Saving

Surprised Santa

Holiday Sales Are Here

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Holiday Season

It is that time of the year again, where we spend money for the sake of spending money. Yes, it is that period between halloween and the new year, the holiday season with the requisite holiday sales.

Some may disagree with the time span, and argue that the holiday season begins after Thanksgiving. For those individuals, Christmas carols and decorations are on display before Thanksgiving. But the time span is not the point.

Holiday Spending

During the 2018 holiday season, Americans spent over $717 billion. Americans spent over $3.5 billion online on Thanksgiving day. On Black Friday, over $6 billion online. On Cyber Monday, over $8 billion and over $18 billon on Small Business Saturday. In total, in 2018, over 174 million individuals shopped over the Thanksgiving weekend from Thanksgiving through Cyber Monday. Many of these individuals were motivated by holiday sales. However, do you really need that new phone, TV, computer or gadget? In the time of covid-19 and related variants, should you be so focus on material things?

Sales?

If you are motivated to spend based on the holiday sales, those big signs with percentages off, I have some sober news. Retailers have figured out that those big signs can lead to sales. Lots of sales. As such, instead of actually lowering the sales prices, many may instead  increase the listed price. Therefore, there is a larger gap between the sale price and the list price.

That big sale may not be as big as you think.

Holiday Spending And Your Financial Future

Now that your euphoria of large savings have been normalized, have you considered how spending in the holiday season will impact your financial bottom line. Of the 174 million Americans who spent over $717 billion during the 2018 holiday season, how many are financially independent? How many are on track to retire early or living pay check to pay check? How many could have contributed to their savings, 401K, IRA or personal investment account? What about paying down debts  from the previous year’s holiday spending?

Extravagant spending during the holiday season occurs yearly. Let us assume that the retirement age is about 65, and conservatively, careers begin after college at age 22. Based on this estimate, about 43 years of spending occurs during your working years. How could saving during the holiday season have impacted the average American’s bank accounts? How many could have retired early or at least struggle less financial?

Stay On Your Journey To Financial Independence

While the holiday season is branded as the season for spending, take stock of your financial situation and how your holiday spending will impact your journey to financial independence. 

Collect moments not things

Conclusion

Your family is important and we are certain that they would rather you be in a better financial situation than purchasing gifts that will put your financial future in jeopardy. If you are planning on making small or large purchases this holiday season, keep in mind your financial goals. Stay on your journey to financial independence.

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Holiday season

Holiday Season Tips For Saving

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Each year, Americans spend an inconceivable amount of money during the holiday season. As we approach the holiday season, be conscious of your spending. Financially, do not undo your hard work and the sacrifices of the year. Do not veer off your path to financial independence. Be intentional in your spending.

Holiday Spending

The holiday season is the one time of the year where culturally, it is acceptable to spend what we do not have. In some cases, we are spending on people we do not like, and people we do not like to be around. 

Studies have shown that it is not uncommon for a large percentage of people to not only overspend during the holiday season, but to spend to such an extreme that they are not able to pay off their sending in the month following the holiday season. In many cases, payment of the debt generated in the holiday season is carried over for a year or more.

Worst yet, much of the accumulated debt is on credit cards. According to wallet hub, the average credit card interest rate is 19.21% for new offers and 15.10% for existing credit cards. 

Holiday season
Happy Holidays!!

Holiday Saving Tips:

Have a plan

Treat your holiday shopping like every other spending occasion. Evaluate where you are financially, know how much you are willing to spend, make a budget and stick to it. 

Where Are You Financially

As the end of the year approaches, evaluate where you are. Do you have a savings or an investment goal? Did you plan to pay down debt? Are you planing to make a big purchase in the next year? These are all factors that should impact your spending. If you have goals, and you are on track, keep moving forward toward your goals. If you are off track, get back on track. Do not allow the holiday season to impede your progress.

Budget How Much You Are Willing To Spend

Once you have evaluated your financial position, determine how much you are willing to spend. Do not underestimate your possible budget, be realistic. Are you traveling for thanksgiving? Are you traveling for the winter break? Do your family members expect gifts? Have you set expectations? Are you hosting? Are you hosting a party? Budget accordingly.

It is not uncommon for us to not include the cost of travel in our budgets for the holidays, however, the vast majority of us travel during the holiday season. This is an important consideration especially with the increasing cost of air travel. Consider the cost differential of traveling to Time Square for new years eve vs watching the ball drop at home.

Whether for thanksgiving or later in December or for new years, consider the cost of travel, cost of gifts and any related recreation activities. Further, set expectations based on what you can afford.

Stick To It

Once you have reviewed your financials and made a budget, stick to it. Make travel arrangements early, take advantage of sales, set expectations and spend within your means.

Conclusion

As the holiday season approaches, continue on your journey to financial independence. Evaluate where you are financially, know how much you are willing to spend, make a budget and stick to it. 

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First Generation Immigrant: Guide To Financial Independence

First Generation Immigrant: Guide To Financial Independence

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Journey to Financial Independence

Financial independence is predicated on the simple formula of money in vs. money out. If you have more money in (salary, passive income, gifts, investments etc.) than money out (bills), you have discretionary income. With discretionary income, you may save, invest or spend. When you invest and save, you are moving forward on your journey to financial independence. Spending most or all of your discretionary income hinders your march toward financial independence. In the first generation money guide to financial independence, whether you have expenses in home country or new country, move forward on your financial journey by ensuring that your financials are secured.

Challenges

For first generation immigrants, the journey to financial independence can be daunting. When a family immigrates to another country, they typically do not have the family or community support they had in their home country. This exposes first generation immigrants to a number of new financial challenges. These financial challenges include financially supporting family members both in new country and home country.

Lack Of Community Support

For most first generation immigrants, with regard to childcare, there is no grandparents, sisters or brothers to help. Natives also encounter this issue, however, to a lesser extent. Natives have family in country, whereas immigrants may not. On the financial front, for immigrants there is no or very little inherited land, business or assets in new country. Immigrants, especially those who are the first to enter a new country, have to build wealth from scratch. 

Immigrant Money: Remittance

A more challenging issue is remittance. Many first generation immigrants have or feel obligated to send money back home to support family members. It could be to support studies or general home life. Remittance represents a large transfer of funds each year. For example, according to The World Bank, in 2017, individuals sent over $689 billion to their home country. 

Immigrant Money: Hyper Savers

To financially support multiple households (new country and home country), immigrants tend to be hyper savers. As such, although in the aggregate, immigrants may have a lower amount of money in (salary) than most natives, many immigrants are hyper savers and have a higher savings rate than natives. This does not mean that immigrants have more saved. As noted above, immigrant salaries tend to be lower than natives and immigrants may have more financial responsibilities as compared to natives. This hyper saving tendency may result at least in part on circumstances and necessity. However, because of financial constrains, in most cases, hyper saving does not lead to financial independence for many immigrants.

The Journey To Financial Independence

To move forward on the journey to financial independence, one must save and invest. While we are not advocating that one should not support family in home country, cutting back on the amount sent must be considered. It is important to ensure that your financial situation is secure before aiding others, yes, including family. Think back to the safety instructions given before a plane takes off.  In an emergency, put on your oxygen mask before your child’s.

If your financial situation is not secure at home, your family’s (home country and new country) financial situation will also not be secure. 

Consider the following: 

  • (1) you save very little while supporting your family in home country and loose your job. In this situation, not only will you be in a bad situation, but so will your family in home country. 
  • (2) you cut back on the amount of support you provide to family in home country and save a small sum in your emergency fund. If you loose your job, both you and your family in home country have a bit more runway to deal with issues that appear. This is the same principle that should be applied if you have adult children. First, address your financial situation and where there is addition or left over funds, aid your adult child.

Conclusion

In the first generation immigrant money guide to financial independence, whether you have expenses in home country or new country, move forward on your financial journey by ensuring that your financials are secured.

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Video Summary

Recession Proof With An Emergency Fund

Recession Proof With An Emergency Fund

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Recession fears are always just around the corner.  Financial fears typically grow when volatility increases and consumer confidence falls. With memories of the 2008 financial crisis just below the surface, many Americans are wondering, how do I recession proof my journey to financial independence? To recession proof your financial situation, reinforce your emergency fund.

Cash And Your Emergency Fund

During any financial downturn, cash is king. Therefore, it is important to begin reinforcing your emergency fund. Most experts recommend having three months of living costs saved in a liquid account. This total is simply three times your average monthly costs (includes housing, dining, transportation, servicing debt and other monthly expenses). Consider keeping your emergency funds in a savings account, more preferable a high yield savings account or any account wherein you will have easy access to your money.

However, one size does not fit all.  As such, a question to ask yourself is: if you lose your job, how long will it take for you to find a new job? If you are in a profession where the vetting period is in excess of three months, consider increasing your emergency found to at least six times monthly costs.

However, for comfort and piece of mind, consider having twelve times monthly costs. By having a years total costs, such a financial cushion will allow for flexibility if the unexpected occurs.

Most Americans Cannot Afford A $500 Emergency Without Going Into Debt

Taking into consideration the fact that most Americans cannot afford a $500 emergency without going into debt, if you are unable to achieve three times monthly cost, save whatever you can. The more you are able to save, the better prepared you are for any financial roadblocks.

Saving is an essential feature of financial independence. Saving takes patience and consistency, but provides peace of mind. After having a comfortable emergency fund, begin paying down your debt. If you lose your job, having to service debt during this period can detrimentally affect your situation. Therefore, where possible, pay down debt.

Conclusion

Recession fears are always just around the corner.  Financial fears typically grow as volatility increases and consumer confidence falls. With memories of the 2008 financial crisis just below the surface, many Americans are wondering, how do I recession proof my journey to financial independence? To recession proof your journey to financial independence, reinforce your emergency fund and pay down debt.

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Keeping Up With The Jones Your Goals

Keeping Up With The Jones Your Goals

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To achieve financial independence, you must be comfortable with yourself and not be concerned with others. You must be focused on your financial situation, and your goals. Forget about keeping up with the Jones.

A Wealthy Display

I was in high school when I began noticing a few trends with regard to wealth. Have you ever noticed that the wealthiest among us wears the most basic of shoes, clothing, and drives an average car. In high school, the students with the regular but quality shoe happened to be from wealthy households. Here, I am using regular to mean “not flashy”. These are the friends who lived in the best neighborhoods with parents who were executives and/or held secure positions. These friends did not care to draw attention based on what they could afford.

On the other hand, friends with flashy high priced shoes, book bags, and hairstyles tended to have parents who were less well off.  These friends wanted to show everyone that they had the most expensive you name it. These friends were not secure financially.

The wealthiest among us does not care what others think, and their children do not either. When you are financially secure, you care a lot less what others think. You also have a bit more confidence because you are secure and you are less dependent on others for your well-being.

Stop keeping up with the jones - keep up with your goals

Group I /Group II

Think about this now in adult life. Think of your friends in two basic groups, Group I and Group II. The below (Group I/Group II expenditures) are only a generalization and does not include additional costs such as food, entertainment, student loan payments and other monthly costs. The below serves as a simplified example.

Group I

Keeping up with the Jones - cars JoToFI.com
  • Group I
    • Leases their vehicle. Typically a luxury car: Mercedes, Porsche, BMW or a Tesla;
    • Lives in a McMansion/junior McMansion;
    • Takes lavish vacations;
    • Post their activities frequently on social media; and
    • Sends children to private school

On average, Group I are high earners, but are they wealthy? If Group I loses their jobs, could they survive? For how long?  By leasing a car, Group I will carry car payments for the foreseeable future. However, as a benefit, Group I will always have the newest model car. 

The junior McMansion’s mortgage is typically above average and comes with the associated expenses for heating and cooling such a large home, landscaping, and the inevitable general up keep and repairs. This adds up very fast.

Private school can cost tens of thousands of dollars and in some cases hundreds of thousands of dollars, per child.

Let’s face it; Group I’s monthly expenditure is very high. Any lost of income can have a dramatic effect on the well being of Group I.  From this basic analysis, it becomes very clear why so many families earning six figure incomes are living paycheck to pay check. High earners losing their jobs played out for all to see during the last financial crisis. Stories were abound of those with household incomes of close to $500,000, who had large debts, and following the lost of a job eventually lost their homes. 

Consider the following, if you lost your job but had $100,000 in savings, a $600 per month car payment, a $5000 mortgage, and $4000 monthly tuition for one child. How long could you keep up? Not long at all. Your savings would be depleted fairly quickly.  The depletion of savings would be further accelerated by the payments associated with any outstanding credit card debt or student loan payments.

Group II

Keeping up with the Jones - homes JoToFI.com
  • Group II 
    • Owns their vehicle. Typically a an average car: Toyota, Honda, or Nissan;
    • Lives in an average sized home;
    • Takes vacation on a budget, use AirBnB;
    • Does not frequently disclose their activities on social media; and
    • Sends children to good public school/dabbles in private school.

Group II include high earners, but also those who earn an average salary. Unlike Group I, because the monthly expenditures are lower, interruptions in income will not be as dramatic. Group II tend to have more of a buffer.

Group II are the millionaires next door and typically do not care what others think. These folks do not know the proverbial Jones and if Group II did, Group II do not want to keep up with them because Group II are preoccupied with building wealth.

It is highly likely that Group II earns more than Group I, but simply lives below their means. Group II could be earning six figures and multiples thereof but will stay in the same home, drive the same car for 10 years and take advantage of good public schools. Even if Group II loses their jobs, because their expenses, on average, are lower than that of Group I, Group II are able to whether such a change in better shape than Group I.

The Unknowns

We all know folks who live in the largest homes and drive the newest cars. What you do not know is their financial situation. You do not know if they are in debt. Do you know if they have an inheritance? You do not know if they are behind on car payments or mortgage payments. What about credit card debt, or student loans. You just do not know.

With all the unknowns, focus on what you know. You know your situation, your goals, and your financials (savings, expenditures, investments). Instead of keeping up with the Jones, keep up with your goals.

Who would you rather be? Group I or Group II? In the end, the choice is yours.

Which door will you walk through?

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Video Summary

Keep up with your goals
Saving To Financial Independence Today

Saving To Financial Independence Today

Money Maroon

For many, the path to financial independence begins with saving. No matter if you are a high earner or earning minimum wage, saving is a primary driver of financial independence.  The earlier you begin to save, the better your financial outlook.

Start Now

When should you start saving? The answer is an obvious one, NOW! The earlier you start saving, the more time you will have for your savings to compound. If you have not heard the gospel of compounding interest, I will give you an introduction.

Compound interest is interest calculated on the initial principal and the accumulated interest of previous periods. As such, this is a cycle of earning “interest on interest.” Compound interest will make a deposit grow at a faster rate than simple interest, which is interest calculated only on the principal amount. As such, the earlier you begin, the longer your savings + interest compounds, the harder your money works for you.

Automate

This easiest way to ensure a consistent savings rate is to automate your savings. The typical employee receives a paycheck twice per month. Start saving slowly at a rate that is acceptable for you, and increase the amount over time. Further, have a portion of one or both of your paycheck automatically deposited to a savings account. By automating your savings, you never see the money. Additionally, to save takes no action on your part once automation is in place. But where should you save your money?

High Yield Saving

All saving accounts are not created equal. The average interest rate is 0.09% APY. Banks such as Bank of America has an interest rate of 0.03%. On the other hand, online banks pay a significantly higher interest rate. For example, online banks Marcus and Ally offers 2.0% APY and 1.90% APY, respectively. As you can see, having a high yield online bank account is the way to go when saving for financial independence. The higher the interest rate, the faster your savings will grow.

While saving is an important part of the journey to financial independence, unless you are a very high earner, saving alone will not get you to financial independence. Saving is a tool to be used in combination with other methods discussed here. Save, invest and grow.

Conclusion

For many, the path to financial independence begins with saving. No matter if you are a high earner or earning minimum wage, the earlier you begin to save, the better your financial outlook. Journey to financial independence today.

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Video Summary

Income and expenses

Understanding Income and Expenses

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On a basic level, financial independence requires an understanding of your income and expenses. Without a full understanding of what you are taking home and what you are spending, you will remain financially lost.

Asking The Questions

If you are thinking about financial independence, you have asked certain questions and have come to certain realizations. When did you realize that you may have to work the rest of your life? When did you realize that there are families who could relax and not lift a finger and their wealth would continue to grow? Upon the realization of the first thought, you will almost certainly think of the second.

Was it in school? Were you visiting a friend? Did you overhear a conversation? Were you on vacation? Was it after viewing a facebook picture? Was it following the purchase of a big-ticket item (home or vehicle)?  Were you checking your account balance, reviewing a bank statement, or looking at your paycheck? Were you paying a bill or a portion thereof? Was a purchase declined?

The Calculation

At one point or another, we all do the calculation. If my salary/yearly income after taxes is $X, and my expenses are $Y, $X-$Y = working forever.

At this point, one has a choice: (1) continue down the same path or (2) make a change. You are reading this because you want to/have made a change.

On a basic level, to change the above in your favor requires an increase in $X and/or a decrease in $Y. While this is a basic concept understood by all, the above is easier said than done.

Increasing Income

With regard to increasing $X, you may:

  • Save
  • Request a raise at work, 
  • Start your own business, 
  • Invest,
  • Begin one or more side hustles, 
  • Go back to school, or
  • Change jobs. 

Decreasing Expenses

With regard to decreasing $Y, you may:

  • Give up coffee and avocados (or whatever your daily morning pleasure may be),
  • Downsize your life (reduce the size of your home, or vehicle)
  • Bring your lunch to work, 
  • Cut back on purchases (shoe, clothing), 
  • Move closer to work, 
  • Change modes of transportation (buy a bicycle, take public transportation), 
  • Change living conditions (get a roommate, move in with mom), 
  • Paying down debt, or
  • Decrease the number of vacations/ stay at an air bnb rather than at a five star hotel.

Taking action to improve your financial situation is harder said than done, especially if your financials are impacted by your education level, children, health or student loans. The combination of any two of these will significantly impact your saving rate, and thus your retirement plans. However, the fact that you are thinking about your financial future means that you are ahead of the crowd. Continue on your journey to financial independence by understanding and tracking your income and expenses.

Conclusion

Financial independence requires an understanding of your income and expenses. Without a full understanding of what you are taking home and what you are spending, you will remain financially lost. We will tackle paths to financial independence here at JoToFI.com. Journey to early retirement and financial independence.

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Video Summary

Financial Independence: Income and Expenses