Wealth

Empty piggy bank

If You Are Feeling Broke, It’s Ok

Money Maroon

If you are feeling broke, know that it is ok. The feeling of not doing enough or that you are behind as compared to others is a normal. As human beings, we are hard wired to compare ourselves to others. It is natural. It is also natural to feel like you are not where others are when you look at their material possessions. But keep in mind, you are typically only seeing what others are willing to show you. You are not seeing what is going on behind the scenes. Many engage in fake it till you make it and  project a wealthy facade, but are in tough financial straits. Focus on you and do not concern yourself with what others are doing.

Empty wallet
It’s ok to feel broke…. but are you?

The Story

You have likely heard a similar story, but here we go. Around the corner is a neighbor who has one of the most beautiful homes, with an up-kept yard and with hedges always cut. This neighbor has two kids, a dog and two luxury cars which are replaced every few years. The neighbors are very social in the neighborhood, for gatherings, they are the life of the party. These folks take vacations each year to exotic locations, essentially these neighbors are the envy of the neighborhood. They are the picture of the American dream. They exude confidence, money, success and privilege.

Eventually, you may begin to notice some cracks in the happiness of your neighbor and this goes one of two ways. (1) They may stop attending certain events and may downsize the cars and eventually note that they are moving because of work. (2) If they chose to keep up appearances, eventually you or another neighbor may begin to get inquiries about who lives at their home. Typically, these are the early signs of someone hunting for your neighbors assets. It may be their cars or a boat in the back yard. Eventually, one or both cars will be towed away and repossessed. Sooner or later, a sign will be placed on the home that it is in foreclosure. 

It is amazing how often this story plays out.  Keep this story in mind when you begin to think or feel broke or inadequate as compared to others.

You May Not Be As Broke As You Think

The events above is typically shocking to all and will be the subject of much gossip. Some may enjoy seeing this fall from grace but many will be left reflecting on their previously perceived short comings. The fact is simple, you only see what others want you to see. If your neighbor has luxury cars you have no idea if they are leased or owned. You have no idea if they had previously won the lottery, you also have no idea if they have inherently wealth or are up to their eye balls in debt. The moral of the story, do not compare yourself to others.

Live your own life and stay in your lane. Be happy for those who are doing well or appear that they are doing well. Know what you are doing and focus on your financial goals and not what others are doing. It is ok to feel broke, it is normal to compare yourself to others. But do not act in a manner to compete with others. Live your life. Stay in your lane.

Do You

If you are pursing early retirement, do so. While it is difficult not to compare yourself to others, keep focus on your goals. If your aim is to save 50% or more of your income, understand that you may then not have the nicest cars, fashion or take the same vacations as someone who do not save as much as you do. Just remember that we are all on different paths. You may feel broke or inadequate, but your bank account may say otherwise.

Whenever you feel financially inadequate, take a look at your assets. Look at your bank account and know that you are one day closer to your financial goals.

Conclusion

If you are feeling broke, know that it is ok. The feeling of not doing enough or that you are behind as compared to others is a normal. As human beings, we are hard wired to compare ourselves to others. It is natural. It is also natural to feel like you are not where others are when you look at their material possessions. But keep in mind, you are typically only seeing what others are willing to show you. You are not seeing what is going on behind the scenes. Many engage in fake it till you make it and  project a wealthy facade, but are in tough financial straits. Focus on you and do not concern yourself with what others are doing.

Follow me on Twitter @JoToFI_com

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Wealth takes time

Wealth, It Just Takes Time

Money Maroon

We all would like to be rich and wealthy today, now, at this second, but this is not typically how it works. There is a reason why the average retirement age is in the 60s. Building wealth is one of those things, it just takes time. Building wealth does not typically occur overnight. It takes small steps over time, typically a long period of time. I will be blunt here, it typically takes decades.

It Just Takes Time – No Short Cuts

Wealth takes time. This is the truth. There is really no get rich quick schemes. Some get lucky by taking elevated risks, and the rest build wealth over time. Of course, the more risk, the higher the rewards. But with more risks come bankruptcy and depending on the activity, jail. It is a fact, and you may not want to hear this but generally, it just takes time to build wealth. Short cuts may only get you short term gratification, but not a sustainable award that will last in the long run. This has been shown over and over again.

Wealth Calculator

The time it will take to build sustainable wealth can be generalize using a wealth calculator. Select your favorite wealth calculator and see for yourself. Even with a 10  to 15 percent year over year increase in the stock market, which is highly unlikely for a long period of time, if you are starting with nothing and contribute a small portion monthly, it will take you multiple decades to achieve 1 million dollars. This is the simple reality. It is hard to hear, but it is the truth.

We Fail Because It Just Takes Time

The length of time that it takes to build wealth is the reason we all do not achieve our dream. This is the reason so few of us actually achieve the goal of financial independence and true wealth. It just takes time. Many of us are simply not patient enough to diligently save, invest, and live below our means consistently for an extended period of time. If we were able to do this, the rewards at the finish line are truly worth it. Your financial freedom is worth it.

Mortgage As An Example

Another example of our financial reality is a mortgage. Most typical mortgages are 15 or 30 year mortgages. Why is this? The reason is a simple one. To accumulate and pay off the large sums that is typically a mortgage, for example for a home mortgage, takes time. Unless you are coming in with money, it is highly unlikely that you will pay off your mortgage in 5 years. Think about it, in today’s world, it will typically take the average American  5-7 years to pay off a car loan, which costs significantly less than a home.

Do Not Keep Up With The Jones

It is normal to look at what others are doing. It is also ok to wonder if you are being too conservative with your finances, especially when others are purchasing bigger homes or nicer cars. But you do not know how leveraged or over leveraged these individuals are. Further, your situation is different from others. It is important to stay in your lane and maximize your situation. Work on you. 

Know that there are no short cuts. To achieve financial independence, it just takes time. Save, invest, and live below your means.

Amazon prime day
Think before you spend

Conclusion

We all would like to be rich and wealthy today, now, at this second, but this is not typically how it works. There is a reason why the average retirement age is in the 60s. Building wealth is one of those things, it just takes time. Building wealth does not typically occur overnight. It takes small steps over time, typically a long period of time. I will be blunt here, it typically takes decades.

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Buy The Dip

Buy The Dip And Hold

Money Maroon

Here, we are not giving financial advice, but this blog provides a great platform to share ideas and discuss experiences. One of the many back and forth that are debated is whether or not to invoke the buy the dip strategy versus the typical dollar cost averaging. But there is an in-between that we should not overlook. If you have a dollar cost averaging strategy, consider integrating a buy the dip and hold strategy.

Dollar Cost Averaging

To quickly summarize, dollar cost averaging is an investment strategy where the investor invests the same amount  across a set period of time. For example, investing the same amount each month regardless of whether or not the price of the stock increases or decreases. This can reduce the impact of volatility on the overall purchase. 

With dollar cost averaging, you are not buying an asset when it is on one end of the spectrum, high or low. Here, the attempt is to control volatility as it averages out over the period of your purchase. Dollar cost averaging works very well, as the market is expected to go up over the long run. Further, dollar cost averaging echos the mantra of “it is not timing the market, it is time in the market.” But what about buying the dip?

Buy The Dip

Unlike dollar cost averaging, buy the dip is the purchasing of an asset only after it has dropped in price.  Here, the general belief is that the new low price is a bargain. Therefore, profits will be gained as the asset price increases over time. This strategy is the classic buy low and sell high. 

If you are employing buy the dip, your threshold for the dip is important. If your threshold is a 5% drop in prices, you may potentially miss a 4% drop in price followed by a 10% increase.  A second issue with buy the dip is that you are essentially trying to time the market. Not many are successful at this. In fact, overtime, you are proven to fail. It is really difficult to know when a market has hit the bottom of its fall.

While there are drawbacks with buy the dip, if you do your research and are lucky, buy the dip can be very lucrative. This is especially true in a bull market or a fast recovery following a significant drop in the market. In view of the pandemic drop in 2020 and the recent bull run, no wonder this strategy is so popular.

Buy The Dip And Hold

There is another option besides dollar cost averaging and buying the dip. You may buy the dip and hold. If you have a dollar cost averaging strategy, it may be wise to integrate a mini buy the dip strategy. Meaning, if you invest $500 each month on the 1st of the month, consider having a date range from the 1st to the 5th to invest. In that 5 day period, invest when the market is down. If this strategy is repeated over time, the incremental gains that you may obtain could add up to be of substantial benefit. A half of a percent gain here, a third of a percent gain there for twenty to thirty years. This could be the difference between living on a budget and financial independence.

Money on trees
Money over time

Conclusion

Here, we are not giving financial advice, but this blog provides a great platform to share ideas and discuss experiences. One of the many back and forth that are debated is whether or not to invoke the buy the dip strategy versus the typical dollar cost averaging. But there is an in-between that we should not overlook. If you have a dollar cost averaging strategy, consider integrating a buy the dip and hold strategy.

Follow me on Twitter @JoToFI_com

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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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Father's Day

Have The Father’s Day Money Talk

Money Maroon

For father’s day, instead of falling into the commercialization trend, let’s make our fathers proud. Have a father’s day money talk. This talk will not only impact your father and show him that you are thinking about his future, but will also help you organize yourself to better care for him.  Buying shirts, cards, or tools is a nice gesture. But having a financial chat with dad is impactful. Be impactful on this father’s day and show dad how much you truly care.

The Sacrifice

On this father’s day, remember the financial sacrifices that your father has made over time. Think back to how much your father worked and his pains. Yet, he 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. He did it for you.

Father’s Day And Financial Education

Many have the luck of having a dad 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 his struggle or was it his 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 father contributed and continues to contribute to your reasons for reading a financial independence blog and this article.

While your father may not be your biological father in the context of the man who took care of you, we all have a father, show him that you care.

Father's Day
Happy Father’s Day

Having The Father’s Day Talk

With all that your father has done to influence your financial life, it is time to have a father’s day money talk. Check on his current financial situation and his 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 dad, there is no reason to be aggressive. Do not forget that it is father’s day. If you approach your father’s finances aggressively, your father is likely to get defensive. The point here is to begin a conversation or continue the conversation such that you know where your dad 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 dad this father’s day. 

The Best Father’s Day Gift

For most of us, as adults, it becomes a struggle to get the perfect gift for dad. Guess what, you have most likely provided a lot of his material wants over the years. There are only so may cruises, trips, tools, shirt or gadgets that you can gift dad. At this point, the best father’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 or a month, have an impactful financial conversation.

Conclusion

For father’s day, instead of falling into the commercialization trend, let’s make our fathers proud. Have a father’s day money talk with dad. This talk will not only impact your father and show him that you are thinking about his future, but will also help you organize yourself to better care for him.  Buying shirts, cards, or tools is a nice gesture. But having a financial chat with dad is impactful. Be impactful on this father’s day and show dad how much you truly care.

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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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Pay yourself first

It’s Best To Pay Yourself First

Money Maroon

If you are working and cannot afford to save, it may be time to take a step back and pay yourself first. From any pay check, no matter the value, it is incumbent upon you to ensure that a first portion of your pay check goes into your personal account. If you cannot trust yourself to perform this task consistently, automate. The simple fact is, if you are not paying yourself,  you are working to pay others. You are essentially building another person’s empire while neglecting your own.

Why Pay Yourself First

You should pay yourself first because if you do not, you run the risk of not paying yourself at all. Have you ever received a paycheck and after paying all your bills, you have a zero or a negative balance? Have you had money in your account after paying your bills, and that money quickly disappears due to frivolous spending? 

These situations occur when you do not pay yourself first. If you do not pay yourself first, it is likely that you will end up not budgeting and over spending, or you will simply spend what you have because you have not assign a task to that money.

By paying yourself first, it forces you to budget. For example, if your monthly salary is  $5000, and you automatically pay yourself by saving $1000, you really have $4000 to spend for that month. That $1000 makes a huge difference. You will no doubt adjust to having $4000 and will stop thinking about making $5000 per month. By having this mindset shift, you will live on $4000 and not $5000. By paying yourself first, you will force yourself to live below your means and budget accordingly.

Pay yourself first
If you are not paying yourself first,  you are working to pay others. Stop building another person’s empire while neglecting your own.

Force Budgeting

For many of us, budgeting can be difficult. It is difficult not because it is a mentally difficult task. It is typically difficult because if forces us to track our spending over a long period of time. Budgeting forces us to itemize what we are doing and forces us to be conscious of every purchasing decision. 

By paying yourself first, we are pushed to budget without actually making a budget. In the example above, if you are paying yourself $1000 per month on a $5000 monthly salary, you must now live on $4000 per month. You are in a force budget situation. You are forced to curb your lifestyle from one that spends $5000 per month to one that spends $4000 per month. This is not an easy feat for many, but it can be done. By cutting out a few items, you will be surprise by how much you can save.

If you do not budget and live beyond your means, paying yourself first becomes a moot point. The interest on your debts will easily out pace your savings. To get ahead on your financial journey, it is important to live below your means. Paying yourself first helps facilitate this mindset change.

Pay Yourself First And Build Your Empire

Let us not forget, if you pay yourself first, you are building your financial legacy and not someone else’s. Think about shopping at Walmart, buying a car, or any other consumer goods, by making that purchase your are making someone else’s family rich. If it is not the Waltons, it’s the Porsche’s or the Cargill’s, by spending you may be enriching the Dell’s or the Knight’s. You may get a fleeting enjoyment from your purchase, but someone else’s family just got your money. Your temporary satisfaction is building another family’s permanent wealth.

However, if you pay yourself first, your are building your own empire and not someone else’s. Pay yourself first and you are growing wealth. Money that you typically spend on consumer goods go to your investment/savings account. You are growing, you are opening up opportunities and will be afforded all the advantages that comes with being financially secure. Pay yourself first and lay the foundation for a financially secure future.

Conclusion

If you are working and cannot afford to save, it may be time to take a step back and pay yourself first. From any pay check, no matter the value, it is incumbent upon you to ensure that a first portion of your pay check goes into your personal account. If you cannot trust yourself to perform this task consistently, automate. The simple fact is, if you are not paying yourself,  you are working to pay others. You are essentially building another person’s empire while neglecting your own.

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Billionaire

The Billionaire And You

Money Maroon

The word billionaire is thrown around daily. But have you actually stop to think about what it really means. Yes, being a billionaire is having more than being a millionaire and who would not want to be that wealthy. But by comparison, what is the billionaire status compared to the average person. When you look at a comparison, it is truly mind boggling.

The Billionaire Compared To The Average Person

To get a full and clear understanding of what it means to be a billionaire, let us compare to the average household. In this comparison, we use the median household income because the median provides a better representation of central tendency as compared to the mean. Essentially, the median income gives us a better view of the average household income because the mean can be skewed by those in the super rich/super poor.

The median household income was $68,703 in 2019. In most parts of the US, the cost of rent/mortgage + child care would easily exceed this amount. But let us put this total in the context of a billionaire. If we do the simple math of $1 billion divided by $68,703, it tells us that it would take a person/family making $68,703 a year 14555 years to earn $1 billion. To be clear, it would take a household making the median income over 14 thousand years to earn a billion dollars. This is absolutely eye opening.

This further demonstrates why it is so financially dangerous to try and keep up with the Jones. The wealth disparity between you and the Jones can be so vast that it can take thousands of life times to amass comparable resources.

Billionaires

When we talk about billionaires, we must acknowledge those who have risen to this level of wealth. This includes Jeff Bezos, Elon Musk, Mark Zuckerberg, Warren Buffet and Bill Gates. These individuals have done extraordinary things and do deserve their wealth. But you can’t help but ask, when is enough, enough? With such accumulation of wealth, what is the plan? We know that if these individuals try, it would be a monumental task to try and succeed in spending all this money. No matter the interest rate or the return on investment, a billion dollars will accumulate so much on a yearly basis that it is really almost impossible to dispose of such sums of money. Not too many billionaires go broke.

Billionaire Fortunes Since The Pandemic

As our conversation about billionaires continue, it becomes factually crazy that many of these individuals have increased their wealth during the pandemic. For example, Jeff Bezos is reported to have increased his wealth by about $70 billion and Elon Musk has reportedly increased his wealth by about $132 billion. While the math is simple, the more you have the more you can make, it is mind blowing to imagine the difference between someone of Jeff Bezos’s wealth and that of the median household. It is a matter of $187 billion vs $69 thousand ($187,000,000,000 vs $69,000). The difference is a lot of zeros.

While the average household is thinking about mortgage/rent and child care, billionaires are thinking about legacy. And why not, the financial difference is truly a sight to see. The simple fact is, the purchase of a mega yacht to a billionaire may be comparable to you purchasing a shoe. While the cost matters, it does not change your life financially. Keep this in mind the next time you hear of someone purchasing a mega yacht, helicopter or an island. The billionaires can afford it.

Billionaire
I want to be a billionaire, don’t you?

Conclusion

The word billionaire is thrown around daily. But have you actually stop to think about what it really means. Yes, being a billionaire is having more than being a millionaire and who would not want to be that wealthy. But by comparison, what is the billionaire status compared to the average person. When you look at a comparison, it is truly mind boggling.

So why did we write this article. We wrote this article to show that we sometimes do not truly appreciate the sums of money that we discuss on a daily basis. It is only when we break it down and compare do we begin to see the full scope. Next time you hear/see the term “billionaire” realize that it would take the average household over 14 thousand years to earn that sum. 

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