, we may hear stories and rumblings of who is being promoted. It may not bother you at first because it was not affecting you, but once it affects you directly, you may see things a bit differently. If you are in this situation, know that this is how your company works, and they will likely not change. As such, it may be time for you to leave.
This does not mean announcing that you will leave or making an ultimatum. Simply prepare your resume and improve yourself. Over the next few months, keep an eye on job openings and apply. When the time is appropriate give your two weeks notice and move on. There is no reason for you to stay in a toxic environment. Especially if your non promotion begins to impact your mental health.
At times, once you give your two weeks notice, you may be offered a higher salary, you may even be offered a new role. Whether or not you stay at your current company or leave is up to you. But note and keep in mind what it took for the company to come up on your salary or offer you the new role. You had to threaten to leave. Will this be required going forward? This also does not bode well for you when times are hard and the company performs a reorganization to cut headcount, it is highly likely that you will be cut.
Conclusion
At some point in our lives, if you are an employee, a worker for pay, you will miss out on a promotion in view of someone else. This other person may be a current coworker or someone from outside the company. In either case, it will leave you wondering, why. Especially if you believe that the person receiving the promotion is less experienced and/or less qualified. In these situations, be graceful, evaluate why you did not receive the promotion, ask for feedback, improve yourself and if necessary, leave.
