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How Money Works Educator - Bryan D. Linder

Bryan D. Linder

HowMoneyWorks Educator

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August 2, 2022

Is Your Cash Flowing?

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Home Price vs. Interest Rate: Which Is More Important?

Home Price vs. Interest Rate: Which Is More Important?

Millennials, this one’s for you—a low interest rate DOES NOT balance out a high home price.

Millennials face a dilemma—pay greater home prices now but at lower interest, or hope that interest rates increase in the future which historically has lowered home prices.

Some Millennials are choosing to face the housing market head on, while others are waiting things out.

So which camp is “right”? And, if you’re a Millennial, which camp should you join?

The answer: None of the above. The real question is—and has always been—can you actually afford to own a home?

Let’s do the math…

Suppose you live in a fantasy where the housing market is semi-normal somewhere in the world. You have two potential homes in the running—one in the suburbs, the other in the city.

The suburban home costs $300,000 with a 30-year mortgage at a rate of 6%.

The city home costs $500,000 with a 30-year mortgage at a rate of 2%.

One Sucker sees a lower interest rate and ignores the price tag, while another Sucker sees the lower price tag and ignores the higher interest rate. Both think they’re getting an historic deal.

But get this—the monthly payment will be almost identical for either house.

The wealthy realize that high prices and high interest rates have the same result—you pay more for your home, and the bank profits.

Instead, the wealthy ask themselves questions like…

Can I afford my monthly payment?

Have I saved enough for an adequate down payment?

Will I have enough left for furniture and repairs?

Have I factored in the cost of property taxes and HOA fees?

The takeaway? The wealthy don’t lose sight of what matters most—their cash flow. Just because interest rates are lower doesn’t mean you’ll be able to make the monthly payments.

Do your homework.

Use a mortgage calculator.

Research your potential new neighborhood for any HOA fees or other costs you might incur.

Figure out how much you can afford to spend on monthly payments as a part of your overall budget.

Meet with your licensed and qualified financial professional to talk about your overall financial picture and how your new home will fit in with your current situation and your retirement strategy.

It’ll save you heartache—and maybe some money—in the long run.

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Market performance is based on many factors and cannot be predicted. This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Any examples used in this article are hypothetical. Before investing or enacting a savings or retirement strategy, seek the advice of a licensed and qualified financial professional, accountant, real estate agent, and/or tax expert to discuss your options.

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

What Millennials Need to Retire Wealthy

April 26, 2022

What Millennials Need to Retire Wealthy

It’s official—Millennials are serious about building wealth.

According to a recent study, Millennials (ages 25 to 40) have an average of $51,300 in personal savings, while their retirement accounts have an average balance of $63,300.¹

That’s far higher than it was just a few years ago. In 2019, they had saved just $23,000 for retirement.² They’ve nearly tripled their wealth in less than 3 years!

It’s no surprise. Few generations have gotten kicked in the pants quite like Millennials. Between recessions, pandemics, frenzied housing markets, and international instability, they’ve learned that wealth isn’t a luxury—it’s an absolute necessity.

But Millennials still have a long way to go before they retire wealthy. Here’s what they need if they’re going to arrive at their long-awaited destination…

Millennials must know—and use—the Rule of 72.

The Rule of 72 is a simple mental math shortcut that estimates when your money will double, given a fixed compounding interest rate. Here’s what it looks like…

72 ÷ interest rate = years to double

It’s simple, it’s powerful, and it might change the course of your financial future.

Let’s say you’re 35 years old with $60,000. That’s a solid start. But how can you turn $60,000 into $1 million by age 67?

Think of it like this—you need to double your money just over 4 times to reach $1 million.

Now, subtract your current age from your retirement age. That’s how long you have left to build wealth.

67 - 35 = 32 years

So you have 32 years to double your money just over 4 times. In other words, your money needs to double every 8 years.

Now it’s time to use the Rule of 72, but with a slight twist—swap the interest rate with the years for each double.

72 ÷ years for each double = interest rate needed

Plug in your numbers, and you get…

72 ÷ 8 years = 9% interest rate

In this scenario, you’d need just over a 9% interest rate to retire as a millionaire.

Armed with that knowledge, you’ll be better able to see through gimmicks like a “high-interest savings account” that offers .06% interest. You’ll also be left with just one question—where can you find an account with 9% interest?

Answer that question with your financial professional, and you’re on the right track for retiring wealthy.

Try the exercise above with your age and personal savings. What was the result? Then, contact a financial educator who can help you fine-tune a strategy to reach your retirement goals.

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

² “What Is “Retirement”? Three Generations Prepare for Older Age,” Catherine Collinson, Patti Rowey, Heidi Cho, Transamerica Center for Retirement Studies, Apr 2019 https://transamericacenter.org/docs/default-source/retirement-survey-of-workers/tcrs2019_sr_what_is_retirement_by_generation.pdf

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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