investing

Financial Mistake

This Financial Mistake Is Making You Poor

Money Maroon

When asked what their biggest money mistake was, many people will respond that their biggest financial mistake is something they bought. Whether it is a house, a car or their education, the answer typically given is an active financial act that has been taken. But the question is not what is the biggest purchase that you have made that you now regret. The question is, what is your biggest money mistake. The biggest financial mistake that you likely have made and may continue to make is not what you have purchased, it is what you have not yet done.

Lost Opportunity

Your biggest financial mistake is likely not a purchase that you have made. Surprisingly, your greatest financial mistake is typically a decision that you did not make. It is, lost opportunity. 

If the opportunity was taken and worked out in your favor, it is not a mistake and as such the decision would not fall into the category of a financial mistake. On the other hand, if a lost opportunity is a mistake, the size of the mistake only grows. The reason for this is the opportunity cost and the compounding of that mistake. For example, think about not taking a job or not continuing your education. 

If these decisions worked in your favor, it would have been a boon. However, if these decisions were in fact a mistake, when looking back, you will see the opportunity lost in your career earnings, relationships, status and financial security. These losses will only compound over time. The mistake will only grow. 

But do understand that this works in the other direction as well. By doing your research, due diligence and making a good decision, the benefits here only compound. Make a great financial decision today and enjoy the compounding benefits over your life time.

The Financial Mistake Of Not Saving Earlier

Financially, your biggest mistake is likely that you did not begin saving earlier. With regard to saving, consider the opportunities that you have missed out on because of lack of funds. Think of the turmoil that you may have experienced during one of the many financial downturns over the last number of decades. How different would that have been if you had been saving earlier?

Saving is the basis of any financial plan. Without effectively saving, you will not build an emergency fund to ride out the financial bumps in life. Sadly, the importance of saving usually dawns on us during a financially rocky situation. For example, it is only when you lose a high paying job that you think of how much you have wasted on nonsense. Think of professional athletes, lawyers and doctors. The financial regrets only comes after going through a financial rut.

Did you lose a house or other financial possessions? Think of what you could have done with an emergency fund. If you have not yet began saving, do not allow this financial mistake to compound. Begin saving today.

The Financial Mistake Of Not Investing Earlier

Consider if you had only knew then what you know today. What would you have done differently? If there were no time machine, as there current is not, how can you implement your learnings today and benefit going forward.

On average, over the last 30 years, the stock market has given a return of between 7-10%. Imagine if you had place a portion of your money 20 years ago into the stock market and continually did so. You would have most likely been a millionaire at this time.

The fact is, with compounding, it really does not take that much. It only a little money but a lot of time. Use the many financial calculators that they currently have. You will notice that with an average of investing  let us say for simplicity about $100 per month for 20 years, the amount that you gain overtime is remarkable to put it lightly. 

Your biggest financial mistake is not investing earlier.

Financial Mistake
Invest in your financial education

The Financial Mistake Of Not Investing In Your Financial Education Earlier

Knowing that you should save, invest, and reduce debt is the basis of long term financial success. This is in fact the basis of financial education. You must save to have money to invest.  Without saving and investing, your money does not grow. Further, no matter how much you may save or invest, you will not get financially far if your funds are going to interest payments on debt.

Somewhere along the way we all have a financial wake up call. It could be by learning through others or learning a tough financial lesson ourselves. But, at some  point or another, we will realize that we should save more, invest more, and have less debt. I did not say that we will all act upon this realization. Some of us do while others do not.

This is like anything else in life. While we know what is best for us, we may never act. For example, at a certain time in our lives we will realize that we are getting older and need to start thinking about retirement. In this case, many of us continue living it up while others make a change. As another example, at a certain time in our lives, we realize that we should get healthy. Some of us make changes while others continue to have an unhealthy lifestyle. 

Financially, it is the same. We know that the more we invest in our financial education, the more likely we are to succeed financially. Yet, most of us rate having a chat about money as near the bottom of the events that we want to do. Most of us refuse to learn about debt and compounding. Most of us engage in keeping up with the Jones instead of focusing on our financial reality. Yes, a lot of us are stuck in the “fake it till you make it” phase of life. This does not work in the long run.

Take hold of your financial situation and invest in your financial education today. The more you learn today, the greater your potential for tomorrow. Your future self will thank you.

Conclusion

When asked what their biggest money mistake is, many people will respond that their biggest financial mistake is something they bought. Whether it is a house, a car or their education, the answer typically given is an active financial act that has been taken. But the question is not what is the biggest purchase that you have made that you now regret. The question is, what is your biggest money mistake. The biggest financial mistake that you likely have made and may continue to make is not what you have purchased, it is what you have not yet done. Stop making financial mistakes and journey to financial independence.

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Teaching Kids About Money

Teaching Kids About Money

Money Maroon

One of the most important things that you can do in life is teaching your kids about money. Teaching kids about money is a proactive way to ensure that the next generation is financially literate. It may seem like another thing on the list to do as a parent, however, teaching kids about money can be as easy as playing a game or just including them in day to day activities. To teach your kids about money, take your kids on your daily money adventures.

Teaching Kids About Money Must Start Early

Having a financial foundation is all about starting early. While you may quickly accumulate wealth in some instances, the magic of compounding requires time. As such, start saving early. 

The easiest avenue to teaching kids about money is to start saving early. Yes, the good ole piggy bank. This is one of the earliest and easiest ways to get your kids to think about money.  Even kids love to see their money grow.

The piggy bank provides for a lot of teaching opportunities. For example, the piggy bank can be used to teach the concept of saving toward a goal. If your kid wants to buy something, have them understand how long it will take for them to save that amount based on their standard allowance. It need not be a big purchase, for example, if they want to buy candy, you can mention that they will need to save/take an amount from their piggy bank. This will no doubt trigger an internal conflict of money vs candy. They will have to decide whether or not the candy is really worth their money.

But most importantly, the piggy bank forces kids to adapt a habit of saving. Saving is a habit that can be beneficial if learned early.

Teaching kids about money
Our kids are the future

Making Purchases

Your kids like new gadgets, so does everyone. How do you pay for it? Typically with a credit card? Teaching kids about money involves teaching them about your purchases. Show them the bill and how much things costs. Show them how you purchased it, cash or credit. If you are using a credit card, this is the perfect time to discuss interest rates.  You can further venture into the concept of paying off credit card bills early such that you do not have to pay interest payments.  The magic of compounding and how this can work to your benefit in saving but to your detriment on money you owe will no doubt hold their attention. Importantly, the concept of not purchasing things that you cannot afford will be a natural progression.

Going To The Bank

Like many other things as a parent, get your kids involved in your financial decisions. They may not understand, however, the act of going through the process will be built in. When old enough, they will begin to understand. Teaching kids about money is about sparking financial curiosity and planting a financial seed that will flourish and pay dividends in the future.

For example, on each journey to the bank, consider taking your child. Kids are curious creatures and they will ask numerous questions about the bank. Why are you going to the bank? Why are you depositing money? Where did you get the money from? Do you get it back? These are all questions that will spark a conversation with regard to earning money, using money, and saving money.

These early conversations with your 3-5 year old will begin to inform their concept of money. Have you ever taken money from your kids piggy bank and try to deposit it in the bank? If you have not, this process is likely to create a mental break down for any child. They become very attached to their money. However, this process provides the perfect opportunity to have a discussion with regard to the function of a bank, interest rates, and possibly inflation. No kid wants to have their money taken away. By explaining why their money will earn more if it is put to work (in the bank/investment account) will put them at ease and be a great benefit in the future.

Monopoly Money

Teaching kids about money at times can be a simple matter of playing a game. In many ways, monopoly is the perfect game. Monopoly can accomplish multiple things. Monopoly is not only a fun game for family time. Playing monopoly can also help kids learn to add, subtract, and also teach your child to handle or at the very least begin to get an appreciation of money.

Think about it, where else would a kid learn about charging rent, bankruptcy, going to jail, getting paid a scheduled salary, trading property, and transacting with a bank? Monopoly teaches simple concepts in game form. (1) If you own property, you can charge rent. (2) If you invest in your property, by building a hotel, you can charge even more. (3) If you over extend yourself financially, you can go bankrupt. The concepts are all there, and your kids will learn them all without trying.

Conclusion

One of the most important things that you can do is teaching your kids about money. Teaching kids about money is a proactive way to ensure that the next generation is financially literate. It may seem like another thing on the list to do as a parent, however, teaching kids about money can be as easy as playing a game or just including them in day to day activities. To teach your kids about money, take your kids on your daily money adventures. Help your kids get on the journey to financial independence early.

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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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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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Start investing

How To Start Investing Now

Money Maroon

On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or doing your due diligence to make appropriate decisions. Investing in yourself is the key to success.

Investing in your future is an extension of investing in yourself. Once you begin to look to the financial markets, when asking how to start investing, look to learning more about the opportunities that are available to you. Educate yourself.

How To Start Investing For Retirement

No matter your age, you should 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.

Your retirement plan will depend on (1) whether or not you are an employee vs self-employed and (2) whether or not the retirement plans are employer sponsored or self controlled. It is incumbent upon you to fully understand the plans  that are available to you, their contribution limits, mandatory withdraw, age of withdrawal, tax position and penalties associated with early withdraws. It is also incumbent upon you to take advantage of any matching benefits provided to you. For example, a 401K match. 

The 401K match provides free money from your employer and is a sure-fire way to achieve financial independence early. 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. Further, 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.

How To Start Investing – Brokerage Account

After establishing your retirement accounts, it is time to begin thinking about other investment options. For example, brokerage accounts. Brokerage accounts are investment accounts that allow you to buy and sell investments such as stocks, bonds, mutual funds, and Exchange-traded funds (ETFs).

There are a number of different brokerage firms where you can set up a brokerage account. These brokerage firms are well known and include Fidelity, Merrill, E-Trade, TD Ameritrade, Robinhood and Vanguard to name a few. Essentially, the brokerage firm is an intermediary that holds your brokerage account and act as an intermediary between you and the investments that you buy and sell.

Once you set up a brokerage account, which is usually free, you will be able to deposit money into that account that you can use to buy investments. Once you begin investing, you can buy and sell investments through your brokerage account. Do your due diligence prior to trading on the different platforms and understand the risk associated. Knowledge is power.

Investing In Education

Once you have done your research and have established your own investment plan, begin thinking about your legacy, your children and their future. 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.

How To Start Investing – Caution

Once you have educated yourself and have made the decision to invest for yourself, with a financial planner or with an advisor, you will begin using different investment accounts to your advantage. Pay special attention to the fees and the taxes associated with each account.

One of the biggest item that you should pay attention to is the fees associated with your retirement accounts and the investment options. Whether that is the fees charged by an investment fund, your advisor or related financial professional. 

It is important to remember that over time, fees can cripple your financial growth. While paying 1% of your total investment per year may not seem like a lot when you begin investing, Think long term. Project the number of years until retirement and also the amount of funds that you will have in that account. Paying 1% in fees each year can be a significant detriment to your financial growth, imagine if you are paying more. As always, do your due diligence and think long term in your financial decisions.

Conclusion

On the journey to financial independence, you will need to save and invest. Once you have saved for your emergency fund, the question is, how to start investing? You start by first investing in yourself. Whether this is by investing in your education to obtain a better job/career option, or it is doing your due diligence to make appropriate decisions. Investing in yourself is the key to success. Continue investing by educating yourself about the financial markets, plan and execute your plans.

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Video Summary

Rags to riches

Write Your Rags to Riches Story Now!

Money Maroon

We have all heard a rags to riches story. It is now time to have your own story. While we all day dream of winning the lottery, or inheriting riches, most rags to riches stories are not a result of a quick transfer of wealth. The fact is, most rags to riches stories are a result of making difficult, wise and consistent financial decisions over time. 

The Money Game

No matter how much or how little money you may have today, to build sustained wealth, you must spend less than you earn. This is the only way that you will save. Saving is important because it allows you to build up an emergency fund, it allows you to become prepared for the unpredictable. An emergency fund makes financial emergencies routine life events.

Further, by saving, you are able to have money/funds/assets available such that you are able to take advantage of financial opportunities. 

For example, if the stock market falls, do you have enough money in reservers to ride out the downturn? Are you able to buy stocks at the bottom of the market? In such a situation (financial down turn), many do not have enough in reserves to ride out a market downturn and therefore sell at the bottom of the market and realize financial losses.

If home prices fall, are you able to take advantage by purchasing real estate? When interest rates are low, are you well positioned to borrow at the lower interest rates?

Saving, and having money/funds/assets to take advantage of financial opportunities is necessary to write your own rags to riches story.

Invest In Yourself And Journey From Rags To Riches

With your savings, not only are you prepared to take advantage of financial opportunities, you are also able to invest. You may invest in any vehicle that brings value, for example real estate, the stock market, and yourself. Saving alone will not allow you to complete your rags to riches story, you will need to invest such that your money/assets make money on their own. You will need to invest such that your money works for you instead of you working for money.

On a basic level, any investment that you make after doing your due diligence is an investment in yourself. However, making an active and purposeful decision to invest in your education is a must. Your investment may be in education to increase your knowledge in your field of study/profession or in financial literacy. 

As your money/assets grow, so must your financial knowledge.  If not, you risk regressing and losing what you have worked for. Do not forget, there are equally many riches to rags stories as there are rags to riches stories. You must purposefully manage your money/assets and understand how money works to maintain and grow your wealth. Your financial literacy is important.

The Element Of Luck In Your Rags To Riches Story

Luck is essential but hardly recognized
Luck is essential, but hardly recognized

Luck is essential, but one of the least recognized component of a rags to riches story. Let’s face it, many hate to admit that luck played a role in getting from rags to riches. Most want to attribute all their riches to their own hard work and dedication. This is false. Many toil their entire lives and remain in poverty. While hard work plays a role, luck and the people around you also contribute to your success.

Luck is a matter of being in the right place at the right time. Luck is the convergence of resources and opportunity. What you will notice as a constant theme throughout life is that the harder and smarter you work, the luckier you will be. The harder and smarter you work, the more opportunities will be open to you; the luckier you will be; the more you will find that you are in the right place at the most opportune time. 

Luck requires preparation. You must be ready when the opportunity presents itself, otherwise, your luck will turn into a life changing missed opportunity.

Write your own rags to riches story by playing the money game, investing in yourself and being ready to act when an opportunity presents itself.

Conclusion

We have all heard a rags to riches story. It is now time to have your own story. While we all day dream about winning the lottery, or inheriting riches, most rags to riches stories are not a result of a quick transfer of wealth. The fact is, most rags to riches stories are a result of making difficult, wise and consistent financial decisions over time. Journey to financial independence and write your own rags to riches story.

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Write your rags to riches story!
The first $50,000

Saving The First $50,000 Now

Money Maroon

On the journey to financial independence, each milestone is fuel for the next. One of the greatest initial milestone is that of accumulating your first dollar milestone over time. For many, saving the first $50,000 is at the top of the list. Of all the incremental $50,000 gains that  you will achieve, saving the first $50,000 is the most difficult. Saving the first $50,000 is the most difficult because it  includes taking the biggest step on your journey to financial independence — taking the first step.

Begin Now – Saving The First $50,000

If you are like most, once you decide to begin the journey to financial independence, you likely do not yet have an emergency fund or an active retirement account. If you do have such accounts, it is likely that they are underfunded. As such, the path to accumulating your first $50,000 will be the most difficult because it represents the beginning of a new journey. 

Accumulating your first $50,000 will require a change in mindset and the implementation of new and at times, foreign concepts. To take your net worth from zero or negative to $50,000 will take time and effort. Time and effort makes any task difficult.

Below is a basic review of the difficulties that will be faced.

Your Financial Situation

Begin saving the first $50,000 by taking stock of your financial situation. What is your revenue and expenses over a period of time, for example a month? Are you saving? Can you increase revenue and decrease expenses? What is your debt load and how will you reduce it?  

Based on the answer to these questions, devise a plan to journey to financial independence. Devising an appropriate plan that gives you a high likelihood of success will take time. The more time that goes into your planning, the higher the likelihood that you will succeed on your journey. 

After designing your plan, you will need to implement the plan over the long term to achieve your goals.

The Plan – Saving The First $50,000

Just like enacting any plan that requires a change in habits or direct action, implementation of your plan to financial independence can be difficult. If you choose to save by cutting back on eating out, this will no doubt affect your social life. If you decide to work a side hustle, this will take time from other activities. To journey to financial independence, you will make sacrifices.

Think of a diet and how difficult it is to stick to such a plan over time. At times, it may take multiple attempts before breaking through and having success. To achieve success, you must start.

Your Emergency Fund

Now that you have a plan, how will you begin to bulk up your emergency fund. To obtain additional funds to support your journey to financial independence, will you be increasing your revenue, reducing your expenses or both? 

Saving more is always more difficult than it sounds. This task is never straight forward. When contributing to your emergency fund, you will also need to consider your retirement fund and also paying down debt. 

First, how will you increase income (Revenue minus expenses)? Will you increase revenues, decrease expenses or both? Will you first build your emergency fund or will you do all three (fund your emergency fund, pay down debt and contribute to retirement) together? This decision is situationally dependent, but very important to consider. For example, if you are receiving a 401k match from your employer, there is no reason to loose this free money. As such, you should contribute to your retirement account at least to the amount matched. Further, to ensure that your credit is not destroyed, it is best to keep your debts current by paying at least the minimum.

With regard to your emergency fund, how many months of expenses will you keep in your emergency fund. Will you contribute 3 months, 6 months or a year or more? This is dependent on your situation. Do you have a family or are you single? For your emergency fund, it is important to place your money where it is easily accessible, however, you must also consider where you will be able to obtain a reasonable interest rate. In effect, stay away from brick and mortar banks if possible, as online banks provide high yield saving accounts that will provide, while low, a significantly higher interest rate as compared to brick and mortar banks.

Contributing To Retirement

As noted above, once you begin to save, you should attend to your retirement fund, especially if your employer is providing a match. No matter how little you may contribute, contribute to your retirement. 

Paying Down Debt

Once you begin to save, you will  also need to attend to debts. You will definitely want to keep your accounts current by paying at least the minimum. Once your emergency fund is fully funded, it will be time to pay more than your minimum. 

It is advisable to pay down debts having the highest interest rate. This will infact lower your interest payments as you pay down the debt. Another approach is to pay down the smallest debt first, such that you have a snow ball effect of, least balance to highest balance. 

Essentially, by beginning this journey, you are increasing your net worth by incrementally reducing your debts while increasing your assets.

As you can see, because you are not only accumulating funds, but you are also paying off debt, accumulating your first $50,000 will take some time. Even if we simplify and include all savings and investments (including retirement) apart of your first $50,000, saving the first $50,000 will take some time and be the most difficult. Nonetheless, by consistency implementing your financial plan over time, you will achieve your goal.

Congratulations – Saving The First $50,000

While the journey will be long, you will achieve your goal of $50,000. But keep in mind that this is only the begining of the journey. Because of the plans, strategy and patterns that you now have in place, of the series of $50,000 that you will save, this will be the most difficult. As you move to save $100,000, you will arrive at that point a lot faster.

Consider that less of your funds will go toward debt payments and debt interest payments, you will potentially have a higher revenue (raises as you become more experience), your investments will grow over time and you will be comfortable and more knowledgeable about money generally. This all adds up to a snow ball effect with regard to your financial growth and accumulation over time.

Conclusion

On the journey to financial independence, each milestone is fuel for the next. One of the greatest initial milestone is that of accumulating your first dollar milestone over time. For many, saving the first $50,000 is at the top of the list. Of all the incremental $50,000 gains that  you will achieve, the first is the most difficult. Saving the first $50,000 is the most difficult because it includes taking the biggest step on your journey to financial independence — taking the first step. Take your first step today.

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Probability

Dramatically Increase Your Financial Success Now

Money Maroon

Probability and financial success intertwines. In a mathematical sense, life is a probability function. The probability of an outcome increases or decreases base on your actions. As such, when you see someone achieving success, it is important to understand that luck had little to nothing to do with it. It is all a probability function and that individual may have taken requisite action to increase their probability of achieving  that success. There is also a very low chance, but a chance nonetheless, that such an individual did absolutely nothing and achieved this success. 

This reality does not take away from the fact that others may have helped this individual to achieve his goals. Those who aided the individual played a role in increasing the individual’s probability of achieving their goals. In the same vain, the individual achieving the success may have taken action to be around those individuals who aided him in achieving the success achieved. Again, this could be summed up as taking action to increase the chances of success – putting yourself in position to take advantage of opportunities.

The Lottery

Let us look at the example of winning the lottery. We all have a chance of winning the lottery. There is a probability of winning even if we do not actively go out and purchase a lottery ticket. The probability is very low of course. But, you can theoretically win the lottery without buying a lottery ticket. Consider the fact that you may find a lottery ticket on the side of the street that happens to be the lucky numbers. You may also be gifted a winning ticket.

Note, the probability of any of the above two scenarios happening is very low. We must accept the fact that the odds that you will win the lottery without purchasing a lottery ticket is infinitesimally small, however, you still have a chance.

Now, suppose you buy 1 lottery ticket, the probability of you winning the lottery will now increase substantially. Your odds of winning will be 1 in 292,201,338. If you would like to increase these odds further, you can purchase a second ticket to now have an odds of 2 in 292,201,338.

The Financial Game

The financial game is the same. We are all born with a probability of having financial independence. If you born into a wealthy family, you may have a higher probability of this result than someone born in poverty.  However, there is a probability that those born wealthy may end in poverty and those born in poverty may end in wealth. Every action you take increases or decreases your probability of getting a result.

What Can You Do To Increase Your Probability?

To increase your probability of financial independence, I have a secret. Ready, it is the same boring list that you have heard before, live below your means, save, invest, and repeat. 

Your probability of living below your means is increased by having a higher salary, maximizing your time and spending less. How do you increase your probability of having a higher salary? You gain an education, you start a business, you invest. How do you spend less? You cut unnecessary expensive and limit debt.

The same two factors (living below your means and spending less) will also increase your probability of saving and investing. The more you save, the more you will have to invest. It is a feedforward cycle. This is also the reason the rich gets richer.

The second you begin to take action in this regard, your probability of financial independence increases. On the other hand, the opposite is true. Earning less and spending more will undoubtably decrease your odds of living below your means, saving and investing. These actions will undoubtably decrease your odds of financial independence and stability.

Action Plan

If you want to have a financially secured life, there are steps you can take to increase your probability of achieving that result. Live below your means, save, invest, and repeat. Take steps to increase your chance of financial independence. 

Conclusion

Probability and financial success intertwines. In a mathematical sense, life is a probability function. The probability of an outcome increases or decreases base on your actions. As such, when you see someone achieving success, it is important to understand that luck had little to nothing to do with it. It is all a probability function and that individual may have taken requisite action to increase their probability of achieving  that success. Journey to financial independence by taking simple steps that increases your probability of financial success.

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Opportunities

Take Advantage Of Financial Opportunities During Pandemics

Money Maroon

As someone much smarter than I once said, it is wise to be “Fearful when others are greedy and greedy when others are fearful.” Although the coronavirus has shutdown businesses and have caused mass unemployment, it is important to see and seek opportunities in this time of fear. Let us be clear, we are not down playing the coronavirus or future pandemics. However, it is important to remain level headed and keep your eyes on your goals. In this vain, I implore you to seek, find and take advantage of financial opportunities during pandemics.

Unthinkable And Unplanned

Opportunities may present themselves in the form of a new business opportunity, returning to school or investing in property. Whatever the opportunity is, the opportunity will most likely not appear at the most opportune time or planned. As the coronavirus spreads, different opportunities will present themselves, none of which were thinkable just three months ago. As these opportunities come into view, it will be up to you to take advantage of the opportunities.

Is It Time To Enter The Stock Market

In this coronavirus environment, the most obvious opportunity may be that of taking advantage of the stock market. As a reminder, to build wealth, it is important to live below your means, save and invest. Living below your means allow you to save. While saving is important, saving alone will likely not bring wealth. The power of your saved dollar will be eaten away by inflation.

In view of inflation, investing may be necessary to build wealth. Investing can take the form of investing in a property, yourself, a business or the stock market. 

With regard to investing in the stock market, this act is typically one of the last step taken by most. Due to the risk associated, investing happens to be the step that most are most hesitant to take. However, once most individuals begin to invest, the number one regret tends to be not starting earlier.

What We Can All Agree On

I could go into details about the market providing about a 10% return (not taking into account inflation). However, let us look at the numbers. The stock market hit a high of 29,551.42 on February 12, 2020, and have later dipped below 20,000. This is a drop of more than about 33%.

Will the market go lower? I don’t know, no one does. However, what we can all agree on is that it is highly likely that over time the market will rise from its current levels. This is the opportunity. Buy low, sell high.

Taking Advantage Of Opportunities Involves Risks

If you do decide to jump into the stock market, ensure that you understand the risks associated. All investments carry some degree of risk because nothing is 100% certain. 

Investing in stocks, bonds, exchange traded funds, mutual funds, and money market funds involve risk of loss.  Most importantly, loss of principal is possible. 

While nothing is certain, taking calculated risk can provide substantially return on investment. Further, by doing your due diligence, taking calculated risk can aid on your journey to financial independence. As such, seek, find and take advantage of financial opportunities during pandemics.

Conclusion

In this pandemic like all pandemics, fear is plentiful. As someone much smarter than I once said, it is wise to be “Fearful when others are greedy and greedy when others are fearful.” In this vain, I implore you to seek, find and take advantage of financial opportunities during pandemics. In 2020, the opportunity may just be the obvious, the stock market.

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Child wealth

How To Make Your Kid A Millionaire

Money Maroon

One of the biggest regrets for most adults is not starting to save for retirement earlier. If this is your biggest regret or a regret that is high on your list of regrets, why not take the steps necessary to prevent this regret from being a generational regret. Have you ever wondered how to make your kid a millionaire? Why not give your children an advantage in the game of financial independence and wealth? Contribute to your child’s future early, often and consistently.

Savings

Many strive to save for their children, but few do. If you are able to put away $10 per month for your child, you are a head of the game. On the journey to financial independence, time is your child’s biggest asset. Imagine saving $10 per month, that is $120 per year. Over 18 years, that is $2160, not including interest. If you are in a better financial situation and is able to put away $100 instead of $10, that is $21,600 over 18 years, not including interest.

While interest earned on your savings account at an average bank is very low, high yield savings accounts can offer more than 20 times the interest rate of your average bank. A high yield savings account can turbo charge your child’s savings account.

How to make your kid a millionaire – contribute to your child’s savings account early and often.

Stock Market

While minor’s cannot invest in the stock market, you can do so for them. You may open a Guardian Account or a Custodial Account for your child.

Guardian Account

  • You are able to retain ownership of the account
  • Gains are taxed at your tax rate

Custodial Account: 

  • The child owns the account although you are in control of the account
  • Gains are taxed at the child’s tax rate
  • Note that once the child reaches 18 or 21, the assets in the account come under the child’s control

Roth IRA

You may also open a Roth IRA for your child. We are proponents of Roth IRAs because of the many advantages. For Roth IRAs for kids, the only barrier is income. Once the child has taxable income, an account can be opened. However, the same contribution limits applies for the account as any other Roth IRA.

How to make your kid a millionaire – invest early and often.

529 Plans

The third rung in your child’s wealth building chest is a 529 plan. Let’s face it, college is expensive and seems to be getting more expensive.

  • Average public university cost per year: $10,116 
    • Public university cost to graduation (average): 4 x $10,116 = $40,464
  • Average private university cost per year: $36,801
    • Average private university cost to graduation: 4 x $36,801 = $147, 204

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. As such, contributing to your child’s future and also receiving a State benefit. A win-win of sorts.

How to make your kid a millionaire – Reduce their college cost burden.

Conclusion

On your journey to financial independence, it is only natural to wonder what can be done to give your child an advantage on their journey. Time is your child’s greatest asset. As such, contributing to your child’s future early, often and consistently will greatly increase their chances of financial success. Saving, investing and funding a 529 plan are instrumental financial tools that you can use to jump start your child’s journey to financial independence. Make your kid rich.

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