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How Money Works Educator - Carl DeBard

Carl DeBard

HowMoneyWorks Educator

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Englewood, CO 80112

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August 2, 2022

Is Your Cash Flowing?

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Is Your Cash Flowing?

August 2, 2022

Is Your Cash Flowing?

How much cash do you have left at the end of the month after you’ve covered the essentials AND treated yourself? (I’m guessing not much.)

Wish your paycheck went a little further? You’re not alone—not by a long shot. Most Americans are living paycheck-to-paycheck and saving little to nothing. So how do you increase your cash flow so you can stop living in the Sucker Cycle and start saving and investing more?

In the book, HowMoneyWorks, Stop Being a Sucker, we attack this challenge head on in Milestone 5 of the 7 Money Milestones.

Here are a few tips to get your cash flowing towards your future…

Redirect your cash flow

There are a million little things that siphon away your paycheck. Credit card debt, monthly subscriptions, and your fast food habit all chip away at your income. This “death by a thousand cuts” is a foolish spending cycle that prevents you—and countless other suckers—from creating an emergency fund, protecting your income, and building wealth for the future.

That’s why it’s so important to make and maintain a budget. It’s like a map of where your cash is going. Once you have that knowledge, you can figure out where you need to dial down your spending and start redirecting your cash. Don’t get too detailed. You don’t need to get overwhelmed by spreadsheets. Try creating a one-page list of expenses, freeing up as much cash as possible. Take your budget to your financial professional and discuss how best to use this available cash.

Open up new income streams

Budgeting and cutting back on spending might not be enough. Life throws plenty of unexpected (and expensive) problems at us that might not have a budgeting solution. You may need to look for new income streams to maintain the lifestyle you want while also saving for the future.

You’d be surprised by how many possibilities there are to create additional income streams—many of which offer the chance to make money from home. Maybe now is the time to discover that your favorite hobby or area of interest is actually a way to earn some cash. That could look like a side hustle or weekend gig, but you might find that your skills and ideas are full-time business opportunities just waiting to happen! Research which of your ideas and skills are in demand, figure out how much time and effort it will take to get started, and decide how much time you’re willing to commit. (It could be easier than you think!)

Increasing your cash flow can open up a whole new world of opportunities. That extra money you have from cutting back on takeout and streaming services could be how you fuel the power of compound interest and finally start saving for retirement. That several hundred dollars you bring in from teaching guitar lessons each month could be how you pay off your credit cards and free up even more cash. There’s no doubt your options can really open up once your cash starts flowing!

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Exposing the Greatest Threat to Your Financial Insecurity

July 21, 2022

Exposing the Greatest Threat to Your Financial Insecurity

If you feel like your finances are teetering on the edge of disaster, there’s a likely culprit—financial illiteracy.

Do you agree or disagree with these statements?

1. I am one recession away from financial disaster. 2. It wouldn’t take much to derail my retirement strategy. 3. There’s a fine line between grand financial finale and grand financial failure.

The statements are adapted from research designed to test relationship security. They aren’t dependent on your income or savings level. Instead, they measure something far more relevant—how you feel about your finances.

And if you’re like many, you agree with most, if not all of those statements. It’s an indication that you feel financially insecure. And there’s a reason for that…

It’s because your finances are in grave danger.

It’s not your fault—nobody taught you how to create financial security. In fact, you may not have learned the basic building blocks of growing wealth, much less how to protect against losses, inflation, or tragedy.

So is it any surprise that your finances feel like a house of cards? And since you’re an intelligent, normal human, you can feel the looming threat of collapse. It weighs on you, makes you anxious.

And it should—your feelings are a blaring alarm announcing that your situation is precarious, and you need to act.

But you can’t respond to danger until you identify what’s wrong. And the greatest enemy of your financial security? Financial illiteracy.

Think about it—would your finances have reached this point if you knew how money worked? Of course not!

If you knew how to actually build wealth and avoid financial blunders, you likely would have chosen a completely different path.

So the antidote to your feelings of financial insecurity is simple—learn how money works. Then, apply your knowledge. You may be surprised by the new sense of security that appears in your life.

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Lessons from Las Vegas

June 28, 2022

Lessons from Las Vegas

Why are so many people so bad with money, even though they know it’s important?

There’s an article from Psychology Today titled “The Psychology of Money.” It was published in 1995, but the central question still rings true—why do people sacrifice so much for money, only to blow it all?

Michael Ventura, the author, asks the question in the context of Las Vegas, where hard earned money goes to die. He paints a vivid picture of brightly lit casinos packed with overweight middle-aged men in casual clothes hunched over blackjack tables and slot machines.

Not one of them looks happy.

They likely don’t talk much with their spouses.

They spend a few minutes each week in conversation with their kids.

All they do is work. Their income and financial resources define their social status.

And yet here they are, gambling it all away and hating every second of it.

And again, it begs the question of WHY? Why the insane urge to unravel everything they’ve worked so hard to create?

Here’s a thought—what they’re doing at the casino isn’t too far off from what the sucker does every day. They throw away money in hopes of a rush, and wait to see how the cards fall.

Think about it—they work and work and work for money, but for what? So they can buy a house, a car, and maybe take a nice vacation. Maybe they think it will make them happy. But what does that really get them? A bigger mortgage, higher monthly payments, and the constant worry about losing their job and being unable to make ends meet. They don’t know how to use their money to build wealth or a stable, happier life. How could they?

They’ve never been taught.

The casinos of Vegas call their patrons suckers. Banks give you a sucker on the way out the door. They both leverage the same Sucker Cycle, the same psychology.

So what’s the lesson from Las Vegas? That everyone’s a sucker? That you’ll never be good with money?

No.

The lesson is that you must learn how money works. You must realize that something better is possible with your money. With your life. That you actually have what it takes to make decisions. To write a story with a better ending than hunching over a slot machine with a blank expression on your face.

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4 Simple Steps to Streamline Your Housing Budget

May 10, 2022

4 Simple Steps to Streamline Your Housing Budget

Decreasing your housing budget may mean more money in your pocket.

That’s because housing is the single largest expense for most Americans.¹ Reducing mortgage payments or rent by even a fraction can free up substantial cash flow.

The best part? You don’t have to move into a shack to make it happen. Here are a few strategies to increase cash flow by decreasing your housing costs.

Choose the suburbs over the city. On average, suburbanites save $9,000 per year on housing and child care when compared to city-dwellers.² By and large, the money you may save on the cost of living in the suburbs can outweigh the added transportation expenses. It’s not a shift for everyone, but relocating further from the city might make sense financially, at least for the short-term.

Rent until you’re ready. It’s worth considering leasing a house or apartment until you’re financially positioned to buy a house. Even if a mortgage payment seems cheaper on paper than renting, ownership can come loaded with unforeseen expenses. Flooded basement? That’s on you. Broken furnace? Also on you. Renting isn’t necessarily a permanent long-term strategy, but it beats potentially going into debt covering surprise repairs that are beyond your budget.

Find a reliable roommate. Sharing the cost of housing can free up a significant portion of your cash flow, especially in expensive cities. In New York City, for instance, having a roommate can save you up to $15,500 every year.³ Just be sure you take on a roommate that doesn’t flake out when rent is due.

Rent out a room. If you’re a homeowner with room to spare, consider leasing space to a trusted friend. The extra income can offset the cost of mortgage payments and result in more cash flow going toward saving, investing, or even paying off the house faster.

Contact me if you’re interested in learning more about how budgeting fits into an overarching financial strategy. We can review your income and expenses and make a game plan for how you can stop spending like a sucker and start saving like the wealthy.

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¹ “American Spending Habits in 2020,” Lexington Law, Jan 6, 2020, https://www.lexingtonlaw.com/blog/credit-cards/american-spending-habits.html

² “City vs. Suburbs: Where is Better to Live?,” The Perspective, 2020, https://www.theperspective.com/debates/city-vs-suburbs/

³ “What a Roommate Saves You in 50 U.S. Cities – 2020 Edition,” Nadia Ahmad, SmartAsset, May 11, 2020, https://smartasset.com/checking-account/what-a-roommate-saves-you-in-50-us-cities-2020

Can You Budget Your Way to Wealth?

April 19, 2022

Can You Budget Your Way to Wealth?

Budgeting is good, budgeting is great. But if you’re building wealth, it will only get you part of the way.

Budgeting is usually the first move for anyone getting their finances in order. It’s basically just tracking your expenses against your income, and then slashing spending.

Consider that 64% of Americans live paycheck-to-paycheck.¹ Low income isn’t to blame—48% of families earning over $100,000 also live paycheck-to-paycheck!² So for many, budgeting is an absolute necessity.

But will budgeting alone put you on the fast-track to wealth? Probably not.

Let’s say you earn $45,000 per year (after taxes), but you spend $45,000 every year. Congratulations! You’re living paycheck-to-paycheck. When you decide to get serious about building wealth, you’ll face a stark reality—you have no money left over to save!

So you start budgeting. You move from your apartment in midtown to a hovel in the suburbs. You stop going out. You cook at home. You walk to work. You swap lightbulbs for candles. You scrap Netflix, Spotify, and cable—and you start whittling random sticks you find in the yard to pass the time.

By the end of the year, you’ve spent only $30,000. Good for you! You have $15,000 to devote towards building wealth.

But what if you’re still short of your savings goals? You’ve cut spending to the core. Unless you’re willing to scavenge for food and live in a tent, cutting your spending further is going to be tough.

You only have one option—boost your income.

What does that look like? It could look like scoring a promotion. Or getting a new job. It could also look like starting a side hustle or becoming a part-time entrepreneur. You actually may be surprised at how many of your talents and hobbies have income-boosting potential!

That’s why for the 7 Money Milestones in the book How Money Works: Stop Being a Sucker, budgeting and boosting income are rolled together into a single Milestone—Milestone 5: Increase Cash Flow. Budgeting will get you started, but to truly supercharge your savings, you’ll need to increase your income stream, or create a multiple income streams.

Think about it like this—Jeff Bezos drove a Honda Accord for decades, but that’s not what made him a billionaire. Rather, he began with frugality and then built an income-generating empire.

So if you’re just beginning to build wealth, start with budgeting. Clean up your spending as much as possible before boosting your paycheck.

If you’re already frugal, good for you! You’ve made a great stride towards building wealth. Now, it’s time to consider boosting your income further.

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¹ “As inflation heats up, 64% of Americans are now living paycheck to paycheck,” Jessica Dickler, CNBC, Mar 8, 2022, https://www.cnbc.com/2022/03/08/as-prices-rise-64-percent-of-americans-live-paycheck-to-paycheck.html

² “48% of Americans making over $100,000 live paycheck to paycheck, report says,” Andrew McMunn, Action 5 News, Mar. 8, 2022, https://www.actionnews5.com/2022/03/08/48-americans-making-over-100000-live-paycheck-paycheck-report-says/

A Bold Strategy to Free Up Cash Flow

April 7, 2022

A Bold Strategy to Free Up Cash Flow

Need cash flow? Consider reducing your largest expenses.

Housing, transportation, and food consume more than 60% of the average American’s income.¹ If you’re willing to cut costs in those categories by just a fraction, you could save far more than eliminating smaller budget items. Think of it like this—cancelling a few unused online subscriptions is a good start, but it might not save you nearly as much as downsizing your apartment!

Here’s how it works…

You’re ready to get your financial house in order, attack your debt, and start building wealth. Let’s say you earn about $70,000 per year. $40,000 goes towards housing, transportation, and food, you spend $5,000 on non-necessities, and the rest goes towards insurance, healthcare, and education.

Looks good, right? But when you crunch the numbers, you realize you can’t put away enough each month to reach your savings goals. What a momentum-killer! How are you going to free up cash flow?

By totally eliminating non-necessities like coffee from the shop and streaming services, you could get back $5,000 dollars a year.² Not bad, but not great either.

Or—to save twice as much—you could scale back your housing, transportation, and food expenses by 25%. It might seem radical, but it’s worth considering if it can help get you to your goals.

The takeaway? Before you hack away at your lifestyle, consider your non-discretionary spending. It’s an aggressive strategy, but ask yourself if there are ways you could slash your rent, mortgage payments, car payments, and grocery bill. If so, take advantage of them—they could free up far more cash flow than by just cutting non-necessities.

Not sure how to cut back on your top expenses? Stay tuned for creative strategies for reducing your spending on housing, transportation, and food. Articles that outline how you can save money on the largest items in your budget are on the way!

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3 Painful Consequences of Minimum Payments

3 Painful Consequences of Minimum Payments

Do you send in more than the minimum payments on your credit cards each month? (The correct answer is ‘yes.’)

If you are making more than the minimum payments now—you’re thinking like the wealthy!

A minimum payment is the lowest amount you can pay on your credit card bill without suffering a late payment penalty. We all know making minimum payments may be necessary for a short period if you’re freeing up cash flow to pay down a bigger, more urgent bill. However, paying just the minimum for the long haul can lead to long-term negative consequences.

Just like any time you have to deal with challenges in life, considering long-term consequences is vital to success. It can wake you up from thinking and acting like a sucker with your money. It can give you the laser focus needed to pay off debts so you can start building wealth. What’s at stake? You know, just your future.

So what are those looming, long-term consequences of making only the minimum payments on your credit cards?

Consequence #1: You end up paying mostly interest forever. OK, maybe not forever, but it will feel like it. By making only the minimum payments over a long period of time, you’re basically giving the credit card company free money—your money. You’re not even paying down the principal for the item you originally purchased with your credit card. You’re basically paying a subscription to the credit card company for holding your debt—a monthly service for which you get nothing.

Here’s an all-too-common example:

Let’s say that an unexpected expense tightens your budget. As it stands, you owe $10,000 in credit card debt at a 20% interest rate with a minimum payment of 2%. In order to cover the basics like housing, food, and medicine, you drop your credit card payments to the minimum amount of $200 monthly.

In this scenario, it will likely take more than 30 years and interest payments of over $35,000 to fully eliminate your credit card debt. The credit card company becomes richer, and your financial future is squandered.
 Consequence #2: You can hurt your credit score. When you hold high debt on a credit card for a long period, even if you’re making minimum payments on time, your credit utilization ratio (or the percentage of available credit you’re using) can rise. If it remains above 30% of your credit card limit for long, your credit can take a substantial hit¹—hurting your ability to borrow for a car, education, or home mortgage—and hinder qualifying for lower interest rates on those loans. This all equals financial limitations for your future—less cash flow, higher interest payments, less money to save for the future.

Consequence #3: You never start saving. Today, the responsibility to save and build wealth falls on the consumer—that’s you! Your 401(k) and Social Security check may fall dramatically short of providing the income you need for the lifestyle you want during retirement. The earlier you start saving, the better chance you have of closing the gap on the money you need for the future. Paying minimum payments on your credit cards is a dangerous habit that can prevent you from saving enough.

You don’t have to fall victim to these consequences. You can create a strategy to knock out your credit card debt by paying more than the minimums. How much more? As much as possible—until your credit card debt is gone. That big sigh of relief and your new ability to save will be well worth it!

An important caveat: Paying the minimum on a credit card while you build an emergency fund or pay down another debt can be advantageous, as long as you’re working with a licensed and qualified financial professional to reduce debt methodically.

Learn more about reducing debt in the book, HowMoneyWorks: Stop Being a Sucker. Email, text, or call me to discover how you can get a copy ASAP!

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No One Has Money

No One Has Money

No one has money. You may think other people have money, but they don’t.

For each generation, it’s the same.

They don’t get taught how money works from K-12.

High school graduates head off to college. They don’t learn how money works there, either.

College graduates enter the workforce and start earning a paycheck… and spending their paycheck.

Soon, they enter a cycle of foolish spending. Earn a paycheck. Spend a paycheck. Earn a paycheck. Spend a paycheck.

They join the hundreds of millions living paycheck-to-paycheck. Always spending. Barely saving, if at all.

When retirement finally arrives or accidents or illness occur later in life, a terrible realization dawns on them…

They have no money.

According to a recent survey…1

◼ Gen Z adults have saved an average of $37,000 for retirement ◼ Millennials have saved an average of $63,300 for retirement ◼ Gen-Xers have saved an average of $98,900 for retirement ◼ Baby Boomers have saved an average of $138,900 for retirement

Only Gen Z and Millennials are even close to being on track for retirement. Gen-Xers and Baby Boomers fall short of bare minimum savings by over half.

It’s not for lack of income—many Americans make enough to put their money to work.

Rather, it’s because they lack knowledge. They just don’t understand how money works beyond earning and spending.

The takeaway? If you’re a Gen-Xer or Baby Boomer, the time to start building wealth is now.

But for your income and skills to translate into wealth, you need tools. You need concepts like…

The Power of Compound Interest

The Time Value of Money

Wealth Equivalency

These concepts will help you answer questions like…

◼ What interest rate do I need to close the gap between my savings and my retirement goals?

◼ How much do I need to save each month to retire with $1 million?

◼ Should you save a nest egg or start a business?

If those are answers you need to get, ask me how you can learn. I’d be happy to introduce you to resources that can set you on the right path towards discovering how money works and building wealth.

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¹ “Here’s how much money each generation has saved for retirement,” Nicholas Vega, CNBC Make It, Aug 20 2021, https://www.cnbc.com/2021/08/20/how-much-each-generation-saves-for-retirement.html

Preparing For Emergencies In The Face Of Inflation

February 24, 2022

Preparing For Emergencies In The Face Of Inflation

Your emergency fund may be rapidly losing value.

Despite your best efforts and planning, you and your family’s first line of financial defense might be eroding day by day. And it’s all because of inflation.

Here’s what’s happening…

Inflation is the steady increase of prices over time. A jug of milk that costs $2.85 one year could cost $3.00 the next. On average, prices have inflated at 3.25% annually since 1914.¹

But in 2021, inflation exploded. The market faced a perfect storm of low interest, pandemic-fueled supply chain problems, and consumers returning to stores. Demand soared while supply shrank.

The result? Consumer prices increased 7% in 2021, the highest rate since 1982.²

That means everything is increasing in price… including the services you need in emergencies.

But here’s the problem—it’s a challenge for your emergency fund to outgrow inflation.

Why? Because above all else, your emergency fund must be both accessible and stable. What good is an emergency fund if you can’t use it in a pinch or if it gets leveled by market fluctuations?

And good luck finding an account that’s accessible, stable, AND pays interest that’s greater than inflation. In today’s climate, it can be difficult to find a “high interest” savings account that pays more than .5%. Read that again. Not 5%. Point 5 percent.

The question then, isn’t if your emergency fund can outgrow inflation. It’s about minimizing the damage.

Here are two ideas that may make the difference between financial success and disaster in the face of emergencies…

Increase your income. It’s simple—the more you earn, the better positioned you are to navigate emergencies. Look for ways to increase your income through side hustles, a new opportunity, or even negotiating higher wages with your current employer.

Just remember—not all sources of income are created equal. The income from your job, for instance, has two critical weaknesses…

  1. It may dry up if an emergency stops you from working
  2. Wages haven’t kept pace with inflation for decades

In short, the best sources of income for emergencies work even when you can’t, and empower you to control your own wage.

Some options are…

Turning a hobby or passion into a side-hustle Starting a business that eventually becomes self-sustaining Creating and selling duplicatable items like books, courses, music, etc.

Split your emergency fund. If you have a substantial emergency fund you could split it between two accounts. One half would grow slowly but remain easily accessible and stable. The other half would grow faster but be less accessible and more volatile.

Be warned—this strategy will only work if you have substantial emergency savings. Before you opt for this approach, consult with your financial professional.

Shielding your emergency fund from inflation is possible, but it takes the right strategy. It’s always wise to consult with a licensed and qualified financial professional before committing to a strategy.

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¹ “United States Inflation Rate: Stats,” Trading Economics, https://tradingeconomics.com/united-states/inflation-cpi#:~:text=Inflation%20Rate%20in%20the%20United,percent%20in%20June%20of%201921.

² “Inflation reaches highest level since 1982 as consumer prices jump 7% in 2021,” Paul Davidson, USA Today, Jan 12, 2022, https://www.usatoday.com/story/money/2022/01/12/cpi-2021-consumer-prices-climbed-7-2021-fastest-pace-since-1982/9178235002/

³ “For most U.S. workers, real wages have barely budged in decades,” Drew Desilver, Pew Research, August 7, 2018, https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/

Why the Wealthy Start Businesses

December 17, 2021

Why the Wealthy Start Businesses

It’s a fact—the wealthy start their own businesses.

Here’s a breakdown of the top ten richest people in the world…

One investor.

One CEO.

One heir.

Seven entrepreneurs.¹

That’s true further down the totem pole as well. Fidelity Investments research revealed that 88% of millionaires are self-made entrepreneurs.²

Why? Because businesses can create wealth that equals or surpasses savings, often in a quicker time frame.

Here’s how it works…

Let’s say your ideal retirement income is $5,000 per month. Just enough to rent a beachside condo, enjoy a night on the town once in a while, and visit the grandkids whenever you want.

But where will your retirement income come from? Not a job—remember, you’re retired!

Standard procedure is to save a nest egg and live off the interest. In this example, you would have to save $1.4 million at 5% interest to generate $5,000 monthly income.

That goal is fine if you’re 25 with enough cash flow to put away some each month. But what if you’re closer to retirement? You simply don’t have the years needed to unleash the power of compounding interest to grow your savings. You need retirement income, and you need it now.

That’s where starting a business can help.

As the business grows, the hope is that your income will too. If and when you reach your target income, you should have a strategy in place to step away from active operational management of the business and still enjoy cash flow. After all, you’re the one who took the risk of starting it!

This concept is called Wealth Equivalency. Simply put, building a business can create an income stream equal to living off the interest of your savings.

That’s why the wealthy start businesses. They know it’s an opportunity to create an income that’s equivalent to saving millions for retirement in a much shorter time frame.

So here’s the question—which one is more feasible for you?

Saving a nest egg that generates a $5,000 monthly income?

Or building a business that generates a $5,000 monthly income?

If you’re young, the answer might be saving. With time and compound interest on your side, you can build the wealth you need to retire with confidence.

But if you need income NOW, consider imitating the wealthy and starting a business. It may create an income that rivals saving on a far more realistic timetable.

Best of all, with the right mentorship and strategies, entrepreneurship doesn’t have to be a leap of faith. In fact, it can leverage skills, relationships, and hobbies that you already have!

If you want to learn more about creating a sustainable income for retirement, let’s chat. We can review your situation and see what strategies you can leverage to face the future with confidence.

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¹ “The 10 Richest People in the World,” Dan Moskowitz, Investopedia, Dec 8, 2021, https://www.investopedia.com/articles/investing/012715/5-richest-people-world.asp

² “The Ultimate List of Entrepreneur Statistics 2022,” Jack Steward, Findstack, Dec 5, 2021 https://findstack.com/entrepreneur-statistics/

How Inflation Eats Up Your Savings

How Inflation Eats Up Your Savings

Inflation is financial erosion, a slow and steady force that eats away at the value of money—YOUR money.

Here’s how it works. The trend is that over time, the prices of goods and services tend to rise. As a result, the purchasing power of your paycheck, your savings, and your retirement income is reduced.

The sucker ignores inflation—an abstract concept they may feel they have no control over. But the wealthy understand inflation and prepare for it—calculating the impact into their budget, their future purchases, and their retirement goals.

Here’s an example that drives it “home”…

Let’s say that in 1980 you received a $100,000 inheritance check. You were diligent enough to put the money into an account earning 2% annual interest. Your hope was that one day it would grow and be enough for you to afford a $200,000 dream home—a brick estate with a one acre yard, five bedrooms, three garages, and a pool in the back.

After waiting patiently for 40 years, retirement has arrived. The growth of your inheritance money had exceeded your goal—you now have over $220,000. Time to buy your dream home!

But while you waited, inflation was growing too. It increased at the average annual rate of 3.1%—more than tripling the average costs of goods… and houses.¹

Your $200,000 dream home with three garages and a pool in the back is now for sale at over $600,000.

The takeaway is that you can never ignore the impact of inflation on your goals for the future. You need to know how it could impact the value of your 401(k), the equity in your home, and the death benefit of your life insurance policy.

If you haven’t factored in the impact of inflation on your dreams for the future, there’s no time like the present. Consider scheduling a conversation with your licensed and qualified financial professional today to discuss strategies to beat inflation!

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¹ “Average Annual Inflation Rates by Decade,” Tim Mcmahon, InflationData.com, Jan. 1, 2021, https://inflationdata.com/Inflation/Inflation/DecadeInflation.asp

Face it. You’re a Sucker

September 30, 2021

Face it. You’re a Sucker

Most people don’t know how money works.

In 2018, a global survey asked over 100,000 people in 15 different countries 3 simple questions about interest, inflation, and risk diversification. 70% failed to answer all three basic questions correctly.1

The cumulative effect of that lack of knowledge can result in some sketchy decision making. So are you wondering how you’d do? See if you know the answers to the following questions…

• How much interest will you pay over the life of your car loan? • What about over the life of your mortgage? • How much life insurance do you need to protect your family financially? • How much do you need to save for retirement? • Are you on track with that? • If you’re not on track, at what age will your money run out? • How much will Social Security pay you each month? • How much monthly income will your 401(k) provide? • How old will you be when it runs out?

If you can’t answer questions like these, ask yourself if you’re like so many others who assume there will always be enough and hope everything will turn out OK.

How is that possible?

A lifetime of wild guesses and blissful ignorance explains why so many people facing retirement panic when they see how little they’ll be forced to live on for the rest of their days. Is this true for you? If so, you could find yourself saying “Wow! I thought it’d be a whole lot more.”

It’s time to face it. You’re a sucker.

Does that offend you? Good, it should. Let it be a wake-up call. When you don’t know how money works, you can be taken advantage of time and time again.

You’re a sucker. Own it and you’ve taken the first step toward not being one.

Being financially illiterate sucks. But knowing how money works will help you transition from sucker to student and from student to master. The whole point is never to be fooled again.

Not by banks.

Not by credit card companies.

Not by online offers.

Not by employers.

Not by family or friends.

Not even by the number one person in your life responsible for making money—YOU!

But how do you transition from sucker to student? Well, every student needs a teacher. YouTube videos and online tutorials are great if you need a quick fix around the home. But unless you’re REALLY handy, would you try to tackle a major plumbing job in your house based on a video you watched online? Of course not. It’s too involved and too important. You need someone with experience who does that sort of thing for a living—in other words, you need a plumber. In the long run, your personal finances are even more important than a busted pipe in your home. That’s why it’s critical to work with a licensed and qualified financial professional, who can help you repair your finances and keep them flowing smoothly.

Also, consider shadowing a money mentor. Who do you know that’s financially successful? Become their friend so you can discover what they did (and do) right. Observe their daily habits and how they make decisions. What time do they wake up? How do they use credit cards, if at all? Where do they put their money? Do they make financial decisions with their partner or separately? What you could learn from a financially-savvy friend could pay dividends down the road.

And if you need a beginner’s guide, consider the HowMoneyWorks: Stop Being a Sucker book. It’s a super-readable crash course on the basics of financial literacy that you can read in an hour but think about for a week. Just ask me how you can get a copy!

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¹ “The New Social Contract: a Blueprint For Retirement in the 21st Century —The Aegon Retirement Readiness Survey 2018,” Aegon—Center for Longevity and Retirement, May 2018, https://www.aegon.com/contentassets/6724d008b6e14fa1a4cedb41811f748a/retirement-readiness-survey-2018.pdf

You Are Richer Than You Think

You Are Richer Than You Think

The sucker believes that becoming a millionaire is next to impossible without a 6-figure annual income.

The wealthy know that nothing could be further from the truth.

It’s time to start thinking like the wealthy by recognizing that YOU are richer than you think.

Discovering your hidden wealth begins by following these three simple steps:

  1. Reduce Your Debt
  2. Increase Your Cash Flow
  3. Save More Money

Zoom in to unpack each of these steps…

Reduce Your Debt. Regardless of your salary or income, the first step to becoming a millionaire is to take control of your debt, rather than cursing the bills when they arrive in the mail each month and mindlessly paying the minimums. Taking control requires rethinking, organizing, evaluating, and reducing debt efficiently.

Rethinking means removing the emotion attached to your debt, whatever it may be—anger, embarrassment, shame, frustration, hopelessness. It’s like washing the dishes. A stack of plates and a period of time. It’s just another task to complete.

Write down all of your debts, total balances, monthly minimum payments, and interest rates for each. There they are. You can see them all. Now it’s time for war.

The next step is to evaluate which one to pay off first. Choose the debt with the highest balance or lowest balance—OR choose the one with the highest interest rate. With the first victim selected, start putting all the cash you can muster toward paying off this debt. Instead of buying lattes, burgers, lottery tickets, and that cool new graphic t-shirt—dump your cash into debt payments. You’ll have the rest of your life to fill your closet with new tees. Make sure you continue paying the minimum payments for all your other debts too—on time.

When you make the last payment for the first debt do a little happy dance (really important). Then select the next highest debt or lowest debt, whichever strategy you choose—and put as much monthly cash toward paying it off as you can. Include the money from the minimum monthly payment from the debt you just finished paying off. This gives you a compounding effect to your debt reduction strategy. The more debts you pay off, the bigger your debt paying power becomes and the faster you’ll start reducing those debts. The process will actually become fun as you feel the power that comes from knocking each debt out. Trust me.

Along with paying off your credit card balances, student loan debts, and car loans, you should also take a look at your mortgage if you’re a homeowner. If you can refinance your home for a 1% lower interest rate or even lower, it may make sense as a way to lower your monthly payments and lower your mortgage debt. Make sure you work with your financial professional to see if this is a fit for you.

Increase Your Cash Flow. Now that your debt is moving down, you should have more cash freed up. But when it comes to cash flow, more is always the merrier. Here are some tactics for freeing up even more cash flow so you can make the jump from sucker taking a licking to millionaire in the making.

First, look at your monthly spending. Take the last two or three months and categorize everything that isn’t a necessity. How much did you spend on eating out, clothes, entertainment, impulse buys, home improvement, travel, and gifts? With the total in hand, cut the amount in half. You should also take a close look at your monthly subscription payments—how many streaming services do you really need? Cancel services that you’re not using.

So now you have your new non-essentials budget. Congratulations, you just increased your wealth-building power and simultaneously stopped living above your means!

Second, if you’re employed, request a meeting with your boss and ask for an increase in salary or wage or ask for more hours. All they can say is ‘no.’ If they agree, even if it’s just by a small amount, you just increased your cash flow once again. You’re on a roll.

Third, consider starting your own business. You may have thought about starting one in the past but it wasn’t the right time or you were too busy. Now is exactly the time to seriously examine the possibilities. What have you always wanted to do? What are your talents and abilities? What new business opportunities do these times present?

Fourth, you may not want to start a full-fledged business, but you could have a side gig or hustle to earn a little extra in the mornings, evenings, or weekends. Do you like making things, organizing, cleaning, serving, driving, crafting, zooming, or talking on the phone? What can you do with your time, enjoyments, and skills to make a little extra dough? There are endless opportunities out there for entrepreneurs. Find your fit and boost your monthly income—even if it’s only by a few hundred a month.

You have reduced your debt and increased your cash flow. Now you can use that extra monthly cash to start building wealth. The next step is to save like a millionaire.

Save Money. Saving money on a consistent basis, regardless of the amount, is the true secret to financial victory. The strategy is simple. You take all the monthly cash flow you can spare and start saving it into an account with the best interest rate, growth potential, tax advantages, and principal protection you can find. This is where a financial professional is key. Don’t go it alone.

These habits have created more millionaires than any other story, company buyout, or stock market windfall in the history of the world. The 8th wonder of the world—the power of compound interest—is the magic dust that will always work in your favor if you’ll put it to work.

Saving money is more about the decision than anything else. Just like breaking the cycle of foolish spending, you must DECIDE to save money on a consistent basis. When you do, over the years and decades, you will win because you’re employing the Time Value of Money and the Power of Compound Interest. This is the one-two combo that millionaires use to reach their status.

With a little less debt and a little more cash flow, you can start saving a little bit over a long period of time to become richer than you think—perhaps even a millionaire!

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Why You Must Know How Money Works

September 8, 2021

Why You Must Know How Money Works

There’s an old saying: “What we think about, we bring about.”

The expression holds true over the course of our lives in determining both our struggles and our successes. What you think about becomes your reality.

What will your reality be?

It will largely depend on how you think about money.

If you’re like many, you think primarily in emotional terms. You get excited to buy something new. You grow frustrated when paying bills. Because you find the mechanics of money uninteresting and confusing, you end up like so many others—never learning how money really works.

No big deal, right? But here’s the thing about money. It’s not like cooking, golfing, or any other skill you can get by without. If you don’t know how to properly grill salmon, who cares? If you can’t drain a 20-foot putt, so what? But if you don’t know how money works, you might wake up every day wondering why life SUCKS.

That’s a strong word, but yes, not knowing how money works… sucks. It sucks up your time. It sucks up your freedom. And, most importantly, it sucks up your income. So where does it all go? It goes to your mortgage lender, your credit card company, your bank, Apple, Amazon, Netflix. You know—the guys who know exactly how money works. W.C. Fields said, “It’s morally wrong to allow a sucker to keep his money.”

This is what you’re up against. You become a sucker. They become wealthy.

The world is full of people who are happy to tell you what to do with your money.

Fortunately, you have tools at your disposal to transform your sucker mindset into a money mindset. Here’s how to start:

Test your literacy with the HowMoneyWorks challenge. In five quick questions, you can discover if you have the knowledge you need to help make measured financial decisions and alter your future for the better. Ask me for the link and we’ll review your results together!

Read the HowMoneyWorks: Stop Being a Sucker book. It’s designed to help you learn how money really works so you can stop being a sucker, start being a student, and be the one to call the shots throughout your life with confidence.

Meet with a financial professional. When your car is broken, you go to a mechanic. So why not do the same for your finances? A licensed and qualified financial professional can give you the knowledge you need to answer questions like “How do I get the best rate on my mortgage?” and “How can I pay off my credit card debt?” and “Am I financially prepared for an emergency?” Plus, they’ll help you leverage that knowledge by working with you to prepare a financial roadmap for your future.

Grand failure or grand finale?

You choose. It all starts with your thinking. It all starts with knowing how money works.

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What Does it Mean to Be Financially Literate?

September 1, 2021

What Does it Mean to Be Financially Literate?

People with a high level of financial literacy are able to make informed decisions by putting their financial education to work.

Understanding how money works is practical by nature and can be a make-it or break-it knowledge base and skill set for one’s life. Financially literate people are able to organize their money to meet their future goals—regardless of what those goals may be—by simply being smart with money. This is usually best accomplished with the assistance of a financial professional.

Financial literacy is becoming increasingly essential in today’s evolving world. A lack of financial literacy could lead to a wide number of financial difficulties for people, contributing to important social issues in our nation including poverty, job scarcity, and wealth inequality.¹ It can also create stress that can have a negative impact on mental and emotional health.² Financial skills can help provide benefits that go beyond mere financial awareness. They can also lead to an improvement of personal well-being because those who are financially literate usually have greater success and peace throughout their lives.

To understand what financial literacy means it’s important to know and follow the correct steps—like the 7 Money Milestones—which can be found in the book HowMoneyWorks: Stop Being a Sucker. Having financial literacy adds to the values, skills, and self-confidence necessary to make insightful, strategic money decisions. Yes, becoming financially literate takes a little work, but the outcome can greatly improve quality of life.

Financial literacy helps people understand relevant money concepts. Knowing about the Time Value of Money is a great example. This concept informs us that the money available now is worth more than the same amount in the future because of its ability to earn interest. Concepts like this create urgency, inspiring people to increase their financial education, and then use that knowledge to take action and create healthy money habits.

Financially literate people: <br> - Ask the right questions of their financial professional

- Are aware of the reasons behind their decisions

- Set aside part of their income on a regular basis

- Make plans for the future

- Protect their family in the event of sickness or premature death

- Set financial goals and make plans to achieve those goals

- Set aside savings for emergencies

- Keep their financial obligations under control

- Monitor their spending patterns

- Understand concepts such as loans, credit, and debt

- Are aware of the services banks provide

- Are knowledgeable about investment options

- Do not spend more than they earn

- Have an understanding of tax-related issues

One of the best resources that teaches the basic knowledge, skills, and behaviors of a financially literate person is the HowMoneyWorks: Stop Being a Sucker book. If you develop the skills outlined within, you can consider yourself well on your way to becoming financially literate.

— Tom Mathews

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¹ “COVID showed why we need to make financial literacy a national priority,” Carrie Schwab-Pomerantz, Fortune, Sept 24, 2020, https://fortune.com/2020/09/24/personal-financial-literacy-health-schwab/

² “The Link Between Physical and Financial Health,” Marcus by Goldman Sachs, Feb 27, 2020, https://www.marcus.com/content/marcus/us/en/resources/personal-finance/physical-and-financial-health

“FL 101” - Financial Literacy For College Freshmen

“FL 101” - Financial Literacy For College Freshmen

College can be a lot of things. Fun. Scary. Exciting. Confusing.

But one thing is for certain—it’s that time of life when students finally break away from their parents and start making their own decisions—like how to spend their money.

And it turns out they have no clue what they’re doing in that department—statistically speaking.

Only 35% of students entering university have received any previous financial education.¹ Is not knowing how money works the major reason why freshmen blindly contribute to the $1.5 trillion of total student loan debt that exists?² Of course it is. But taking on giant loans without understanding the full magnitude of their decision isn’t the only financial mine lying in wait for undergrads. According to Sallie Mae, in 2019 the average college student had $1,183 in credit card debt—a 31% increase from 2016!³

Massive student loans and thousands in credit card debt don’t position students well for post college success, prompting many of them to take a job they don’t care about, in a field they don’t want, for a boss they don’t like. The obligation to make debt payments, which the student once thought was far in the future, now robs them of their freedom to explore, grow, and develop.

If only they had been given a true financial education in high school—or even before, they would have learned the following financial literacy basics for college freshmen…

1. Manage your debt. Student loans help millions of students fund an education that, on average, is worth about $2.8 million over the course of their lives.⁴ But it’s important to highlight that debt is nothing to take on lightly. Many students are unaware of the heavy burden they’re acquiring in the form of student loans and credit card balances.

The company Student Loan Planner reports that roughly 90% of borrowers experience significant anxiety due to their loan burden.⁵ Couple that with a 2015 survey by Equifax that revealed 55.7% of students listed ‘student loan debt’ as their top reason for not being able to afford their first home.⁶

Along with student loan debt, the average college student holds a credit card balance of $1,183. Credit cards for students are often justified as a necessary lifeline to cover living expenses. In reality, they’re often used for frivolous, impulse purchases that contribute to 49% of students being saddled with permanent credit card debt in addition to their student loans.¹

If you can’t avoid using student loans and credit cards to afford your education and living expenses, follow these guidelines to help remove debt swiftly after graduation. With your psychological and financial future at stake, the key is to reduce your debt before an onslaught of new expenses (i.e., your mortgage, children, car payments) make it even harder to pay off.

First, get a part-time job or side-hustle if you haven’t already. Second, identify your credit card with the lowest balance. Third, put as much of your income towards eliminating that debt as you can. Once that’s done, move on to the next lowest card. Repeat until your credit card debt is a hazy memory.

2. Identify a money mentor. There are two ways to gain wisdom. You can either make mistakes or learn from someone else’s. Finances are no different. Never again will you have such a perfect opportunity to find a money mentor than when you’re attending university. It’s like a learning shortcut where you get access to a whole lifetime of experience without a lifetime of making mistakes. You just have to keep an open mind and be willing to establish a real relationship with someone with financial know-how.

Your money mentor could be a parent, a grandparent, an uncle or aunt, the parent of a friend, a professor, or even a responsible upperclassman. Once you’ve identified your mentor, ask hard questions about how to spend and manage money. Pick your mentor’s brain for how they built their wealth, mistakes they made along the way, and advice for specific challenges you face. Show them your budget and have them hold you accountable for your spending decisions. Be willing to put in the work of being open, scheduling and spending time with your mentor, and implementing their advice. The connections and networks you build today will serve you long after you graduate!

3. Start building wealth NOW. Look at your bank account. Then look at your income. They might not seem like much, but they’re the humble beginnings of your future wealth—if you play your cards right! Your money has more growth potential right now than it ever will again. Allow me to demonstrate.

Let’s assume you’re 20 and want to retire at 67 with a million dollars. You find an account with a 9% annual interest rate, compounded monthly. It would only take saving $113 per month to crush that goal. What’s more, you wouldn’t have to increase your saving as you get older to retire as a millionaire. Want to retire with more? Increase it. If you start saving $226 each month now—without ever increasing the amount—you’d have $2 million. If you’ve got the flow, and you want $4 million at retirement—make it $452 each month. Starting young is the most affordable way to build wealth with compound interest.

What if you didn’t start young? What if you decided to wait until you’re 35 to start saving? Those 15 years of procrastination means you’ll have to stash away $451 monthly just to reach your million dollar retirement goal. $452 monthly now for $4 million or $451 monthly starting at 35 for $1 million. You don’t need the wealth of a king or queen to enjoy the freedoms of royalty in retirement—if you start building wealth NOW. It’s your decision whether time robs you or robes you. Even if you start saving with less than these amounts, start the habit now to set aside a regular sum of money for your future.

4. Use a budgeting app. Budgeting is important. It can also be a huge pain if you don’t know what you’re doing. Punching in numbers, setting up spreadsheet formulas, and stressing if that pizza delivery tip counts towards groceries can make tracking your expenses such an aggravating process that you don’t even bother. Fortunately, there are some excellent apps and websites out there that can take the hassle out of money management. Mint and Pocketguard, for example, are free budgeting apps that sync to your bank account and credit cards to allow for real time updates to your spending and saving goals. And it’s all conveniently located on your phone, just a few taps away. Scrap the spreadsheet, do a little research, and download a headache-reducing app ASAP.

A financial education isn’t like a sociology or history class. Those last for a few months, you learn tons of facts, you pass a test, and you move on with your life. Learning how money works is a lifelong process that will impact almost all of your daily decisions and future experiences. Few other skills will open your eyes to the exciting possibilities that life can offer. So hit the books (the How Money Works, Stop Being a Sucker book, to be precise) and start being a student of personal finance TODAY.

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¹ “2019 Money Matters On Campus,” Daniel Zapp, EVERFI, https://everfi.com/wp-content/uploads/2019/05/MoneyMatters-2019.pdf

² “Student Loan Debt Statistics In 2019: A $1.5 Trillion Crisis,” Zack Friedman, Forbes, Feb 25, 2019, https://www.forbes.com/sites/zackfriedman/2019/02/25/student-loan-debt-statistics-2019/#50430199133f

³ “Majoring in Money 2019,” Sallie Mae and Ipsos, https://www.salliemae.com/about/leading-research/majoring-in-money/

⁴ “The College Payoff: Education, Occupation, And Lifetime Earnings,” Georgetown University Center On Education And The Workforce, https://cew.georgetown.edu/cew-reports/the-college-payoff/

⁵ “Mental Health Survey: 1 in 15 High Student Debt Borrowers Considered Suicide,” Melanie Lockert, Student Loan Planner, Sept 4, 2019, https://www.studentloanplanner.com/mental-health-awareness-survey/

⁶ “Millennials, Mortgages and Student Debt,” Rosie Biundo, Equifax, July 14, 2015, https://insight.equifax.com/millennials-mortgages-and-student-debt/

Two Strategies To Destroy Debt

Two Strategies To Destroy Debt

Lugging around, on average, $38,000 of personal debt is exhausting.¹

It can deplete the power of your personal income until you barely have enough left to cover the monthly bills. You know it’s not a matter of IF you should eliminate debt. It’s a matter of HOW.

You have two basic debt destroying strategies at your disposal, each with different strengths and weaknesses. They’re called the Debt Avalanche and the Debt Snowball.

The Debt Avalanche. The Debt Avalanche starts with a bang. Identify the debt with the highest interest rate and immediately begin to pay it down. Make the minimum payments on all your other loans, but direct everything you can at eliminating the largest financial threat you’re facing. Once it’s paid off, take that extra money you’ve freed up and move on to the next highest interest rate debt. You’ll kickstart an unstoppable force of tumbling debt that will carry you all the way down to your smallest payment—and then zero debt.

Technically speaking, the debt avalanche is the most effective way to become debt-free. The math speaks for itself; paying off that high interest loan should free up a significant chunk of cash that can then be used to even more rapidly wipe out the next debt. The smaller rates won’t stand a chance against your newly freed up cash flow and will be swept away in your debt-removal path.

The Debt Snowball. But following the math isn’t always the best strategy. High interest debts can appear overwhelming and it’s easy to get discouraged if you don’t quickly see a dent. All the number-crunching in the world won’t help if you abandon your debt management strategy before you make any significant progress! That’s why the debt snowball leverages the power of psychology. Find your smallest debt on the list (regardless of the interest rate) and pay it down as quickly as possible. You’ll feel good about your accomplishment, as you get the ball rolling. Use whatever cash you freed up from eliminating the smallest debt to go towards the next smallest. Start working your way up until you’re ready to confront your largest loan. By that time you can use the free cash at your disposal to dispatch the final debt boss as quickly as possible!

The debt snowball uses your brain’s wiring to respond to rapid rewards. Crushing a goal feels good! Knocking out that first loan, as little as it may be, motivates you to move on. Is the Debt Snowball a slower process than the Debt Avalanche? Maybe. But it might be a more successful, manageable strategy if you’re intimidated by the largest debt that towers over your personal finances.

It’s always wise to seek guidance from a licensed and qualified financial professional when drawing out your debt reduction battle plans. They’ll help you prepare an emergency fund, identify the best strategy for you, and refine your budget to free up as much cash as possible!

Then suit up with your mittens, coat, and beanie—it’s time to trigger an avalanche or get the snowball rolling!

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¹ “Planning And Progress Study 2018,” Northwestern Mutual, https://news.northwesternmutual.com/planning-and-progress-2018

Let’s Talk About Money

June 16, 2021

Let’s Talk About Money

Women earn 82 cents for every $1 earned by a man.¹

As women, we take time away from our careers to care for children, parents, and partners. Interruptions like these can significantly impact a woman’s chance for promotion, ability to earn higher income levels, and—for some women—vesting in full retirement benefits.²

The COVID-19 crisis has made it even harder for women. Without childcare, mothers of young children have had to reduce their work hours 4-5 times as much as fathers, widening the gender gap in work hours. It may seem small or even temporary now, but it heralds a big step backward in the progress women have made in gender equality at work. Fathers—on the other hand, who continued to work full hours during the pandemic, will likely benefit from upcoming promotions and raises over the next couple of years.³

Talk About Money If we want change, we need to start having open conversations about money. We should talk with our friends and co-workers about money over lunch. We should talk to our families and our kids about money at dinner. We have to talk about the things we’re concerned about, and stop keeping silent because we’re embarrassed, guilty, or ashamed. Have you thought about these questions:

  • Can I make more money?
  • How do I stop living paycheck to paycheck?
  • What’s the best way to reduce my debt?
  • Do I have enough money to retire?

As women, we’re comfortable talking about anything and everything with our friends—except for money. It’s that one boundary we rarely cross. The majority of women would rather talk about their own death before they’ll talk about money.⁴ When women start asking questions and talking openly about things that are important to us, the world changes. There is power in our words and intentions.

Save More Money From a financial perspective, women say their biggest regret is not investing enough money. We hold back because we don’t feel like we know enough.⁵ Banish the doubts and do 2 things. First, start your journey to learn how money works. It’s not as complicated as you may think. Focus on the basics like the power of compound interest, the time value of money, and the Rule of 72.

Second, develop the habit of setting aside money every day or every week. This can be money from your current discretionary income. If you don’t think you have any extra income, then find it by reducing your expenses or create it with an increase in your income. Skip the latte, bag your lunch, or cut out something extra in your day or week. Without taking into account any potential growth from investing, the chart below shows how saving a little bit every day can add up over time.

Savings Amount Per Day Total In A Month Total In A Year
$1 $5 $10
$30 $150 $300
$365 $1,825 $3,650

The Next Normal Doesn’t Have to be the Old Normal We may not see equal pay or equal wealth in 50 or 100 years or more. The traditional workplace is outdated. We can’t expect the Next Normal to be any different from the Old Normal unless we each take steps to bring about change for ourselves. It all starts with bringing our concerns into the light with real questions and open conversations.

— Kim Scouller

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Your Emergency Fund: What you need to know.

Your Emergency Fund: What you need to know.

It really isn’t a question on whether or not you need an emergency fund.

(You do.) It’s the first line of defense when unexpected expenses show up (and they will—have kids?). Unforeseen emergencies threaten to undo your hard work and careful financial planning.

But what exactly is an emergency fund? What should it look like? And how do you start building one if you don’t have a sack of cash lying around?

What’s an emergency fund… and why do you need one? <br> An emergency fund is a dedicated amount of money to cover unplanned, unavoidable expenses. Establishing one is an important milestone on your journey to achieving financial independence! But why is it such a big deal?

Emergencies are a part of life. Nobody schedules a busted transmission or a broken arm, but you’ll need a way to pay for them when they happen. Who would have guessed that a global pandemic would force most of us to stay at home and cost millions of Americans their jobs? So it’s not a question of if you’ll need to cover something unexpected but how you’ll cover it. Without an emergency fund, you’ll be forced to either dip into your long-term savings (assuming you have them) or go into debt. For most people, either option can seriously throw off long-term financial plans. An emergency fund gives you the power to overcome sudden obstacles without sacrificing your retirement or piling up credit card bills.

Emergency fund ins and outs <br> One critical thing to grasp is that an emergency fund isn’t the same as your savings. Establishing a solid emergency fund is not a long-term goal that’s built over years or decades. Once the emergency fund is full, then you move on to other money milestones like conquering debt and saving for the future.

So how do you know you have enough in your fund? That depends on how much you make. A good rule of thumb is that an emergency fund should cover 3 to 6 months of income. That provides a buffer if you have an unexpected car repair, medical emergency, or if you’re temporarily unemployed due to an unprecedented global pandemic!

But what if you don’t have that much cash just lying around? <br> 3 to 6 months of income might seem like a lot of money to set aside, especially if you’re currently living paycheck to paycheck. Building an emergency fund will take time and budgeting. Start with a goal of saving 2 weeks of pay. Then shoot for 1 month, then 2 months, etc., until you reach your goal.

The 2 Rules of Emergency Funds

Rule 1: An emergency fund is only, ONLY to be used in case of actual emergencies. It’s not for last minute getaways, much needed spa days, or killer video game sales. If those kinds of things come along, you can use a “fun fund”, which of course is part of your regular budget!

Rule 2: The emergency fund needs to be easily accessible. Make sure it’s in an account where you won’t incur fees for withdrawals when your car breaks down or you suddenly need a new AC unit. That’s why it’s there. Just remember to refill it as soon as the emergency has passed.

Once you’ve built your emergency fund and you know the rules, you’re ready to move on to the next stages of building wealth. Congratulations!You’re officially not broke and in the perfect position to chase your financial future!

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5 Myths You May Still Believe About Long-Term Care

April 14, 2021

5 Myths You May Still Believe About Long-Term Care

When a loved one needs extra help to take care of herself at home or needs to go into a nursing home,

the costs—averaging a total of more than $200,000¹—can be devastating. But the impact on families can be felt far beyond the pocketbook: An estimated 34.2 million Americans provide unpaid care to adult family members,² leading to greater incidence of depression and heart disease among caregivers, the majority of whom are women.² Anyone who has seen first-hand the destructive impact of these situations has at least thought about the need to protect their family from the threat of long-term care. But the vast majority haven’t taken action.³ That needs to change. Since change starts with financial literacy and education, let’s review the five most common myths about long-term care.

Myth #1: Medicare and health insurance plans cover long-term care. Private health insurance does not cover long-term care. Medicare only provides extremely limited benefits in a few very specific circumstances. The Medicare.gov website clearly states that Medicare does not cover most long-term care situations. There is one government insurance program that does cover long-term care: Medicaid. But to qualify for Medicaid, one must have income at or below the poverty level⁴ and in most states have less than $2,000 in financial assets.⁵ So unless one plans on being absolutely broke in retirement, they need to have a long-term care solution in place.

Myth #2: Long-term care means that you go into a nursing home. When we think of long-term care, we often think of an old lady wasting away in a nursing home. While a nursing home is certainly an example of a long-term care setting, only about 1/3 of care takes place in nursing homes.⁶ The majority of care takes place in a private residence. So if your stubborn father says, “I’d rather die than go into a nursing home,” your response should be, “fair enough, but how are we going to care for you at home?” When planning for long-term care, you should focus on solutions designed to help keep you in your home for as long as possible. Because no one wants to go into a nursing home.

Myth #3: Long-term care is only for the elderly. Many people are shocked to learn that 37% of Americans receiving long-term care are under the age of 65.⁷ One of the major reasons for this is that long-term care doesn’t only arise from getting old or getting sick. Sometimes long-term care claims stem from accidents or injuries—not illness. So something like a car accident or a traumatic brain injury can suddenly put you into a long-term care situation—even in the prime of your life.

Myth #4: It won’t happen to me. None of us wants to picture ourselves in a long-term care situation. We recoil at the thought of being a burden to our family—whether that burden be financial, physical, or emotional. But the fact is that 70% of us will need long-term care at some point in our lives.⁸ So if you don’t want to be a burden, you need to start planning now.

Myth #5: If it doesn’t happen to me, I will have wasted money on long-term care insurance premiums. If there’s a 70% chance you’ll need long-term care, there’s a 30% chance you won’t. Since there’s a 100% chance you want to retire comfortably, a 100% chance you want your kids to be able to go to college if they want to, and a 100% chance you want to protect your family in the event you die early, you need to prioritize the sure things in life. By the time you allocate money to cover all of the absolute necessities, there may not be any money left over to protect against things that are likely, but not guaranteed, to happen. In response to this conundrum, the financial services industry has evolved to create new products that can allow you to focus on the sure things while also protecting against long-term care. If you need it, these new solutions will cover your long-term care costs. And if you’re one of the lucky 30% of people who won’t need long-term care, all of the benefit for which you paid can go to your family in the form of a large, tax-free, lump-sum payment. Often, you can kill two, three, or four birds with one stone. That’s how money works!

Don’t be a sucker. Refer to page 87 of “HowMoneyWorks, Stop Being a Sucker” to begin increasing your literacy on this important financial concept. Then contact your financial professional to get started.


– Matt Luckey


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¹ “Genworth Cost of Care Survey 2019,” genworth.com/aging-and-you/finances/cost-of-care.html and “Long Term Care Statistics,” LTC Tree, Dec 2018, ltctree.com/long-term-care-statistics/

² “Executive Summary: Caregiving in the US,” AARP, June 2015, https://www.caregiving.org/wp-content/uploads/2015/05/2015_CaregivingintheUS_Executive-Summary-June-4_WEB.pdf

³ “The State of Long-Term Care Insurance: The Market, Challenges and Future Innovations,” National Association of Insurance Commissioners, May 2016, naic.org/documents/ciprcurrent study_160519_ltc_insurance.pdf

“General Medicaid Requirements,” LongTermCare.gov, Oct 2017, https://longtermcare.acl.gov/medicare-medicaid-more/medicaid/medicaid-eligibility/general-medicaid-requirements.html

“Financial Requirements—Assets,” LongTermCare.gov, Oct 2017, https://longtermcare.acl.gov/medicare-medicaid-more/medicaid/medicaid-eligibility/financial-requirements-assets.html

“Long-Term Care Insurance Facts - Statistics,” The American Association for Long-Term Care Insurance, 2020, https://www.aaltci.org/long-term-care-insurance/learning-center/fast-facts.php

“The Basics,” LongTermCare.gov, Oct 2017, longtermcare.acl.gov/the-basics/

⁸ “How Much Care Will You Need?,” Oct 2017, longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

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