You and Money

Refinance

Is It Time For A Mortgage Refinance?

Money Maroon

If you have not yet bought a house, you will be bombarded by messages to buy now. It is the American dream, or so we are taught. But in reality, whether or not you buy or rent is personal. For some, buying makes more sense than renting, while for others the reverse is true. Buying a home is a truly personal decision. If you do happen to have a mortgage, you are no doubt being inundated with mortgage refinance information and offers.

Typically, you are told that it is a good idea to refinance if interest rates are reduced by at least about 1 percent. The truth is, it really depends on you and your future plans. Namely, how long do you plan on living in the home and does it make financial sense to pay upfront closing costs for the offered lower rate. 

Do not forget, whether or not you refinance, the bank will be making money. This is simply a matter of will you save on your interest payments in the long term.

Compare Rates

The reason for mortgage refinancing may vary, but it is typically with regard to lowering payments or taking cash from your home. Simply put, are you trying to save money by obtaining a lower interest rate or are you trying to get cash by using the equity in your home?

In either case, when thinking about mortgage refinance, you must address interest rates. Interest rate differences are typically the trigger for considering mortgage refinance. Just like making the decision to buy or rent, interest rates are truly personal. The interest rate that you will be offered is likely base at least on your credit history, employment history, assets, liabilities, equity in your home, the type of loan (fixed rate vs adjustable), length of the loan, points, and the lender. As such, ensure that you are in great financial shape and shop around to get the best rate. Here, typically, the lower the interest rate the better the rate is for you. 

In view of what happened during the great recession, many of today’s mortgage refinancing are with regard to lowering monthly payments as a result of obtaining a lower interest rate. Less home owners are taking cash from their homes.

Points

Another factor that will affect your interest rate on a mortgage refinance will be points. Points represent a payment paid to the lender to reduce the interest rate on the mortgage. Each point costs about 1% of the loan amount. Some lenders may offer fractions of points in some cases. Note that to obtain the lowest advertised interest rates, it is likely that you will need to pay for some points. Depending on the amount of points and the size of your loans, this could be expensive for the promise of a lower interest rate.

Adjustable Or Fixed Rate

On the decision tree that is a mortgage refinance is the type of loan that you are seeking. An adjustable rate mortgage tends to have an initial lower interest rate as compared to a fixed rate mortgage. In essence, an adjustable rate mortgage promises a low rate now and typically raises over time. If the adjustable rate mortgage is held long enough, the interest rate will likely surpass the going rate for fixed rate mortgages. 

Unlike an adjustable rate mortgage, fixed rate mortgages are fixed throughout the life of the loan. The interest rate does not change over time.

15 years vs 30 years

Will you increase the life of your loan or decrease it with a mortgage refinance. Based on your lender, you may have a loan of any length. However, the two most common length of loans are typically 15 years and 30 years. With mortgage refinance, the shorter the length of the mortgage, the lower the interest rates that you will be offered. Because the interest rate will be lower, you will also pay significantly less on interest over time. Of course, the shorter the length of the mortgage, the higher your monthly mortgage payments will be.

If you decide on a 15 year mortgage, it is important that you are comfortable with your monthly payments. 

In certain situations, it may be best to take a 30 year mortgage with a slightly higher interest rate compared to a 15 year mortgage. In this case, if you chose to payoff your mortgage early, do so. This provides the benefit of a lower payment such that if you encounter financial troubles, you will have the financial room to maneuver and lower the likelihood of falling behind on payments.

Closing Cost

Let us not forget about the expense of mortgage refinance. If you are trying to save money by mortgage refinance, your lender will charge you for this opportunity to save. On average, the mortgage refinance closing cost are typically between 1 and 6 percent of the loan. However, it is important not to forget about escrow cost and the cost associated with any property taxes, and home insurance that must be prepaid. 

Many lenders will try to reduce or hide the closing cost by rolling it into your loan. So if a lender offers a low or no cost closing, your closing cost is likely not zero. You may not pay at closing but that amount is likely rolled into your loan. Of course, the higher your loan, the higher the total interest that you will pay. Do keep this in mind. As the saying goes, if you do not pay now, you will pay later. 

Note that you can demand to pay your closing cost and not roll an amount into your new mortgage.

Break Even Point

Another important aspect of mortgage refinance, will be your break even point. This is the number of months it will take for your monthly savings from refinancing your loan to exceed your closing costs.

This is important because if it takes you 5 years to break even and you will stay in the house for only 4 years, refinancing may not be a great financially beneficial idea. To benefit from a refinance it is important that  you stay in the home longer than your break even point.

As an example, if your new mortgage saves you $200 a month over your previous mortgage and closing costs are $5,000, then $5,000 / $200 a month in savings = 25 months to break even. If you plan to sell the house before you break even, refinancing may not be a good strategy.

Refinance

Make A Decision And Refinance

Once you decide to refinance your mortgage and you and your lender has agreed upon provisional terms, you will then need to get a rate lock. This will essentially lock you into a specific interest rate for a period of time. Based on who you are working with, to complete the required action to move to closing may take as little as a month or longer than a year.  The length of time will depend on how long it takes to complete a review of your financial situation. For example, inspections of the home, appraisals of the home, credit checks and other requirements. 

However, note that some banks will give you the run around for whatever reason. They will continuously request bank statements or proof of your employment each month on a repeated cycle. This will invariably continuously push back your closing date.

If you are in the position of a bank toying with you, stop it now. It is important to realize that it is your money that is being spent and that you can take your business to someone else. Give the lender an ultimatum, they will close shortly or you will take your business else where. The fact is, if you can get a low rate from one bank, you can potentially get a low rate from another bank. Do not allow a bank to treat you disrespectfully by toying with you on such an important matter as your home.

Conclusion

If you have not yet bought a house, it is not uncommon for you to be bombarded by messages to buy now. It is the American dream, or so we are taught. But in reality, whether or not you buy or rent is personal. For some, buying makes more sense than renting, while for others the reverse is true. Buying a home is a truly personal decision. If you do own a house, and have a mortgage, you are no doubt being inundated with mortgage refinance information and offers. 

With your home typically being your largest purchase and the foundation of generational wealth, any transaction that is associated with your home is an important one. Do not take a decision to mortgage refinance lightly. Mortgage refinance may be an important step on your path to financial independence.

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Adding Value

You Are Paid For Adding Value, Not Effort

Money Maroon

Who would not like to be paid more? No one, we would all like to be paid more for the tasks we perform. So how do we get paid more? For that matter, why are some employees let go during a slow down while others are retained? The answer is a simple one. While some talk the talk, very few walk the walk. While some add value, others act as if they do. Never forget, in any profession, you are being paid for adding value. Adding value in everything that you do is the key to true wealth generation.

Becoming Indispensable

Be Indispensable

In any profession, you are being paid for what you are bringing to the table. The more value you add, the more indispensable you become to an organization as an entrepreneur or an employee. This is a simple fact that so many forget or just simply do not recognize.

For any organization, while things are going well financially, it is very easy to hide inadequate, bland or sub par work. But once the financials become more difficult in view of market conditions, it becomes more difficult to hide the mediocre. In tough market conditions, the mediocre is likely removed or replaced. To stay at any company and be promoted, you must add value. 

Yes, favoritism can get you far, but actually being good at what you do and being an integral team member will always bring you farther. We all know that person who is indispensable, the person with the ideas, the glue that holds everyone together. Remember, for each position, if you are performing tasks that can easily be filled by someone else, you are dispensable.

Make yourself indispensable by finding ways to add value in whatever role you are currently in. You need not be in a top position, really any position will do. Even in the mail room. 

Effort vs value

Do not conflate effort and adding value. For many, when we say add value, they believe this is a matter of increasing effort. It is not. You can add more effort, but effort does not always translate into added value. Remember, “work smarter not harder.” Working harder does not necessarily result in added value. If you work harder but does not add value, what is the purpose? You will be tired and frustrated because your added effort will not be rewarded.

Adding value translates to anything that impacts the bottom line. Whether that is by implementing new programs to mitigate risks, an action or program that improves the pipeline, directly improving sales through literally selling more or by improving moral such that the team works better and more efficiently. Ask yourself, how do you impact the bottom line? Are others in your current role doing what you are doing? If they are, you have a problem. Find new ways to separate yourself from others and make yourself indispensable.

Adding Value And Doing What Is required

Adding Value

In anything you do, seek to add value. Of course, at a bear minimum, perform your job at a high level and do what is required. If you are not performing at a high level in fulfilling your job requirements, you are in effect not adding value. If you are fulfilling your role, do more. Outside of what is required, find ways to add to the bottom line. Do not be a passive member of your team, always show others that you are thinking outside the box.  Be assertive. This works whether you are working for yourself or employed by others.

When times get lean, if your are easily replaceable you will be replaced by someone that will accept a lower salary. On the other hand, if you are an indispensable asset that is continually adding value, you will be kept and continually promoted. Even if you are not kept and promoted, you will have options. You will be able to find another opportunity because your reputation as a person that adds value will preceded you.  As noted before, favoritism can get you far, but talent, capability and a knack for adding value will get you farther.

Conclusion

Who would not like to be paid more? No one, we would all like to be paid more for the tasks we perform. So how do we get paid more? For that matter, why are some employees let go during a slow down while others are retained? The answer is a simple one. While some talk the talk, very few walk the walk. While some add value, others act as if they do. Never forget, in any profession, you are being paid for adding value. Adding value in everything that you do is the key to true wealth generation. Journey to Financial independence by continually adding value to the world around you.

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Financial Mental Health

Financial Mental Health Is Important

Money Maroon

When we think about health, we typically think about our physical health. We think of muscle vs fat vs cardio. But within health, we must also address our mental health. We can replace a hip and a heart, but we cannot replace our brain (at least not yet). So we must take care of what is happening in our mental space, both consciously and unconsciously. Within our mental health, it is important not to forget that our financial situation affects our mental health. When addressing health, we must address our financial mental health. Without good financial mental health, you cannot have great overall health. Work on your overall health by getting your finances in order.

Your Financial Mental Health

You can work out all you want, and eat correctly too, but if you are stressed and having anxiety about paying your mortgage/rent or affording your next meal, you cannot achieve your best health. Let us face it, when it comes to health, mental health is typically an after thought. With  millions in debt and financial literacy at a low, financial health is even further removed from our consciousness.

Your Financial Mental Health
Your financial mental health is important

Improve Your Finances, Improve Your Mental Health

To improve your financial health, improve your financial security. This basically means that you should become more comfortable with your finances. Become more comfortable with your assets and your liabilities. In a simpler form, know the amount you owe and the amount of money you have. 

Next, to improve your financial security, increase your wealth beyond what it is today. This can be done by increasing your funds and/or decreasing your debts. By increasing your wealth, we mean increase your wealth to the point of being able to handle unexpected costs. Yes, building an emergency fund. This act of having a safety net has an indirected effect on your mental wellbeing. It is a stress relief knowing that you are able to handle unexpected costs. You need not worry about being homeless, hungry or the effect of a car breaking down. Having an emergency fund frees up your mental space to do other things that can further improve your life. 

Comfort Before Millions

While the goal for many is to be rich and have millions in the bank, you do not need millions to improve your financial mental health. Just building an emergency fund will substantially impact  your mental state. In a recent study, it was found that the ideal income point for individuals is about $95,000 for life satisfaction and about $60,000 – $75,000 for emotional well-being. You do not need millions to be happy.

Start Small

To improve your financial health, start small. By making small incremental financial changes, you are most likely to stick with the process and achieve your goals. Slow and steady wins the race.

To increase your wealth, begin small by saving a portion of your income. Start slow. Aim to save at least about 1% of your take home income. Slowly increase the total over time to the point where you can begin to confidently build an emergency fund. Take a similar approach with your debts, begin small. Begin by aiming to owe less next week than you do today (for example, credit card debt and student loans). This can be achieved by buying only what you need and consistently reduce your spending over time. Think about your wants and needs before each purchase. Also, consider using a budget and track your spending. These are the initial steps on a journey to a better financial mental state and financial independence.

Conclusion

When we think about health, we typically think about our physical health. We think of muscle vs fat vs cardio. But within health, we must also address our mental health. We can replace a hip, and a heart, but we cannot replace our brain (at least not yet). So we must take care of what is happening in our mental space, both consciously and unconsciously. Within our mental health, it is important not to forget that our financial situation affects our mental health. When addressing health, we must address our financial mental health. Without good financial mental health, you cannot have great overall health. Work on your overall health by getting your finances in order.

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How to become a millionaire

How To Become A Millionaire

Money Maroon

At one time or another, we have all asked ourselves this question, how to become a millionaire? It may seem impossible, but becoming a millionaire is not. As of December 2020, it was estimated that there are over 46 million millionaires in the world. In the United States alone, there are over 18 million millionaires. To achieve this status, you need to know the steps that will increase your likelihood of becoming a millionaire and consistently apply these steps overtime. 

How To Become A Millionaire?

Whether they realize it or not, every year many individuals take steps to become a millionaire. However, these same individuals also take many steps to prevent  or hinder achievement of this goal. If you are asking how to become a millionaire, consider saving, reducing debt, investing, earning more and repeat.

Save to become a millionaire

Save

On any financial journey, to achieve that goal, you must save. Saving is the basis of any financial plan. If you are wondering how to become a millionaire, generally, you must keep more than you spend. You must save!

Build A Habit

If you are able to save a lot, do so. But if you are struggling to save, start small. Start by saving $50 per pay check if you can. When you can save $75, do so. At first, saving is not about the amount that you save, it is about building a saving habit. Once you build a saving habit, you will be able to easily increase your saving rate. The task is to get use to seeing your money and not spending it.

The Benefits Of Saving

There are plenty of benefits to saving. Not only does saving provide the confidence of knowing that you can handle an unforeseen financial emergency, you can watch your money grow as well. It is a great feeling to see your money grow over time. Additionally, by saving, you are able to contribute to an emergency fund. With a fully funded emergency fund, not only will you have some money on the side, you will have 6 months to a year or more of expenses saved. This will not only serve as a financial back stop, but will also enable you to take advantage of financial opportunities when they arise. 

Take Advantage Of Opportunities

By having a strong savings account, you are able to invest at opportune times (for example when there is a massive sell off in the markets). With money saved, you are able to take advantage of interest rates at an opportune time. By saving, you are able to not only slowly grow your money, you may also be able to turbo charge your money by taking advantage of opportunities because you have the funds available to do so.

Your Buying Power

When saving, also appreciate the rate of inflation and the interest being paid on your savings. Inflation can eat away the buying power of your savings. With regard to interest rates paid, the average brick and mortar bank will provide a very minuscule interest on your savings. Online banks will provide significantly more interest, as such, you should strongly consider having an online saving account.

Pay off debts and become a millionaire

Reduce Debt

One of the fastest ways to lose money is through debt interest payments. By paying off your debts, you are automatically getting rid of this cost.

In some instances, debt financing can be beneficial. For example, if you are in real estate investing, the use of debt can be useful. But most types of debts can be disastrous to your financial health.

If your debts are those of consumer debt, for example credit cards, if you want to be a millionaire, you should pay these off. You should pay off your credit card balance each month. If you cannot pay off your credit card balance at the end of each month, do not use your credit card. Your credit cards are not free. If you do not pay off your credit card balance, you will continue to ask how to become a millionaire because the chances of getting there will continue to elude you. 

The simple fact is, having a credit card balance is expensive, very expensive. The average credit card Annual Percentage Rate (APR) is about 20%.  That is about 20% per year on your credit card balance. Worst than credit cards are typically company cards. Company cards, such as department store cards generally have higher interest rates than that of credit cards. Company cards at times charge 24% APR or more. That is a lot of money.

If you use credit cards, pay them off. Get the rewards, but do not allow your credit card company to charge you. PAY THEM OFF!

Invest to become a millionaire

Invest

Saving alone will not do the job if you are trying to become a millionaire. Saving is the basis of any financial plan, but you must also invest. This could be by investing in the stock market, retirement accounts or investing in yourself. Whatever the route you take, by putting money into a vehicle with the opportunity to get a return on investment that is a multiple of what you put in is one of the best ways to grow your wealth.

Investing does leave you open to losing at least a portion of whatever you invest. As such, ensure that you are comfortable with the possibility of losing at least apportion of your investment. The more risky the investment, typically, the higher the reward. If you are investing in the stock market, note that there are different asset classes that you can invest in, from highly risky to less risky.

When investing, ensure that you do your due diligence. Whether you are investing on your own or using a financial professional. Do your research. Ensure that your financial professional is on the level. We have all heard of Bernie Madoff and others like him. Protect yourself. As always, with any investment or financial opportunity, if it sounds too good to be true, it probably is.

You may also invest in yourself. This may be in the form of your education, financial development or health. Your return on investment may not immediately be financial, but over time it will. Investing in your education may lead to a better job with a higher salary range. By investing in your financial development, you may be able to find ways to keep more of your money. Investing in your health will allow you to keep going, keep learning, less aches and pain, potentially a longer and more rich life.

Earn more and become a millionaire

Earn More

How to become a millionaire? Earn more. This sounds simple and straight forward, but it is not always the case. If you want to become a millionaire, constantly strive to earn more. Whether you are earning more through a promotion at your place of employment or by obtaining a new job, earn more. If you continue to earn more, you will be able to save more, pay off more debt and invest more. By earning more, you significantly increase your chances of achieving your financial goals earlier.

Do not limit yourself to earning more through an employer, you can build one or more side hustles or you can also become an entrepreneur. Be creative in how you earn.

It is important to note that by saving more, you can earn more through interest payments. By investing, you can earn more through a return on investment. The steps of how to become a millionaire are additive and works together to achieve your financial goals.

Repeat

Once you begin to save, pay off debts, invest and earn more, rinse and repeat. You must consistently repeat these actions to achieve your ultimate goal. If not, you may increase your wealth but may not achieve your goal. 

For example, by earning more, you may fall into the trap of lifestyle creep and spend more. The net result may not necessarily be a growth in wealth. However, by earning more, saving more, using the money to pay down debts or invest, the net result is likely to be an increase in wealth.

Conclusion

At one time or another, we have all asked ourselves this question, how to become a millionaire? It may seem impossible, but becoming a millionaire is not. As of December 2020, it was estimated that there are over 46 million millionaires in the world. In the United States alone, there are over 18 million millionaires. To achieve this status, you need to know the steps that will increase your likelihood of becoming a millionaire and consistently apply these steps overtime. Not surprisingly, the steps to become a millionaire are similar to those for achieving financial  independence. 

There are also other ways to become a millionaire, but some are less likely to occur. You may win the lottery or an inheritance from your rich uncle. While possible, these are long shots. Most millionaires became millionaires by saving, reducing debt, investing, earning more and repeating these foundational acts.

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Credit Card Debt

How To Pay Off Credit Card Debt

Money Maroon

Consumer debt is increasing and it is expected to continue on this trend. Let’s face it, we live in a consumerism culture. We are bombarded by ads to buy new and, at times, unnecessary products multiple times per second. It is no surprise that so many of us are in credit card debt. It is of no surprise that so much of us have such low financial literacy and are moving toward a financially painful retirement. If you are trying to make a change, you are probably asking, how to pay off credit card debt?

How to pay off credit card debt

Know Your Credit Card Bill

If you are wondering how to pay off credit card debt, it may be best to start with your credit card statement. First, ensure that you are looking at your own credit card statement. Does the statement have your name, address, and credit card number/account number? If the statement does, take a deep breath and look at your balance. Remember your balance. Know your credit card balance. Know your exact credit card balance. So often, we generalize and minimize what we owe by giving a ball park number. It is important to deal with the reality of what we owe by knowing and repeating the exact number.

Now, take a look at the minimum amount due and how long it would take you to pay off your balance if you paid the minimum amount due. It is important to know your balance, it is also as important to know how long it would take to pay off your credit card balance. The Credit Card Act further notes the disclosures required by law on your statement.

By looking at the above information, you will be able to get a real understanding of your financial situation. You will also become more comfortable with your credit card statement.

Your Transactions

Now, if you are asking how to pay off credit card debt, look at the transactions on your credit card statement. Are the transactions all necessary purchases or wants? Circle all the wants (purchases that are not necessary). Thereafter, highlight at least one transaction that you will not do next month. Each month, perform this task of highlighting at least one want that you will eliminate until you are down to only needs. 

Apart of paying off your credit card debt is not growing the debt. In the process, learn to create a sustainable financial lifestyle. In short, stop making unnecessary purchases and live within your means.

Contact The Credit Card Company

If you are asking how to pay off credit card debt, one of the best action you can take is to communicate with the credit card company. Keep the line of communication open. Call them. Have a conversation with the credit card company with regard to your financial situation. If you are unable to pay a bill, it may be possible for the credit card company to give you some time. Further, you can request a reduction in interest rate. What do you have to lose? Call them.

Communicate

In some instances, your credit card company may forgive a portion of your debt. But there is no chance of this happening if you do not communicate with the credit card company.

Balance Transfer

To pay off credit card debt, it may be advantageous to look into a balance transfer. By doing a quick search, or even going through your mail, you may quickly find that many credit card companies offer 0% interest balance transfers for a number of years. At times, the 0% interest will last at least one year while others times it may be about two years. 

With anything in life, it is important to do your due diligence. Review the terms for the balance transfer. Read the fine print. Ensure that you will not have anything additional  to pay for the transfer and that you will have nothing to pay until the time period noted. Understand whether or not there are strings attached to the balance transfer. If there are strings attached to the balance transfer, know them, and only proceed if you are comfortable with them.

How To Pay Off Credit Card Debt – Pay It Off

To pay off your credit card debt, pay it off. By paying off your credit card debt, you will instantly earn 12-24%. By paying off your credit card debt, you will not have the 12-24% interest payments. But how do you pay it off?

To pay off your credit card, you can pay the minimum due. It is important to pay at least the minimum due to ensure that your credit is kept in tack. However, if you pay the minimum, you at least know how long it will take for you to pay off your credit card balance. The credit card company already told you this on the credit card statement. To pay it off faster, consider paying a portion above the minimum due. This is strongly recommended if you are able to afford it.

If you are asking how to pay off credit card debt, to pay off your credit card debt, know your numbers, contact the credit card company, consider a balance transfer and pay it off. There are other methods such as bankruptcy that you may also consider, however, it would be best to appreciate the financial consequence of such a route.

Conclusion

Consumer debt is increasing and it is expected to continue on this trend. Let’s face it, we live in a consumerism culture. We are bombarded by ads to buy new and, at times, unnecessary products multiple times per second. It is no surprise that so many of us are in credit card debt. It is of no surprise that so much of us have such low financial literacy and are moving toward a financially painful retirement. If you are trying to make a change, you are probably asking, how to pay off credit card debt. Know your numbers, contact the credit card company, consider a balance transfer, pay off your credit card debt and journey to financial independence.

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Spend responsibly

How To Spend Your Stimulus Check

Money Maroon

The pandemic has lead to a bifurcation of fortunes. On one hand, a minority of individuals have increased their wealth beyond belief. On the other hand, the pandemic has eroded the wealth of a significant portion of the population. With the clear and far reaching economic effects of the pandemic, the U.S government has employed multiple rounds of stimulus. To those receiving stimulus funds, how you use the funds are as important as obtaining the stimulus funds. If you qualify to receive some stimulus funds, spend responsibly. Take care of your necessities and if possible, take steps toward building and securing your financial future. 

The Year 2020

We all know that we should save for a rainy day, yet, few of us do what we know to be beneficial to us in the long term. If 2020 has taught us anything, it is that life is unpredictable. We are on this rock (earth) for a short period of time and there are no guarantees. To ensure that your family is in a good position financially, building an emergency fund is crucial. Emergency funds make financial disasters routine events.

Financial Disaster 

Financial disaster is always around the corner. In 2020, financial disaster has occurred in somewhat of a snow ball effect that has build momentum as the pandemic has worsen. First came reduce demand for certain work, then came mandatory shut downs, loss of jobs, inability to pay bills including student loans, mortgage/rent and other necessities. Just take a look at your local news and the length of the food lines. People have exhausted the little reserves they had and some have become completely reliant on government stimulus.

Spend your stimulus responsibly
Do not set your money on fire by spending frivolously

Stimulus

If you qualify to receive government aid, whether in the form of stimulus or in another form, how you spend the funds are more important than just receiving the funds. Yes, the amount provided may not go very far, but every little helps. If you are in desperate need for the funds, use the funds to handle your necessities. This includes food, clothing and shelter.  Really think about how you will use your stimulus check. Keep in mind, based on the current political situation, it is unlikely that more stimulus will be on the way. However, If another stimulus bill is passed by congress, it will likely be less than what you have received to this point.

If you happen to be in a situation where you are not in desperate need of the stimulus but have qualified for receiving the funds, it is not time to spend. While some encourage spending to help the economy, to the contrary, it is time to save. Yes, we now have vaccines, however, it is unlikely that life will return to pre-pandemic norms any time soon. As such, the job market will continue to be in flux. Spend time to think of how you can improve your physical, mental and financial health.

Physical, Mental And Financial Health

We have no idea what the year 2021 and beyond holds, but as much as you can, be prepared. Be prepared by taking care of your physical, mental and financial health one step at a time. With the stimulus funds, if you can: (a) save, build or add to your emergency fund, (b) pay down high interest debt, (c) invest and if you are in the position to do so, (d) donate to help your neighbors. 

Generally, it is time to increase your personal safety net. As the year 2020 has shown, it is important to be ready for the unknown. The best way to be ready for the unknown is to be prepare, such that you can mitigate some disruptions that may occur in the future.

Financial stability is not achieved overnight. Financial stability and to an extent financial independence requires small consistent steps over time.

Conclusion

The pandemic has lead to a bifurcation of fortunes. On one hand, a minority of individuals have increased their wealth beyond belief. On the other hand, the pandemic has eroded the wealth of a significant portion of the population. With the clear and far reaching economic effects of the pandemic, the U.S government has employed multiple rounds of stimulus. To those receiving stimulus funds, how you use the funds are as important as obtaining the stimulus funds. If you qualify to receive some stimulus funds, spend responsibly. Take care of your necessities and if possible, take steps toward building and securing your financial future. 

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Debt Free

Need A Total Money Makeover?

Money Maroon

Today, debt has become one of the tallest life hurdles to overcome. Now more than ever, for many, debt accumulation begins during the college years or earlier. The culprit is often student loans, and depending on one’s circumstances, it is a matter of when and not if credit cards will become a part of the total debt. How can this trend be stopped? First, we must understand the issue: more often than not, debt starts to accumulate in view of lack of financial education. A possible solution is education and a total money makeover.

We Act Only When Necessary

Like most issues in life, it is best to understand debt before it becomes a problem – preventative care. However as humans, we typically wait until we have a full blown problem before we attempt to remedy a situation. With regard to debt and our financial health, we approach preventive care for finances in the same manner. Unfortunately, many delay the pursuit of financial education until they already have financial issues. 

Debt, The College Years

If we look specifically at those in college, due to the lack of financial knowledge, debts are usually ignored until graduation. Upon graduation, most students are happy to reflect on what they have achieved. Years of study and hard work is rewarded with a degree, friends, memories and a mountain of student loans. The hope is that aside from the degree, new graduates have chosen a career path that allows them to financially support the life they seek. We know that this is hardly the case. For those who seek employment, getting the first job is exciting, but the salary may not be as exciting.  The average salary for an individual holding a bachelor’s degree is about $45,000-$50,000 depending on the degree and area of study. 

You’ve Got Mail

Whether or not gainful employment is obtained, within 6 months of graduation the grace period for student loans will end. The debts accumulated during college, in short, can no longer be ignored. The bills will literally be in your mailbox. Do not worry, even if you do not provide an updated address, the student loan servicers are typically very good at tracking you down to collect. 

Six months following graduation when the bills begin to hit college graduates’  mailboxes, it is a terrible time to begin learning about money, and money management. For those who could not obtain gainful employment, you could not select a worst time. Yet, when the first bill to student loan borrowers turns up in the mailbox, this is the time when many millennials usually decide to learn about money management. Not by choice, but by necessity. 

The Total Money Makeover

Graduation removes  the luxury of student loan ignorance and the steady supply of play money. Graduation brings financial reality. This reality is beginning to force many millennials to address their financial situation head on. The financial reality is so stark that many millennials are not only aiming to address their student loans, but many are taking steps to be debt-free. For many, Dave Ramsey’s total money makeover has been a go to guide. The total money makeover is a complete mind makeover and a great start to making lifelong financial changes. 

Total Money Makeover Principles

The total money makeover works by forcing you to be  aware of your finances. This includes listing your debts from smallest to largest regardless of interest rate. Below is a short summary of the method:

  • Step 1. Save $1000 for a starter emergency fund.
  • Step 2. List your debts from the smallest to the largest regardless of interest rate. Make the minimum payments on all your debts except on the smallest debt. On the smallest debt, pay as much as you can. This is the debt snowball method.
  • Step 3. Save 3-6 months of living expenses. 2020 has shown us how important it is to have at least 6 months of living expenses saved. 
  • Step 4. Invest at least 15% in a retirement account.
  • Step 5. Save for children and college. 
  • Step 6. Pay off your home 
  • Step 7. Build wealth and be generous. 

Your Situation Is Unique

As we can see with these steps, using the total money makeover, the majority of individuals after graduation will be stuck at step 2 – getting out of debt using the debt snowball method. This is completely okay because the goal is to be debt-free. Also, because you are paying off debt does not mean that you should not contribute to a 401K. This is true especially if your employer is providing a match. The total money makeover is a guide and it is best to apply it based on your situation.

The Goal To Be Debt Free

Be Debt Free - Total money makeover

Ultimately, the goal is to become debt free and pursue financial independence. Focusing on paying off debt is important, as interest payments are a detriment to wealth accumulation. How liberating would it be if you were not tied to student loans and/or credit card balances? What would you do if money was not driving all your life choices? What if you could make decisions based on your happiness and not the financials? Your freedom can be achieved by applying a method that you will adhere to over time. Try to apply the debt snowball method to your debts. Find an extra income source and put all extra income towards paying down debt. Build your emergency fund and march toward financial independence. 

Being debt free and achieving financial independence requires sacrifices. While you implement the total money makeover, for a while, you may experience no vacation, no eating out, skipping the coffee run, decrease subscription services, and may even have to cancel plans with friends. But this is a start to building the foundation for wealth accumulation. This is a journey that requires consistency. The end goal is to be financially free and financially resilient. Will you allow a night out with friends or your coffee habit get in the way of your financial progress? I think not.

Conclusion

Today, debt has become one of the tallest life hurdles to overcome. Now more than ever, for many, debt accumulation begins during the college years or earlier. The culprit is often student loans, and depending on one’s circumstances, it is a matter of when and not if credit cards will become a part of the total debt. How can this trend be stopped? First we must understand the issue: more often than not, debt starts to accumulate in view of lack of financial education. A possible solution is education and a total money makeover. Journey to financial independence with a method that works for you and your ever evolving financial situation.

Co-Authored by Paigemera A.

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Paying Off Student Loans Is The Key To Freedom

Paying Off Student Loans Is The Key To Freedom

Money Maroon

Let’s face it, in the current education climate, student loans are here to stay. While there are some talks of reforming higher education in the United states, it is unlikely that post-secondary education will be cheaper over time, or free. While there may be some loan forgiveness in the future, a complete forgiveness of all student loans is unlikely. If you have student loans, know that there is a light at the end of the repayment tunnel. Paying off student loans can be the key to freedom.

Student Loans Are Here To Stay

In today’s world, no matter your level of education above high school, whether an associates degree, bachelor degree or a professional degree, it is highly likely that you will graduate with student loans. It has become a fact of life. This is why it is so important to think about paying off student loans. Do not fall into the trap of thinking about your student loans only following graduation. It is important to be well aware of the costs and benefits of taking out student loans before you borrow a dime.

Be Strategic

If you are strategic with your education experience, your student loans can represent the ultimate investment in yourself. It may potentially be a way to a higher paying job and life long experiences. However, student loans can be a life changing burden and a huge economic cost. Student loans can be a detriment or an accelerant to a great financial future.

Once you have accumulated your loans and have graduated, one of your biggest expenses going forward will be the monthly cost to repay your student loans. For some, this will rival mortgage costs or a car payment and can be financially crippling. In many cases, your student loans will be the barrier to freedom. Freedom to choose where you want to work and the type of work you will be doing.

Paying Off Student Loans 

With regard to your job after graduation, having a mountain of student loans can limit your decisions and opportunities significantly. Do you take a job that will help in paying off student loans at a very fast rate, take a job that pays less but is what you want to do, and if you are lucky, you will be able to do both (the perfect job). For most, the perfect job that is high paying and also focused on what you want to do is a rarity when you leave school. So the decision is frequently, (a) do you take the high paying job that may not be in your specific area of interest, or (b) earn less but enjoy your job.

Paying Off Student Loans  – Short Term Pain For Long Term Gain

While I do believe that life is short and you should enjoy your time on this planet, I would not advocate for taking the lower paying job, if it pays significantly less. Taking a high paying job that speeds up your time to freedom could be beneficial. Financial Independence takes time, the earlier you start the faster you will get there. Taking the job that accelerates paying off student loans should be considered in view of the future implications.

Do the math, if you did not have a student loan payment, how much money would you need per year to be able to live comfortably? I am not talking about living in a lap of luxury, I am talking about having a home for your family and being able to take care of your necessities and  reasonable wants. I can almost guarantee that the amount is significantly less than what you may have thought.

Conquer the ball and chain of student loan that is holding you back

By obtaining employment that allows you to pay off your student loans at a faster rate, you are able to decrease your time under the thumb of a student loan payment. Whatever method or tricks you use to pay off student loans, your future will be the winner. By paying off student loans, you are able to achieve freedom, not  total financial freedom, but the freedom to move from a high stress job to one that you like and find fulfilling. The freedom to get your time back. The freedom to move locations, because a high paying job is not needed for you to survive.

Be Proactive

Instead of waiting on what the government may do with regard to student loans, be proactive and make progress in removing the ball and chain that is student loans and conquer life’s challenges. In any case, if you are aggressively paying off your student loans, if a certain amount is eventually forgiven by the government, that forgiveness will only accelerate your time to freedom from student loan debt.

Conclusion

Let’s face it, in the current education climate, student loans are here to stay. While there are some talks of reforming higher education in the United states, it is unlikely that post-secondary education will be cheaper over time, or free. While there may be some loan forgiveness in the future, a complete forgiveness of all student loans is unlikely. If you have student loans, know that there is a light at the end of the repayment tunnel. Paying off student loans can be the key to freedom.

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Optional Spending

Discretionary Spending And Your Financial Future

Money Maroon

Discretionary spending refers to optional spending. Spending for wants and not needs. As we get closer to another holiday, whether religious or market created, you must decide how to spend your income. Will you fall prey to the mountains of commercials advertising different deals, or will you keep your discretionary spending to a limit? Whatever your decision, your financial future depends on it.

Before Discretionary Spending, Wait

It is your money, you don’t have to part with it. Consider that you have worked many hours for what you have. After paying for the necessities, you may have a certain amount remaining. You may even have accumulated a certain amount of money over time. With this backdrop, why would you so easily part with your money because of an advertisement, black Friday, small business Saturday, cyber Monday or another commercial holiday? Why would you part with your hard earned money to impress people who likely do not have a second thought about your financial future?

Stop throwing away your money

When you are thinking of parting with your money, discretionary spending, just remember that the spending is optional. You will be spending on a want, and not a need. You do not have to buy that new TV, shoe, computer or car. Do you really need that new subscription or membership? Do you really have to take that expensive vacation? If you think you do, it is best to wait, press pause and think about that next purchase. 

Give yourself at least a week before you spend your money. Think not only of the cost of the purchase, but the true cost of ownership. What other costs are associated with your purchase. Can you really afford it? Think of how many hours you would need to work to earn the amount that you would like to spend.

Think About Saving

During your week of thinking about your next discretionary spending binge, think of what would happen if you saved or invested instead of spending that money. If instead of spending the money you save it in a high yield saving account or invest the money and receive standard rate of return, how much would this money mean to your financial future?

Now, is your discretionary spending worth it? Is it worth the cost of the purchase and related costs plus the additional lost of return on savings and/or investment?

Further, if you were thinking of discretionary spending to impress someone, think of where that purchase will be in two, three or four years – most likely forgotten. Do not spend to impress others. You are responsible for your financial future. Take control, set  your goals and achieve them.

Your Decision Your Future

After delaying your discretionary spending to reflect, if you choose to go ahead with the discretionary spending, at the very least  you have thought about it and have justified the spending. By delaying the purchase and having an understanding of the true costs associated with a purchase, you will be able to make an informed decision. Whatever your decision, let this moment of financial reflection change your money mindset for the future.

Conclusion

Discretionary spending refers to optional spending. Spending for wants and not needs. As we get closer to another holiday, whether religious or market created, you must decide how to spend your income. Will you fall prey to the mountains of commercials advertising different deals, or will you keep your discretionary spending to a limit? Whatever your decision, your financial future depends on it.

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Saving Money Starts Now

Saving Money Starts Now

Money Maroon

Saving money begins with first having at least one income stream. Second, saving money requires spending less than your income, not spending in excess and doing so consistently over time. Saving is the first step towards financial independence and while saving money is a simple concept, consistently saving over time is difficult for many.

Assess Your Current Financials

If you truly would like to begin saving money, it is important to know where you are financially. It is important to take stock of your financials right at this moment. It is time to know what your monthly expenses are and how much you are bringing in each month.  By making a list of your monthly income and monthly expenses, you get a clear picture of why you are getting in debt or not saving enough.

Determine How Much You Can Save

When it comes to saving money, the math will never work if your expense are higher than your income. Once you make a list of your monthly income and your monthly expenses, it is time to take a close look at your list of monthly expenses. Now ask yourself, what can be reduced or cut out? It may be: moving to a smaller home to reduce rent/mortgage, moving closer to work to reduce the cost of commuting, bringing your lunch to work, stop/reduce eating out, cut your cable or other subscription costs. Make your list, however, whatever the cost cutting measure may be, it is important to review your list of expenses and be honest with yourself. While it is great to say that you will cut or reduce your expenses, you must be able to actually implement your plan of reducing cost.  

Increase Your Income

Now, turn to the income side of your list. How can you increase your income? This increase need not be immediate, but must be doable. For example, you can request a raise, change jobs, invest in your education and return to school/learn a skill to get a better position or research a side hustle that may provided additional income? The goal is to increase your income such that your income is higher than your expenses.

Begin Saving Money

Once you are able to get your income higher than your expenses, you have done the hard work and you are 90% there. But you must take the next critical step and perform the act of saving money. Now that your income is higher than your expenses, you must save that money. Many fall into the trap of spending their disposable income each month. Do not fall into this trap, remember, your goal is not to simply reduce your expenses and increasing your income. Your goal is to save money. So save your money.

There are a number of tools available that facilitates saving money. For example you can automate your savings by automatically transferring money from your pay to a savings account or you may save in a high yield savings account that provides higher interest rates than the typical brick and mortar banks. Research the options available to maximize and grow your savings. Further, to consistently save, while it is not required, a budget may provide a financial guide.

Saving Money And Your Future

Now that you are saving money, do look towards the future and your financial health. Look to paying off debts, investing, and contributing to your retirement. Saving is only the first step on the path to growing financially and financial independence.

Conclusion

Saving money begins with first having at least one income stream. Second, saving money requires spending less than your income, not spending in excess and doing so consistently over time. Saving is the first step towards financial independence and while saving money is a simple concept, consistently saving money over time is difficult for many. Take your first steps to financial independence today.

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