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How Money Works Educator - Derrick Gan

Derrick Gan

HowMoneyWorks Educator

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Burnaby, British Columbia V5C2K6

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November 23, 2021

The Scandal of the American Financial Education System

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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

Are You Keeping Your Checking Account In Check?

October 14, 2021

Are You Keeping Your Checking Account In Check?

There are many culprits that can hamper your ability to build wealth.

Believe it or not, your checking account might be one of them.

A checking account is designed to give you quick, flexible access to your money—not grow it efficiently. That’s why the interest rate for an average checking account is negligible—less than .06%.¹ It might as well be zero if you’re considering it as a savings tool for the future.

But you may already be thinking, “no one would consider their checking account a savings vehicle.” Then why do Americans have so much of their money stashed in them—$2.2 trillion in 600 million checking accounts, to be precise. ²

The answer can only be that they don’t know how money works. Otherwise, they would have moved their cash to an account that leverages the power of compound interest with a higher interest rate long ago.

The sucker likes seeing a big balance in their checking account. The wealthy like seeing big deposits moved into their wealth building vehicles.

Do you have too much money sitting in your checking account?

As a rule of thumb, only keep enough cash in your checking account to cover everyday expenses like utility bills and groceries. Move what’s leftover into accounts and vehicles where it can accrue interest at a faster rate. And consider scheduling a conversation with a licensed and qualified financial professional to discuss which saving vehicles are best for you!

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¹ “Average Bank Interest Rates in 2019: Checking, Savings, Money Market, and CD Rates,” Chris Moon, ValuePenguin, Dec 9, 2020, https://www.valuepenguin.com/banking/average-bank-interest-rates#:~:text=and%20CD%20Rates-,Average%20Bank%20Interest%20Rates%20in%202019%3A%20Checking%2C%20Savings%2C,Money%20Market%2C%20and%20CD

² “Checking Accounts Shrink by Nearly 100 Million Accounts Since 2011,” Tina Orem, Credit Union Times, May 8, 2018, https://www.cutimes.com/2018/05/08/checking-accounts-shrink-by-nearly-100-million-acc/#:~:text=Using%20bank%2C%20thrift%20and%20credit,or%20about%202.2%25%20per%20year.

How Rockefeller Made His Billions

October 7, 2021

How Rockefeller Made His Billions

I’ll bet you don’t think you have much in common with John D. Rockefeller.

After all, he was America’s first self-made billionaire.¹ At the time of his death in 1937, he was worth over $340 billion in today’s money. How rich is that? If you combined the wealth of Warren Buffett, Bill Gates, and Jeff Bezos, Rockefeller would still be richer. We’re talking hard-to-imagine rich. Think Scrooge McDuck doing the backstroke in his money vault—but even richer.

But Rockefeller wasn’t born with a silver spoon in his mouth. Before he became a mega-wealthy oil tycoon, Rockefeller grew up in a humble country home in upstate New York. The only thing that set him apart from his friends and neighbors (and you) is that he learned a pivotal lesson about how money works when he was just a kid.

At 14 years old, Rockefeller had saved up $50 ($1,500 in today’s money) selling turkeys and doing chores for neighbors. Like many 14-year-old boys, young Rockefeller received some shrewd advice from his mother.

She encouraged him to lend his $50 to a local farmer. It was arranged that the money would be paid back in 12 months with 7% interest. A year later, the farmer made good on the deal, returning to Rockefeller the $50 plus $3.50 in interest.

It was around this same time that a neighbor hired Rockefeller to dig potatoes for three days. Rockefeller was paid $1.12. Rockefeller’s New York Times obituary said that “on entering the two transactions in his ledger he realized that his pay for this work was less than one-third the annual interest on his $50, and he resolved to make as much money work for him as he could.”1

What if you had learned that your money could make money when you were fourteen? I’ll bet you would have spent less on movie tickets and clothes and done everything you could to put your money to better use! But many parents aren’t as savvy as Mrs. Rockefeller. Which is why their kids become adults who end up “digging up potatoes” their entire lives so to speak, just like their parents did.

Many adults have never discovered the power of compound interest. So they can’t show their children how to put money to work to build a future they could never earn with just hard work. But they should.

It’s not too late to get your family to start thinking like the Rockefellers.

Here are two practical, very doable things that you can use to leverage the power of compound interest for you and your family, starting today!

Find a high-interest account and start saving. You probably don’t know any farmers who need quick cash. But that doesn’t mean you can’t put your money to work. Actually, the problem is usually that there are too many options! Fortunately, you, like a young Rockefeller, have wise counselors you can turn to. Contact a licensed and qualified financial professional to have a conversation about your vision for the future. They’ll have insights into which strategies and steps best align with your goals. There are many amazing ways to take advantage of the power of compound interest, even if you only have a small amount to put aside each month.

Teach your children about how money works. Would Rockefeller have stopped digging potatoes and built an oil empire if he hadn’t discovered the capacity of his money to grow? We’ll never know. But the same is true for your kids. The sooner they learn that their money can earn money, the better chance they’ll have to stop wasting time and start seeking how to put their money to work.

Ask me for a copy of the HowMoneyWorks: Stop Being a Sucker book.

It explains concepts like the Power of Compound Interest and the Time Value of Money at a level that anyone high school age and above can understand. You might enjoy reading it yourself!

You have more in common with the wealthy than you’ve been led to believe. Their techniques can be yours. Don’t wait for financial wisdom to knock you on the head from out of the blue. Meet with a financial professional and start learning and teaching your loved ones about how money works.

Once you’ve done that, you’ll really be thinking like a Rockefeller!

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¹ The New York Times Book of the Dead: Obituaries of Extraordinary People, edited by William McDonald, 2016.

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 Everyone Wants Your Money NOW

September 15, 2021

Why Everyone Wants Your Money NOW

Instant Gratification Has Overtaken Your Financial Power.

“Waiting sucks!” Like weeds in a field, this wealth-strangling lie can overtake every financially illiterate mind. If you don’t know how money works, you may succumb to society’s financially destructive desire for instant gratification.

It’s time to learn how money works, Old MacDonald, because a field overtaken with weeds produces no harvest. Start pulling up the weeds of instant gratification by asking yourself this…

In today’s world you can buy now, one click order, get no interest down, and enjoy same day shipping—but have you asked why? Why is it so ridiculously easy for you to spend your money?

Is it…

A. Because they’re committed to your convenience? (You’re not that naive.) B. Because you’ll buy from their competitor if they don’t? (Getting closer.) C. Because they want your money, they want it all, and they want it now?

Know the answer? It’s “C.” Understand that your need for instant gratification is a conditioned response. From birth, you’ve been brainwashed to want everything ASAP. They know this—THEY’RE THE ONES who brainwashed you. Why? Because they want your money—all of it! Picture a tiny stopwatch inside every dollar you own. When the start button is pressed, the dollar starts earning interest. Each dollar is ticking away, earning money for someone. Is it you, or is it the institution that has your savings account, car loan, mortgage, student loan, paycheck, or your next pumpkin spice latte? Every dollar that passes through your hands will earn money for either you or someone else. Every time you put your hard earned cash in the hands of someone else, you’re handing out little money stopwatches that never stop ticking.

It’s time to reclaim the earning power stolen by your need for instant gratification.

Money you put to work today has the potential to earn more interest than money you put to work tomorrow. Why? Because it has more time to grow. Those who know how money works never want to waste a single day of earning potential.

Did you think it’s a coincidence that taxes are taken out of paychecks now but tax refunds are not paid until the next year? Ever wondered why financial companies hold funds for a few days rather than release them to you immediately? They pay it out only after they’ve squeezed out every possible day of earning.

They’re not doing anything wrong. They’re just taking full advantage of the Time Value of Money. It’s time you did too.

It’s good if this makes you mad. You should be—you’ve been treated like a sucker. Your logical mind and personal finances are covered with the weeds of instant gratification. This threatens ALL your goals for the future.

Start ripping the weeds out by reading HowMoneyWorks: Stop Being a Sucker today. Ask your HowMoneyWorks financial educator how you can get a copy immediately.

The book coupled with guidance from your licensed and qualified financial professional can help you increase your financial literacy, stop the counterproductive behaviors of instant gratification, and start thinking—and acting—like the wealthy.

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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

Can You Teach Your Kids How Money Works? (Yes!)

August 23, 2021

Can You Teach Your Kids How Money Works? (Yes!)

Who will teach your kids how money really works? Don’t count on school!

Only 21 states in the U.S. require a financial literacy course to graduate from high school, and 4 of those states have some of the worst financial literacy levels in the country!¹,² It’s no wonder that only 28% of college students were able to answer 3 basic money questions about inflation, compound interest, and risk diversification.³ Think about it; many kids who don’t understand the fundamentals of money are also pulling out huge student loans that they have no clue how to handle. They’re getting taken advantage of before they even graduate!

Think that’s scary? Here’s where things get even scarier. The simple fact is that many people don’t start learning about money until they’re already in deep debt and sense a looming crisis. By that time, even if it’s not too late to avoid a catastrophe, many of those people can face a lifelong struggle to achieve robust financial health. What’s the solution? People should start learning how money works in their twenties? Nope. As teenagers? No way. People need to start learning how money works as kids—long before they’re in charge of their own personal finances.

Researchers from Cambridge discovered that our money habits are basically formed by age seven.4 The deeply indebted college freshmen of today spending 50 bucks a month on lattes and energy drinks are the result of financial under-development. It’s like tossing the keys of a $200,000 sports car to a teenager with zero driving experience and saying, “enjoy.” The most likely result down the road—disaster. ($200,000 also happens to be the cost of a 4 year private college in America: tuition plus room and board.5)

So what are your kids learning about money?

First, ask yourself what they are learning from YOU. If you’re like many Americans, your kids may think that money is supposed to be spent on what makes them feel good—right now. They might be completely unaware of the full power their money possesses to grow and build wealth and help them achieve their dreams.

Many parents do talk to their kids about working hard and earning money. They can, however, fail to bring them into the process of creating personal finance goals and showing them how to protect and grow their money to hit those goals.

Roll up your sleeves and consider showing your kids how money really works while their minds are little sponges and they haven’t made any money mistakes yet.

Here are nine tips to get you started:

  1. Read the book, HowMoneyWorks: Stop Being a Sucker, together.
  2. Discuss the concepts and 7 Money Milestones in the book.
  3. Let your kids in on some of your financial decisions and share a bit about your home budget with them so they understand the decisions you make for the family.
  4. Help them figure out ways to make money, save it, protect it, and watch it grow.
  5. Show them that putting all their money into a savings account is an opportunity for the bank to make money—not them.
  6. Explore smart tactics to avoid the impact of procrastination, inflation, losses, and taxes with their money.
  7. Use imaginary money and investment scenarios to teach them financial principles.
  8. Open an account for them with real money and take them through the entire process. Watch the money together each month as the balance changes.
  9. Have them accompany you to your next meeting with your financial professional, so they can ask a few questions of their own.

Perhaps your kids are older or maybe even have kids of their own. Know this—it’s never too late to start learning about how money works and teaching your kids about it too—no matter how old they are.

Let me know if you don’t have a copy of the book, How Money Works: Stop Being A Sucker. I’ll get you one ASAP! It’s packed with all the information you need to jumpstart your family’s financial literacy journey.

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¹ “How many states require students to take a personal finance course before graduating from high school? Is it 6 or is it 21?,” Tim Ranzetta, Next Gen Personal Finance, Feb 12, 2020, https://www.ngpf.org/blog/advocacy/how-many-states-require-students-to-take-a-personal-finance-course-before-graduating-from-high-school-is-it-6-or-is-it-21/?gclid=EAIaIQobChMIzdDgiKnL6wIV0_HjBx0h7ALCEAAYASAAEgItWvD_BwE

² “How Financially Lit(erate) Is Your State?,” The Ascent, July 20, 2019, https://www.fool.com/the-ascent/research/financial-literacy-by-state/

³ “Financial and student loan (il)literacy among US college students,” Johnathan G. Conzelmann and T. Austin Lacy, Brookings, Oct. 15, 2018, https://www.brookings.edu/blog/brown-center-chalkboard/2018/10/15/financial-and-student-loan-illiteracy-among-us-college-students/#:~:text=Overall%2C%20undergraduate%20students%20in%20the,percent%20got%20all%20three%20correct.

⁴ “The 5 Most Important Money Lessons To Teach Your Kids,” Laura Shin, Forbes, Oct 15, 2013, https://www.forbes.com/sites/laurashin/2013/10/15/the-5-most-important-money-lessons-to-teach-your-kids/#4a5f97006826

⁵ “How Much Does College Cost?,” CollegeData, 2020, https://www.collegedata.com/en/pay-your-way/college-sticker-shock/how-much-does-college-cost/whats-the-price-tag-for-a-college-education/

“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/

The True Cost Of Financial Illiteracy

August 9, 2021

The True Cost Of Financial Illiteracy

The average American reported that they lost $1,279 in 2019 due to financial illiteracy, according to a recent survey.¹

That’s enough to potentially cover a mortgage payment or car repair bill. If the assessment is accurate, that would mean the country lost $307 billion last year simply because citizens were clueless about how money works. (For reference, the entire annual GDP of Pakistan in 2019 was $278.22 billion.²)

But the situation is far worse than you might imagine.

The result of financial illiteracy is far greater than buying things you don’t need, sinking deeper in debt, and mismanaging your cash by shoving it all in low-interest savings accounts. It’s costing you the opportunity to truly build wealth and pursue your dreams. That’s the true price tag of financial illiteracy.

The opportunity cost of financial illiteracy. Think about a decision you wish you could redo. Maybe you missed out on an awesome job or experience because you chose a safer option or didn’t know what huge potential you were letting slip by. That’s called opportunity cost. It’s why you kick yourself for selling your home a year before a sellers’ market explodes or why you wish you’d studied abroad for a semester in college. Who knows what your life would look like now if you had just been able to see the future!

You need to start realizing that every dollar in your bank account is bursting with potential. What if the $1,279 that Americans think they lose every year was in an account earning 8% interest that compounded monthly? That squandered cash would grow to $13,987 after 30 years. That’s a much closer estimate to how much financial illiteracy actually costs Americans every year. We’re losing $1,279 every year plus however much that money could have grown if we had just known how money works.

The personal cost of financial illiteracy. But there’s more to the opportunity cost of financial illiteracy than just numbers. It can cost us the lifestyle that we’ve been daydreaming about. Financial instability and unpreparedness can result in massive emotional and mental stress that can take a serious toll on health and relationships. It can limit educational opportunities for our children. The true price tag of money ignorance isn’t just dollars in a bank account; it’s the ability to live our lives in confidence and to pursue our dreams.

The book, HowMoneyWorks: Stop Being a Sucker describes financial illiteracy as the #1 economic crisis in the world. As you can see, that’s not an exaggeration. Let me know if you want to learn more about the severity of our global financial ignorance pandemic and how it’s impacting you right now. I can get you a copy of the book and help you see the financial opportunities that surround you—if you just know how to take advantage of them!

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¹ “Financial Illiteracy Cost Americans $1,279 in 2019,” National Financial Educators Council, https://www.financialeducatorscouncil.org/financial-illiteracy-costs/

² “Pakistan GDP,” Trading Economics, accessed 2020, https://www.worldometers.info/gdp/gdp-by-country/

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

Compound Interest: Math Or Magic?

July 22, 2021

Compound Interest: Math Or Magic?

If you don’t think there’s anything awe-inspiring about compound interest—think again.

Albert Einstein asserted that it’s mankind’s greatest invention. He deemed it “the eighth wonder of the world”.(1) That’s the same guy who came up with the theory of relativity! On the other hand, Thomas Aquinas, the influential medieval philosopher and theologian, thought charging interest was unnatural and unjust.(2) How could a coin grow more coins without dark magic at play? That’s not how money works, right?

If you’re still scratching your head wondering why they had such strong reactions, let’s break down how compound interest works and see what the hype is really about!

What is compound interest? Merriam-Webster defines compound interest as “interest earned on principal plus interest that was earned earlier.” Let’s clarify that definition.

Let’s say you put $10,000 into a bank account that pays 5% interest annually. After 1 year, the bank will pay you $500 for letting them hold your money. The next year they’ll pay you 5% of $10,500, which comes out to $525. You now have $11,025. This will keep repeating until you withdraw your money.

In the short term, that doesn’t seem like such a big deal. Having an extra $1,000 is nice, but that won’t get your family to Disney World and back. However, over time those little gains start to accelerate. After 10 years you would have $16,289. Another 10 years would bring the total to $26,533 (more than double what you started with). After 50 years your $10,000 would have grown into $114,674. That’s over 10x as much as you started with! And that’s with no effort on your part. Your money is growing more money!

Things to consider A few things to keep in mind when working with compound interest. Your interest rate is a key driver on how quickly your money will grow when it’s compounding. Swap out the 5% interest rate for 1% and you’ll only wind up with $16,446… after 50 years. But crank the rate up to 10% and your 50 year total is $1,173,909!

Monthly contributions also make a big splash on your compound interest outcome. Just contributing $100 a month to your initial $10,000 dollars with a 5% interest rate more than triples your total to $365,892!

So… is it magic? Those calculations may seem like sorcery. But you don’t need a book of magic spells to leverage compound interest and put your money to work. It just comes down to simple math that we’ve known about for centuries.(3) The key to growing your money is to think of it like a seed rather than something you exchange for a good or service. Make plans to meet with a licensed financial professional to discuss how the power of compound interest can help lay the groundwork for your savings strategy.

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(1) “Why Einstein Considered Compound Interest the Most Powerful Force in the Universe,” Jim Schleckser, Inc., Jan 21, 2020, https://www.inc.com/jim-schleckser/why-einstein-considered-compound-interest-most-powerful-force-in-universe.html

(2) “Of money and morals,” Alex Mayyasi, Aeon, Jul 7 2017, https://aeon.co/essays/how-did-usury-stop-being-a-sin-and-become-respectable-finance

(3) “A Simple Math Formula Is Basically Responsible For All Of Modern Civilization,” Walt Hickey, Business Insider, Jun 5, 2013, https://www.businessinsider.com/compound-interest-is-responsible-for-modern-civilization-2013-6

The Credit Score Playbook

July 12, 2021

The Credit Score Playbook

If you read the last blog article, you now know how to find your credit report and credit score.

But what’s your game plan if you don’t like what you see? A low credit score can make getting and/or paying for a mortgage or car loan much more difficult since lenders are more likely to charge you higher interest rates.¹ Insurers, employers, and even landlords sometimes factor your score into their decision-making process.¹ There are few parts of your life that will be unaffected!

Boosting your score is a key step in helping to achieve financial independence and pursuing your dreams. You basically have two plays at your disposal to start putting credit score points on the board. Read on to see what they are!

Defend your score. Let’s say you get your credit report back and notice something’s wrong. Maybe your credit card company incorrectly reported a late payment or there’s negative information that’s now expired and can come off the report. Errors on your report can sabotage your credit score, so it’s important that you rally to defend your creditworthiness!

First step is you’ll need to write a letter to the credit reporting agency that’s in error. State your name and address and exactly what you’re disputing. Hunt down documents that will support your case and include those as well. The Federal Trade Commission has a sample dispute letter you can access on their website.²

If the credit agency agrees with your dispute, they’ll adjust your credit report accordingly and send you a new copy. You can also request that they send the revised report to companies that viewed the flawed version. If the credit agency denies your claim, you can take the dispute to the Consumer Financial Protection Bureau.³

Attack your score. You might see your score and realize that it’s on the low end. You’ve been late on payments, you always max your credit cards, and it shows. So what can you do? How do you go on the offensive and start lifting your number?

Your first volley is to start paying your bills on time. See if there are ways of automating your payments to make them as hassle free as possible. Second, make sure that you don’t max out your credit cards. Borrowing as much as possible at every opportunity can wreak havoc on your score. That doesn’t mean you should necessarily close all of your credit cards (that can negatively impact your score as well). But come up with a plan to limit your temptation to use plastic and start paying with cash as much as possible. Finally, avoid opening up new lines of credit, especially all at one time. Credit reporting agencies will look at how many creditors have inquired about your records to get an idea of how much debt you might accumulate.

Taking your credit score from a landslide win for lenders to a win for your bank account takes time and work. Remember that you have resources. The Federal Trade Commission has pages of consumer information on credit reporting and scoring that are 100% free and just a click away.⁴ And having a financial advisor in your corner can help boost your chances of turning around your credit score!

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¹ “The Side Effects of Bad Credit,” Latoya Irby, The Balance, Apr 2020, https://www.thebalance.com/side-effects-of-bad-credit-960383

² “Sample Letter for Disputing Errors on Your Credit Report,” Federal Trade Commision, Aug 2013, https://www.consumer.ftc.gov/articles/0384-sample-letter-disputing-errors-your-credit-report

³ “What can I do if I disagree with the results of a credit report dispute?,” Consumer Financial Protection Bureau, Feb 2020, https://www.consumerfinance.gov/ask-cfpb/what-can-i-do-if-i-disagree-with-the-results-of-a-credit-report-dispute-en-1327/

⁴ The Federal Trade Commission, https://www.ftc.gov/

Finding Your Creditworthiness Is Easier Than You Think

July 7, 2021

Finding Your Creditworthiness Is Easier Than You Think

Lenders know all about your credit score.

A good score means they should give you a competitive rate or you might go elsewhere. A bad score means they can crank up your interest rate and make your money work for them.(1)

Do you know what your credit score is and where it comes from? It shouldn’t be a mystery. So how do you find out what your score is before getting gouged for the foreseeable future?

Reports and scores. Let’s start by fleshing out the concept of credit scores. Certain companies collect information on you—like payment history, the number and type of accounts you have, whether you pay your bills on time, collection actions, outstanding debt, and the age of your accounts.(2) This debt rap sheet is called your credit report. Its goal? To determine how reliably you’ll repay lenders if they lend you money.

Data from the credit report gets run through an equation. Each algorithm is slightly different at each credit reporting company, but they all spit out a number that’s supposed to estimate how likely you are to pay off a loan. High scores mean you’re “credit worthy”, low scores mean you aren’t. Pretty simple, right?

How do I find my personal credit information? Despite what you might think, credit reports are actually easy to find if you know where to look. The government mandated that the three major nationwide credit reporting companies (Equifax, Experian, and TransUnion) offer you a free credit report every 12 months. All you have to do is head over to annualcreditreport.com and request your report.

Credit scores are a bit less straightforward. The government doesn’t mandate free credit score disclosures, but there are still ways to find them for free. Some credit card providers, banks, and lenders participate in FICO Score Open Access Program, making it a breeze for regular people to check their credit scores.(3)

Keeping up with your credit report and credit score might feel like one of those necessary evils, however nurturing and maintaining them can pay off. What should you do once you get your report and score and you don’t like what you see? That’s what we’ll cover next time

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  1. “The Side Effects of Bad Credit: How Bad Credit Affects Your Life,” Latoya Irby, The Balance, Apr 2020, https://www.thebalance.com/side-effects-of-bad-credit-960383
  2. The Federal Trade Commission, Sept 2013, https://www.consumer.ftc.gov/articles/0152-credit-scores
  3. “Where To Get Your Fico® Scores,” Fico Score, https://ficoscore.com/where-to-get-fico-scores/

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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The Wealthy Love Suckers—And It Should Make You Very, Very Angry

June 7, 2021

The Wealthy Love Suckers—And It Should Make You Very, Very Angry

Do the wealthy know ways to make money that are unknown to everyone else? You better believe it!

John D. Rockefeller, one of early America’s richest tycoons, once said, “I have ways of making money that you know nothing of.” How does that make you feel? Shouldn’t everyone know the best ways to make money and create a prosperous future?

But the fact remains. There are wealth-building principles that are common knowledge to the wealthy but are largely unknown by the majority of the population.

So why is the average citizen in the dark?

How money works is simply not taught in schools. Only 21 states in the U.S. teach at least one high school class in financial education. ¹ Interestingly, all 50 states teach a class on sex ed. So the one thing you can learn on your own, they teach. And the one thing you’ll never learn on your own, they don’t. Go figure.

Actually, it does figure.

Think about it. If the financial industry were to educate consumers about money savviness, people might stop socking away so much of it in low-interest savings accounts that earn less than a 1% rate of return. And before you leave the branch do they offer you a brochure on financial concepts to help you get out of debt, avoid money missteps, and start saving like the wealthy?

Pfff—yeah right!

No. It’s like, if you’re dumb enough to open a low-interest savings account and take the free lollipop (it’s like their sucker litmus test), then they’ll try to sell you a car loan at 6% interest. ²

What a deal. You earn less than 1%—they earn 6%. It’s like a lose-lose for you, but you still thank them on the way out.

But they don’t stop there.

With your new car loan monthly payment, you might run low on cash from time-to-time. But thanks to partnerships with credit card companies, the bank can also offer you a shiny new charge card—but “just for emergencies.”

Do they make it clear how much they charge for late fees before they sell you on the benefits and points you can earn? No, that’s what the back of the brochure is for—as far away from the exciting offer as legally allowed. And you can bet it’s the same customer who opened the savings account and took the car loan who never flips the brochure over. They can always count on a customer with a sucker in their mouth to help drive their profits from late fees.

Hard to fathom there are that many suckers? It’s true…

With an overall outstanding balance of $6,354, the average American has 3.1 credit cards. Americans—a population of 328 million people—have over 1.5 billion credit cards and a credit card debt of $815 billion. 67% of all Americans have a credit card. ³

The financial industry thrives on customers who are stuck in the “Sucker Cycle” of foolish spending. While consumers are binging on Netflix, shipping on Amazon, and ordering from DoorDash, institutions are quietly leveraging the power of compound interest to make their customers’ money work for themselves. While consumers live paycheck-to-paycheck, financial institutions and shrewd businesses build profits sucker-to-sucker.

For most people, earning (and spending) a paycheck is the extent of their experience. But the wealthy know the real deal. To become financially independent, you must know the concepts and strategies to save, protect, and grow your money.

Did this article make you mad? Hopefully, it did.

So what do you do about it? You stop taking the sucker and you stop being the sucker. You learn how to take control of spending, protecting, saving, and investing your money. How? You do it by reading the book, “HowMoneyWorks, Stop Being a Sucker.” It will only take about an hour.

Don’t have a copy? Contact me and I’ll help you get one.

Use that anger to fuel action. Read the book. Then reach out to me and say, “Now that I know the ways of making money Rockefeller spoke of, I’m ready to chart my own course to financial independence.” We have a clear action plan for you to follow called “The 7 Money Milestones.” I’ll help you check off each one.

Let’s do it together.

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¹ National Financial Educators Council, “Financial Literacy Statistics,” [https://financialeducatorscouncil.org/financial-literacy-statistics/]

² Claudia Assis, “New-car loans hit highest interest rates in a decade,” MarketWatch, April 2, 2019, [https://marketwatch.com/story/new-car-loans-hit-highest-interest-rates-in-a-decade-2019-04-02]

³ Joe Resendiz, “Credit Card Usage and Ownership Statistics (2019 Report),” ValuePenguin, [https://www.valuepenguin.com/credit-cards/statistics/usage-and-ownership]

The Rule of 72 Explained

April 26, 2021

The Rule of 72 Explained

In our book HowMoneyWorks: Stop Being a Sucker, we introduce the Rule of 72, a mental math shortcut for estimating the effect of any growth rate—from quick financial calculations to population estimates.

This formula is especially useful for financial estimates and understanding the nature of compound interest. Rates of return may not be the easiest subject for consumers since it isn’t taught in schools, but this simple rule can help show the significance of a percentage point here or time horizon there.

Here’s the formula: 72 ÷ Interest Rate = Years to Double. If you know the interest rate (or rate of appreciation) or the time in years, dividing 72 by that number will give you a good approximation of the unknown number.

When will your money double?* 72 ÷ 1% = 72 years to double 72 ÷ 3% = 24 years to double 72 ÷ 6% = 12 years to double 72 ÷ 9% = 8 years to double 72 ÷ 12% = 6 years to double

Here’s an example: If you’re receiving a 9% rate of return, just divide 72 by 9. The result is 8. That means your money will double in approximately 8 years. Maybe that’s not fast enough for you and you prefer your money to double every 5 years. Then simply divide 72 by 5. The result is 14.4. Now you know you need a 14.4% return to achieve your goal.

This rule, long known to accountants and bankers, provides a close idea of the time needed for capital to double.

If you think that a difference of 1% or 2% is insignificant—think again! You seriously underestimate the power of compound interest. If one account appreciates at 9% and another at 12%, the Rule of 72 tells you that the first will take 8 years to double while the second will need only six years. This formula is also useful for understanding the nature of compound interest.

Examples:*

  • At 6% interest, your money takes 72 ÷ 6 = 12 years to double.
  • To double your money in 10 years, you need an interest rate of 72 ÷ 10, or 7.2%.
  • If inflation grows at 3% a year, the prices of things will double in 72 ÷ 3, or 24, years. If inflation slips to 2%, it will double in 36 years. If inflation increases to 4%, prices double in 18 years.
  • If college tuition increases at 5% per year (which is faster than inflation), tuition costs will double in 72 ÷ 5, or about 14.4, years.
  • If you pay 17% interest on your credit cards, the amount you owe will double in only 72 ÷ 17, or 4.2, years!

The Rule of 72 shows that a “small” 1% change can make a big difference over time. That small difference could mean buying the house you want, sending your kids to the college they choose, retiring when you wish, leaving your children the legacy they deserve, or settling for… something less. Doing the math with the Rule of 72 can give you critical insight to hit your goals down the road by shifting your strategy accordingly.

By the way, the Rule of 72 applies to any type of percentage, including something like population. Can you see why a population growth rate of 2% vs. 3% could be a huge problem for planning? Instead of needing to double your capacity in 36 years, you only have 24. Twelve years were shaved off your schedule with one percentage point faster growth.

The Rule of 72 was originally discovered by Italian mathematician Bartolomeo de Pacioli (1446-1517). Referring to compound interest, Professor Albert Einstein (1879-1955) is quoted as saying: “It’s the greatest mathematical discovery of all time.” He called it the 8th Wonder of the World—it works for you or against you. Make sure you put this shortcut to work the next time you consider an interest rate. When you save, it works for you. When you borrow, it works against you!

— Tom Mathews

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  • The Rule of 72 is a mathematical concept that approximates the number of years it will take to double the principal at a constant rate of return compounded over time. All figures are for illustrative purposes only, and do not reflect the performance risks, fees, expenses or taxes associated with an actual investment. If these costs were reflected, the amounts shown would be lower and the time to double would be longer. The rate of return of investments fluctuates over time and, as a result, the actual time it will take an investment to double in value cannot be predicted with any certainty. Investing entails risk, including possible loss of principal. Results are rounded for illustrative purposes. Actual results in each case are slightly higher or lower.

Your Money Is Worth More Now Than Ever

April 8, 2021

Your Money Is Worth More Now Than Ever

Your money is worth more now than ever.

The rich know that. They’ve conducted the surveys and done the market research to figure out how to convince you to fork over as much of your cash as possible right now while it’s at its maximum potential.

But… why?

Besides inflation, why is your money any different today than it will be tomorrow? It comes down to a simple concept that has the power to change your life. Allow me to explain.

Let’s pretend inflation didn’t exist and that your money today will have the exact same buying power as it will in the future. Someone offers you $100 either today or in 5 years. Obviously, it would be nice to have the money now. But, technically speaking, it wouldn’t really make a difference when you got the cash. In our inflation-free imaginary world, that money could get you the exact same amount of stuff today as it would at any point in the future.

Or would it?

What if you took that $100 payment and put it to work? You put it in a place with 8% interest that compounds annually. At the end of a year that initial $100 will have earned you $8, bringing your total to $108. The next year you earn 8% of $108, bringing your total to $116.64. After 5 years, your $100 will have grown into $146.93. That’s nearly a 50% increase!

In other words, your money has more time to grow today than it will tomorrow. It has more earning potential right now than in 10 years or in 5 years or even in a week! This simple but powerful truth is called the Time Value Of Money.

So what does that mean for you? What’s the bottom line?

It means TODAY is the time to put your money to work.

The clock is ticking. The earning power of your paycheck is slowly ebbing away. The time to stop being a sucker and start building your future is right now!

To learn more about the Time Value of Money, refer to the chapter by the same name in our book, “HowMoneyWorks, Stop Being a Sucker.” Don’t have a copy of the book? Contact me to get one—TODAY!

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This is a hypothetical scenario for illustration purposes only and does not represent an actual investment in any product. Actual investments can fluctuate in value and there is no assurance that these results can or will be achieved. It does not include performance risks, expenses, fees or taxes associated with any actual investment, which would lower results. Rate of return is an assumed constant nominal rate, compounded annually. It is unlikely that any one rate of return will be sustained over time. Investing entails risk, including possible loss of principal.

2 Concepts the Million Dollar Baby Strategy Puts to Work

2 Concepts the Million Dollar Baby Strategy Puts to Work

Most parents want their child to have a better life than they had.

While some parents are concerned they won’t have enough money for their own retirement, they have no idea what they can do to help their child’s retirement in 50 or 60 years. The good news is that they can do something now to put money to work for their child over those 50 or 60 years. What if you could start a small account now that has the potential to grow to $1 million dollars by the time your child is ready to retire?

The Million Dollar Baby takes advantage of 2 financial concepts:

Time Value of Money

The time value of money is the concept that money available to you now is worth more than the same amount in the future because of its potential to earn interest. Money saved today is worth more than money saved tomorrow because the money you save today has the potential to grow. That growth potential over time means you can save less today.

The Power of Compound Interest

The power of compound interest refers to the growth potential of money over time by leveraging the magic of “compounding,” which is interest paid on the sum of deposits plus all interest previously paid. In other words, interest earned on interest plus principal, not just principal.

Let’s consider a few hypothetical^ examples:

If at their child’s birth, parents put away $13,000 in an account that grows at an annual rate of 6.5%, compounded monthly until the child reaches retirement in 67 years, the account would grow to $1,000,042.

If they had waited 18 years before setting aside the $13,000, the account would grow to just $311,486 when the child reaches retirement at age 67. The loss of that 18 years leaves the child with almost $700,000 less for retirement.

For parents who aren’t able to set aside $13,000 at birth, they can still leverage the time value of money and compound interest by taking a more incremental approach. If at their child’s birth, parents put away $2,500 in a lump sum and then $250 every month for 4 years in an account that grows at an annual rate of 6.5%, compounded monthly until the child reaches retirement in 67 years, the account would grow to $1,008,059.

If they had waited 18 years before setting aside the $2,500 plus $250 every month for 4 years, the account would grow to just $313,857 when the child reaches retirement at age 67. Again, the loss of that 18 years leaves the child with almost $700,000 less for retirement.

How to start your own Million Dollar Baby program?

Step 1. Create a trust to own the account. If a parent owns the account, the account will pass through the parent’s estate upon death. With a trust, decisions are made by the parent trustee but the account will survive the parent’s death. The child can only access the trust account upon retirement or in an emergency medical situation before retirement. Depending on your budget, you can use a local attorney or an online service to set up the trust. NetLaw Inc. established a special Million Dollar Baby Trust just for this program.

Step 2. Select a long-term investment that will maximize the time value of money and the power of compound interest. Find a financial professional who will help you choose the right investment for you and your Million Dollar Baby.


– Kim Scouller


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^This is a hypothetical scenario for illustration purposes only and does not represent an actual product and there is no assurance that these results can actually be achieved. The hypothetical scenario does not take into account certain risks and expenses associated with an actual product such as performance risks, expenses, fees, taxes or inflation, if it had the results would be lower. Rate of return is an assumed constant nominal rate, compounded monthly. It is unlikely that any one rate of return will be sustained over time. Numbers are rounded to the nearest dollar in some cases. Retirement needs vary by income and cost of living - $1 million isn’t an adequate goal for every saver.

How To Break Free From The Sucker Cycle

February 22, 2021

How To Break Free From The Sucker Cycle

Page 14 of “HowMoneyWorks, Stop Being a Sucker” reveals one of the biggest traps of financial illiteracy—the Sucker Cycle.

It’s a money whirlpool that sucks people into an endless loop of trying to spend their way to happiness and wealth.

Here’s how it works. You get a paycheck from someone wealthier than you. You spend it on lattes, lottery tickets, and a lot of other stuff you can’t afford—essentially handing the money back to someone wealthier than you. There’s little to nothing left to save—which is why it feels like everyone’s wealthier than you are. Every 30 days, the whirlpool races to the waterfall with the awful feeling that there’s “more month left at the end of the money.”

This financial phenomenon not only feeds the Sucker Cycle but also illustrates the very definition of financial disaster: “When your outgo exceeds your income, your upkeep becomes your downfall.“

But here’s the good news. Any of us can break the Sucker Cycle. It’s not a matter of money. It’s a matter of priority. The wealthy people of the world live by the following basic mantra: “Pay yourself first!”

From now on, every time you’re handed a paycheck—before you pay bills, buy coffee, or order pizza—make sure you take a portion of your money and put it to work—for your future!

Connect with a financial professional and put goals in place that are specific and intentional—no matter the monthly savings amount.

Saving first and saving consistently is the formula for financial success—and future fulfillment. So if you find yourself stuck in the Sucker Cycle, make a decision to stop being a sucker and BREAK FREE. Form new habits. Think like the wealthy. Pay yourself first. Leverage the power of compound interest.

The results can be astounding—AND—can create the momentum to do even more.


– J.D. Phillips


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