investing

US Debt credit card

US Debt Is Rapidly Growing

Money Maroon

As the US debt level continues to rise, it is an interesting sight to see it happen first hand. If you are a manager, you will see this everyday. Specifically from new hires. This is the easiest way to find out what is going on with US Debt. The attitude of new junior hires tell it all. You can watch the attitudes of those with children and family, and those without. For the most part, there is no difference. It is very obvious that the masses have been programmed to spend. Rarely do junior hires save and invest first.

The Drive To Spend

From new junior hires, it is simply amazing to hear their thoughts on money. When many obtain  a job that pays more than they have made before, the first thought is how to spend their money. Not how to save. It is shocking. Even when there is a constant drumbeat of a recession in the near feature, the vast majority of new junior hires have a spending mindset. As such, as soon as the money comes in, it is let go on frivolous things. 

It is actually amazing. For some of these new hirers, I am somewhat jealous of the naivety. For example, how free they are with money. No thought of what could happen if they lose their jobs. They are taking vacations, buying new cars, buying new homes and attending far away music festivals. You only live once they say.

US Debt Is Growing And It Is Scary

The scary part of this is because of the high wages that these new junior hires are making, the thought is that they can pay off debt whenever. As such, they accumulate debt with the thought that in the next few months it can be paid off. This is a problem. Without adequate funds in an emergency fund, the lost of a job or any hick ups or simply life can cause issues. With high salaries, in a high costs of living area, and financial illiteracy, debt can accumulate very fast.

This all goes to show how US debt continues to grow. There is such a mass of financially illiterate folks that no matter the salary, no matter how high the income, many in the US are simply trained or programed to spend and to continue to do so until they have nothing left.

Those With Families

The interesting thing is that even as we move toward a possible recession, it really does not matter if folks have families or not.  The spending continues on. Whether it is a weekend trip to Europe or traveling to another State for a music festival. It is simply amazing. Those individuals with families are spending more than those without. For most, you would actually expect the opposite. But coming out of the pandemic, this is where we are. There is a pent up demand to travel and it does not matter if a recession is around the corner. Caution is being thrown to the wind and folks are spending and the debt load is rising. 

US debt is not the only debt rising. Debt is raising in other countries as well. As the labor market tightens, as layoffs increase, there will be fiscal pain. Are you planing ahead or are you apart of this group that is driving US debt to new heights?

Conclusion

As the US debt level continues to rise, it is an interesting sight to see it happen first hand. If you are a manager, you will see this everyday. Specifically from new hires. This is the easiest way to find out what is going on with US Debt. The attitude of new junior hires tell it all. You can watch the attitudes of those with children and family, and those without. For the most part there is no difference. It is very obvious that the masses have been programmed to spend. Rarely do junior hires save and invest first. Or for that matter, save at all. For financial independence, start saving and investing early.

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Internet Financial Guru

Where Are All The Internet Financial Gurus?

Money Maroon

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.

Cash Is King

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.

Financial literacy

Financial Literacy Is Important

Money Maroon

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?

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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? 
    1. one business or investment; 
    2. multiple businesses or investments; 
    3. 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? 
    1. less; 
    2. the same; 
    3. more; 
    4. 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? 
    1. 105 US dollars; 
    2. 100 US dollars plus three percent; 
    3. 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? 
    1. more; 
    2. the same; 
    3. 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? 
    1. more than 150 dollars; 
    2. exactly 150 dollars; 
    3. less than 150 dollars; 
    4. 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?

Answers: 1(2), 2(2), 3(2), 4(1), 5(1).

Video Summary

Tithe Yourself

Tithe Yourself Now

Money Maroon

Let us start by saying that this posting has nothing to do with religion. This posting focuses on tithing yourself. More specifically, from every paycheck, pay yourself first. Tithe yourself. Ensure that you are taking at least 10% from your paycheck and directing that portion to a personal account. If you do not tithe yourself, someone else will have a claim to your money. You work hard for your paycheck, why have others take a share before you do?

Tithe Yourself

The word tithe in Hebrew literally means tenth. By tithing yourself, we mean automatically taking at least 10% of your paycheck off the top and directing this amount to a personal account. Some folks religiously tithe to a church but often forget about tithing to themselves. It is important for your financial future that you tithe yourself.

When beginning on a journey to save or to establish an emergency fund, you may not be able to tithe 10% to yourself. Start small and build from there. The first step is to start. Once you start and begin to build a habit of tithing yourself, move on from just tithing yourself to tithing as much as you can to yourself. Aim to increase your tithing percentage up to 10% and once you hit the 10% mark, aim for 15% and beyond.

Tithe Yourself – Pay Yourself First

Tithe yourself is to encourage you to pay yourself first. You should pay yourself first because if you do not, you run the risk of not paying yourself at all. For example, after paying your bills and spending discretionarily, how much of your paycheck do you have remaining? If you have money left over, it does not take much for all that money to disappear due to frivolous spending? 

Many times, living above your means and going into debt can result when you do not pay yourself first. If you do not pay yourself first, it is likely that you will not budget and over spend, or you will simply spend what you have because you have not assigned a task to that money.

By paying yourself first, you will force yourself to live below your means and budget accordingly. By paying yourself first, you are assigning a task to every dollar that you make. Imagine upfront knowing that 10% of your paycheck is off limits. By reframing your paycheck this way, you know that you are limited to 90% of your paycheck. This means that all of your bills must be paid by this amount. Can you pay rent/mortgage, phone, cable, internet, subscriptions, power, and whatever other bills you may have from this amount? If the answer is yes, increase the amount of your paycheck that you are paying yourself. If the answer is no, you will be forced to cut back. You will be forced to make hard decisions. But trust me, it is worth it. Saving for your financial future is worth it. Tithing yourself is worth it.

Money in hand. Tithe yourself. Pay yourself first

You Are Not Being Selfish

It may sound selfish when it is said to pay yourself first or to tithe yourself. However, if you do not pay yourself first, you are always putting yourself behind someone else. You are putting your bills ahead of your financial future. You are also putting the temptation of instant gratification ahead of the delay gratification that will benefit your future. Instead of having others having a claim to your money, claim it as your own. You worked hard for it, so keep it and grow it to the betterment of you and your family.

If you still think that tithing yourself is selfish, then sometimes in life, you need to look out for yourself and your financial future. Because the simple fact is, if you fall on hard times, it is unlikely that there will be many people lining up to pay your bills or to house your family.

Conclusion

This posting focuses on tithing yourself. More specifically, from every paycheck, pay yourself first. Tithe yourself. Ensure that you are taking at least 10% from your paycheck and directing that portion to a personal account. For example, a personal investment account or a personal savings account. If you do not tithe yourself, someone else will have a claim to your money. You work hard for your paycheck, why have others take a share before you do? Reward yourself for your hard work by saving for your financial future.

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Net worth

Do You Know Your Net Worth?

Money Maroon

We are often hung up on how much someone is making, the car that they are driving and the house that they are living in. Rarely do we consider their net worth, or ours for that matter. This may be because net worth is much harder to determine from just looking at someone. The fact is, the most flashy among us typically have the least wealth. If you know and focus on your net worth instead of material things, you will make decisions to ensure that your net worth gradually increases over time. Knowledge is power!

Know your net worth
Know your net worth!

Do You Know Your Net Worth?

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!

If I asked what is your salary, it is likely that you would be able to provide the answer. If I asked you for an estimate of your credit card debt, mortgage balance or student loans, I am certain that you can provide an estimate. What happens if I asked about your net worth? Could you provide an estimate? I figure the answer is likely no.

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. 

What Happens When You Do Not Know Your Net Worth?

Have you ever heard the following scenario: A family having the largest home on the block, having two or more luxury cars and who goes on vacations yearly, goes broke in view of the smallest of financial hiccups. How does this happen?

It is always a shock to see someone with the largest home on the block, who has the best suits, the luxury cars and the yearly vacations go broke when they lose their job. This is surprising but it should not be. You see, the people who are watching and growing their net worth are not spending big on cars, homes and vacations. It is really not the case. If you are spending so much on these things, it is much harder to grow your wealth. You are more likely to grow your debt. With increase debt, your chances of living pay check to pay check increases, no matter how much money you are making.  This is where the house of cards related to a fake wealthy facade will begin to crumble. 

Eventually, the debt will overcome your take home pay. If you are unlucky enough to lose your employment, the house of cards will fall at an accelerated pace until you go into foreclosure, lose your cars. At some point, the facade of being fake wealthy will disappear.

Focus On The Big Picture

The problem with not knowing your net worth is that you are likely not making informed financial decisions. You are making financial decisions based on an incomplete view of your finances. For example, the problem we all typically run into is our focus on salary. We all aim to maximize our salary but may not be paying attention to the costs that potentially goes with it. Think about it this way, if your salary is $100,000 with no retirement contributions from your employer vs a salary of $95,000 with $10,000 automatic contributions to your retirement by your employer. Which do you choose? Are you seeing the bigger picture?

Further, in some instances, it may be beneficial to pay off debt based on the interest that is accruing rather than investing/saving. But without a complete picture of your finances, are you making the right decisions? Knowing your net worth provides a constant check and awareness of where you are financially. Knowledge is power!

Conclusion

We are often hung up on how much someone is making, the car that they are driving and the house that they are living in. Rarely do we consider their net worth, or ours for that matter. The fact is, the most flashy among us typically have the least net worth. If you know and focus on your wealth instead of material things, you will make decisions to ensure that your wealth gradually increases over time. Knowledge is power!

See your complete financial situation and make decisions that will provide financial security.

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Maintaining wealth

Maintaining Wealth: Generational Wealth Part: 2

Money Maroon

Each part of your financial journey is the most difficult part. But typically, even more difficult than accumulating wealth, is maintaining it. There are a lot of articles and podcasts about accumulating and building your net worth, but very little information is provided about maintaining what you have accumulated. But the same principles that will help you to accumulate, will also help you to maintain your riches.

The secret to maintaining your financial position is to perform and maintain the habits that got you where you are today. You must live below your means, save, and invest. Let us dig  into this a bit more.

Maintaining your wealth

Maintain Wealth By Living Below Your Means

If you did the hard work of accumulating the abundance that you enjoy today, and thereafter believe that you have arrived and now begin to live above your means, you will lose what you have accumulated in an instant. To maintain your financial position, continue to live below your means. Imagine having two million dollars and purchasing a million dollar home and a new car.  If you are foolish enough to take the described actions, your financial holdings will immediately take a significant hit. Further, if you also decide to upgrade other areas of your life, it is only a matter of time before you begin to live pay check to pay check. 

Do not fall into the trap of keeping up with the jones. Do not fall prey to the trappings of others. You lived below your means to accumulate what you have, live below your means to maintain and grow your wealth.

Continue To Save

To achieve financial independence, you must save. To maintain your financial independence, saving is also a necessary step. If you are spending all that you make, unexpected expenses will slowly over time eat away your wealth. The fact is, life is unpredictable. A car will break down, your heater will go out, you may lose your job, you may need a new roof. You just never know what will happen next. One thing is certain, life can be expensive. If you have gone through the effort of sacrificing and building wealth, do not blow it. Continue to save and maintain your financial cushion. The goal is not only to accumulate wealth, the goal is to maintain your wealth and enjoy financial freedom.

Grow Wealth By Investing

Saving alone will not bring you to financial independence. You must also invest, in other words, have your money work for you. Having your money work while you sleep is a sure fire way to maintain your financial position. It is important to note that the vehicles that you used to accumulate your wealth can also be used to maintain your riches. But typically, your investing strategy will be changed somewhat. You may not have the appetite to be as risky as you age over time or you may try to ensure that you have a better bet of maintaining rather than loosing it all in the financial markets. In other words, you may not be as aggressive with money in hand once you have achieve financial independence.

Once you accumulate your wealth, do not simply hide your money in the backyard or under the mattress. Do not allow inflation to erode your wealth, have your money continue to grow.

Keep Doing What You Are Doing

The same things that you have done in the accumulation phase is essentially the same things that you will need to do in an effort to maintain your accumulated wealth, but with some strategy changes where needed. Do not be satisfied with accumulating wealth. This is not the goal. Keep in mind that maintaining wealth and enjoying financial freedom until the end of your days on this planet is the goal. Build wealth and maintain it.

Conclusion

Each part of your financial journey is the most difficult part. But typically, even more difficult than accumulating wealth, is maintaining it. There are a lot of articles and podcasts about accumulating and building your net worth, but very little information is provided about maintaining what you have accumulated. But the same principles that will help you to accumulate, will also help you to maintain your riches.

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Generational wealth

Building Generational Wealth: Part 1

Money Maroon

At a certain point, we should take a step back and stop thinking about ourselves, and begin to think about our legacy. We should begin to think and live in such a way so as to build generational wealth. Luckily, if you are living a life with your financial future in mind, building generational wealth does not take much effort. Just keep on doing what you are currently doing. Know that each action you take today is not just for you, it is for those who will come after you. Build a stable foundation and provide a spring board for those who come after.

Generational Wealth Begins With You

No matter how rich or poor you are today, building generational wealth begins with you. If you are wealthy, learning how to grow, maintain and not completely erode your wealth is important. If you are poor, start today to build a stable foundation. Rich or poor, to build generational wealth, you must have something to pass on to the next generation. It takes, saving, investing and reducing your debt. The same concepts relevant to you building wealth, are vital for keeping and passing on wealth.

Increase Your Wealth

When it comes to saving money, the math will never work if your expenses are higher than your income. To reduce expense, consider 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. But do not forget the other side of the equation.

To increase wealth, do not only reduce debt, also increase your income. For example, work toward a raise, 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

If you have gotten your income above your expenses, it is time to save. Many fall into the trap of spending their disposable income each month. Do not fall into this trap, remember, your goal is generational wealth, not to simply reduce your expenses and increasing your income. Your goal is to save and grow your wealth. 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, 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.

Generational Wealth Is Built On Investing

Generational wealth is built on investing. Investing in your future is an extension of investing in yourself. Once you begin to look to the financial markets, look to learning more about the opportunities that are available to you. Educate yourself.

Retirement

No matter your age, begin thinking about your retirement and related investment options. In thinking about your retirement, you will no doubt hear about traditional IRAs, roth IRAs, SEP, roth 401Ks, 401Ks, 403Bs, 457Bs and TSPs to name a few. Do not simply get lost in the alphabet soup of different retirement plans. Do your due diligence. An investment in your retirement plan education is invaluable to your financial future.

Do Not Give Up Free Money 

If you have access to an employer match, take advantage. Employer 401K match can come in a variety of shapes and sizes. In one instance, the employer will match a portion of your contribution up to a limit. Typically, this limit is represented as a percentage of your salary. In some instances, an employer may match your contribution if you contribute or irrespective of if you contribute.

If your employer provides a 401K match only if you contribute to your 401K, ensure that you are contributing at least up to that threshold. An employer 401K match is free money. Take advantage. Free money will only turbo charge your journey to building generational wealth.

Generational Wealth Is Investing In The Future

Generational Wealth
Generational Wealth

Think about your legacy, your children and their future. To put your kids on the right path and build generational  wealth, think about a 529 plan. By contributing to a 529 plan, you are able to offset some or all costs associated with a college education. In many States, two 529 plans are available, an investment plan or a prepaid plan.

  • The investment plan allows you to contribute by buying and selling shares offered by the State or the State’s agent (similar to investing in the stock market).
  • The prepaid plan is based on the cost of attending a college. Here, you are prepaying the cost of attendance.

While 529 plans are not deductible on your federal tax filings, many States allow you to deduct a set portion of your 529 contribution from your State tax filings. Essentially, your State may be helping you to build generational wealth.

Conclusion

At a certain point, we should take a step back and stop thinking about ourselves, and begin to think about our legacy. We should begin to think and live in such a way so as to build generational wealth. Luckily, if you are living a life with your financial future in mind, building generational wealth does not take much effort. Just keep on doing what you are currently doing. Know that each action you take today is not just for you, it is for those who will come after you. Build a stable foundation and provide a spring board for those who come after.

In part 2, we will discuss how to maintain wealth.

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Amazon prime day

On Amazon Prime Day, Ask These Three Questions

Money Maroon

It is back. Yes, it is that time of the year again, it is amazon prime day. The annual two day deal event that is exclusively for prime members. But before you hit the checkout button and reach into your wallet or bag for your credit card, ask yourself the following three questions. Do I really need this item? Can I afford it? How many days will I have to work to pay for this item. Do not buy just to buy, be intentional and logical with your purchases. It is your hard earned money after all. 

Amazon prime day
On amazon prime day, think before you spend

Do I Really Need This Item

So often we buy items because we think we need it. But do we really understand what is a need versus a want? Generally, a need is something that is a necessity or essentially required for life. For example, food, water, and shelter are needs. In some instances, the list can be much broader depending on your specific situation. But if you are hoping to take advantage of an amazon prime day deal, it is likely that the item you are planing to buy is in the category of a want. 

A want is something unnecessary but desired. For example, while you may need a car, do you need a luxury car? We all need shelter, but do you need the home that is at the top of your budget? Do you really need the new fancy gadget for your grill or your car? The answer is no. It is not a need, just a want. What is actually interesting is that a lot of times, we may desire an item, but once we have that item, we will rarely use that item.

Many factors contribute to your wants. Did you fall victim to a commercial or was it something you saw in your neighbor’s yard? Your want for an item may also be a matter of the fear of missing out. The fear of missing out will at times push us to buy when we need not do so. Before pulling the trigger on a purchase, remember not to buy just because something is on sale. Assess whether or not the item is a need. Does it make sense? For all you know, next week, the special sale that appears on amazon prime day will be back. Do not allow a manufacture sense of scarcity and pressure force you to make a purchase.

Can I Afford Amazon Prime Day

When thinking about taking advantage of amazon prime day, always ask the question of can I afford it. No matter what the sale prize is or the discount percentage, ensure that you can afford it. Being able to afford something is very different from being able to purchase the item. You can use credit to purchase just about anything. But can you actually afford what you are buying.

Do not be tempted to put something on a credit card that you cannot afford. You do not want to have an amazon prime day purchase made this year that is not paid in full next amazon prime day. Credit cards are expensive. Take a look at your interest rate. Ensure that if you make a purchase on credit, you are able to pay it off in full without having to pay interest.

Can you afford your next purchase? Be honest with yourself. If the answer is no, know that it is ok. Because there is a sale does not mean that you have to buy. Keep your financial future in mind.

How Many Days Will I Have To Work To Pay For Amazon Prime Day

It is a question that is rarely asked but should be asked before every major purchase, especially on amazon prime day. The question is, how many days will I need to work to pay for this item? For example, if the item costs $500, and you are paid $30 an hour, it will take you 16 hours of work to pay off the item, two days of work. If you are making significantly less than $30 an hour, you may have to work for over a week to pay for the item. Now consider if the item or items total over $500, it may take you a lot longer than a week.

Now, is this item that you are thinking of purchasing worth a week of work? Is it worth it? If the item is a need, then it likely is. However, if you are about to purchase a want, take into account the costs. With regard to costs, consider not only the money, but also your time.

Before you consider making a purchase on amazon prime day, ensure that you are not succumbing to a manufacture sense of scarcity and pressure.

Amazon prime day
On amazon prime day, don’t forget that it’s your money

Conclusion

Amazon prime day is here again. The annual two day deal event that is exclusively for prime members. Before you hit the checkout button and reach into your wallet or bag for your credit card, ask yourself the following three questions. Do I really need this item? Can I afford it? How many days will I have to work to pay for this item. Do not buy just to buy, be intentional and logical with your purchases. After all, it is your hard earned money. 

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Compounding interest

Compounding Interest, It’s Magic!

Money Maroon

Do you like free money? What about increasing your wealth over time by doing absolutely nothing? I figure that your response to both is yes and yes. Well, I am here to tell you about the so-call eighth wonder of the world, “compounding interest.” It is simple, very logical and does not take much to understand or implement as part of your financial toolkit. In many cases, it is automatic. It is the reason why you should start saving and or investing early, and the reason it is never too late to get on the right financial track. By understanding compounding interest today, you can be financially secure tomorrow.

What Is Compounding Interest

Compounding interest is the addition of interest to the principal sum of a loan or deposit. In the context of saving, this is the reason why it is so important to start saving and or investing early. In its simplest form, it is interest upon interest. It is a beautiful thing when you are saving and investing. However, compounding interest can be detrimental if you are in debt.

Compounding Interest As An Asset

As an example, if you earn 8% return on your savings/investment on a yearly basis, after the first year you will have a total of your initial amount plus 8% of that initial amount. If you began with $100, you will have $108 at the end of year 1. However, look at what occurs over time. At the end of year two, you will have the amount at the end of year 1 plus 8% of that amount. Essentially, you have earned interest upon interest. In our example, you would now have approximately $116 at the end of year 2. At the end of year 3, 4 and 5, you would have approximately $126, $136 and $146 respectively. In 5 years, you would have earned $46 just by saving/investing.

Imagine if over that 5 year period you continued to save and or invest to grow your principal. Your return would be significantly more. Compounding interest is the reason why someone who saves and or invest at the age of 25 to 35 and stop will likely have significantly more for retirement than those who invest significantly more from 35 to 55.  Compounding interest is the reason for a number of sayings, for example “it is not timing the market, it is time in the market.” With compounding interest, time makes all the difference.

To drive this point further home, in our example, in 20 years your $100 principal would turn into $466. If the total after 10 years is not impressive enough, in 50 years, your return would be a whopping $4,690. This total is from having $100 growing without contributing anything additional. Crazy isn’t it? Check out the US securities and exchange commissions’ Compounding Interest Calculator. Play around with the numbers, and see what happens when you not only save/invest, but also continue to do so over time.

Compounding Interest

Compounding Interest As A Liability

In the context of debt, compounding interest is the reason why it is so important to eliminate debt early. It is the reason why your student loan balance increases while you are still in school or in forbearance. It is also the reason why you hear so many stories of folks who have been paying down debt for years and have made no progress. How do you pay minimum payments on a debt for 10 years and still owe more than the original amount? The answer is simple, the answer is compounding Interest. 

The interest rate on your debt matters, and so does the time that you take to pay it off. Compounding interest is why you are typically advised to pay more than the minimum payment on debt. The faster you pay off your debt, the less time there is for the interest to compound, the less total debt you will have to pay.

Your Advantage

Now that we have tackled the issue of what is compounding interest, to have compounding interest work to your advantage, pay down debt and begin saving and or investing today. The sooner you begin to save, invest, and pay down your debt the better financial position you will be in. Compounding interest is often called the eighth wonder of the world because once the momentum begins, it is hard to stop. For better (when you save and invest) or for worst (when you are buried in debt).

Our discussion should give you the imagery of a snow ball building in size. The snow ball begins small. When small, the snowball is insignificant and can easily be stopped and disposed of. However, over time, as the snowball continues to roll downhill and  adds layers, it becomes a monster that cannot be controlled or stopped. That is compounding interest, use it to your advantage and achieve your financial goals.

Begin small, be consistent, and build over time to become financially unstoppable.

Conclusion

We all love simple and beneficial concepts that can be easily integrated into our life. Compounding interest is simple, very logical and does not take much to understand or implement as part of your financial toolkit. In many cases, it is automatic and works like magic. It is the reason why you should start saving and or investing early, and the reason it is never too late to get on the right financial track. By understanding compounding interest today, you can become financially unstoppable tomorrow. Journey to financial independence.

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Happy Mother's Day

Have The Mother’s Day Money Talk

Money Maroon

For Mother’s Day, instead of falling into the commercialization trend, let’s make our mothers proud. Have a Mother’s Day money talk with mom. This talk will not only impact your mother and show her that you are thinking about her future, but will also help you organize yourself to better care for her.  Buying flowers, cards, or taking your mom out for brunch is a nice gesture. But having a financial chat with mom is impactful. Be impactful on this Mother’s Day and show mom how much you truly care.

Sacrifice

On this Mother’s Day, remember the financial sacrifices that your mother has made. Think back to how much your mother worked or complained about her job. Yet, she continued on. While you are at it, it should become very clear why some people stay at jobs that they hate. At times, some people will stay at jobs that they hate in the name of love and responsibility. She did it for you.

Financial Education

Many have the luck of having a mom that inspires. For some, this is manifested in financial success or the search for financial success based on lessons learned. For example, save, invest, live below your means. It may be in the form of literal education or an education based on observation. Was it her struggle or was it her drive and position as an authoritative figure who did what was best for the family that motivates you to become financially independent? For some, it was the unfortunate mismanagement of finances that provided the teaching lessons that motivates today. Whatever your reason, I am confident that your mother contributed and continues to contribute to your reasons for reading a financial independence blog and this article.

Love you mom - Happy Mother's Day

Having The Mother’s Day Talk

With all that your mother has done to influence your financial life, it is time to have a Mother’s Day money talk. Check on her current financial situation and her future plans. Although it may be difficult to talk to family about money, it is important to start.

Previous generations had the now acclaimed three legs to their retirement stool: (1) personal savings, (2) social security and (3) a company pension. Over the years, the three legs have been significantly weakened.

First, many have very little to no personal savings; second, as it currently stands, the social security program is teetering on the edge of insolvency; and  third, for the most part, company pensions are a thing of the past. Taken together, the baby boomer generation have little saved for retirement, no pension plan and are dependent on social security. This is the reason for the talk.

The Talk

To have the money talk with mom, there is no reason to be aggressive. Do not forget that it is Mother’s Day. If you approach your mother’s finances aggressively, your mother is likely to get defensive. The point here is to begin a conversation or continue the conversation such that you know where your mom is financially. More importantly, these conversations will aid your financial planing.

We cannot control what another person does, especially our parents. However, if we can make them aware of potential issues that may be on the horizon, maybe they can and will take action to change course. 

The fact is, you as the child may be responsible for your parents during retirement. It is important that you begin taking steps to mitigate the impact on your financial future by talking to your mom this Mother’s Day. 

The Best Mother’s Day Gift

For most of us, as adults, it becomes a struggle to get the perfect gift for mom. Guess what, you have most likely provided a lot of her material wants over the years. There are only so may cruises, trips, massages, flowers or foods that you can gift mom. At this point, the best Mother’s Day gift may be just showing that you care by having an important conversation. Instead of gifting something that will be used for only a day, have an impactful financial conversation.

Conclusion

For Mother’s Day, instead of falling into the commercialization trend, let’s make our mothers proud. Have a Mother’s Day money talk with mom. This talk will not only impact your mother and show her that you are thinking about her future, but will also help you organize yourself to better care for her.  Buying flowers, cards, or taking your mom out for brunch is a nice gesture. But having a financial chat with mom is impactful. Be impactful on this Mother’s Day and show mom how much you truly care.

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