If you feel like your finances are teetering on the edge of disaster, there’s a likely culprit—financial illiteracy.
Do you agree or disagree with these statements?
The statements are adapted from research designed to test relationship security. They aren’t dependent on your income or savings level. Instead, they measure something far more relevant—how you feel about your finances.
And if you’re like many, you agree with most, if not all of those statements. It’s an indication that you feel financially insecure. And there’s a reason for that…
It’s because your finances are in grave danger.
It’s not your fault—nobody taught you how to create financial security. In fact, you may not have learned the basic building blocks of growing wealth, much less how to protect against losses, inflation, or tragedy.
So is it any surprise that your finances feel like a house of cards? And since you’re an intelligent, normal human, you can feel the looming threat of collapse. It weighs on you, makes you anxious.
And it should—your feelings are a blaring alarm announcing that your situation is precarious, and you need to act.
But you can’t respond to danger until you identify what’s wrong. And the greatest enemy of your financial security? Financial illiteracy.
Think about it—would your finances have reached this point if you knew how money worked? Of course not!
If you knew how to actually build wealth and avoid financial blunders, you likely would have chosen a completely different path.
So the antidote to your feelings of financial insecurity is simple—learn how money works. Then, apply your knowledge. You may be surprised by the new sense of security that appears in your life.
Your financial education must include both knowledge AND what steps to take. It must teach you wealth building concepts AND wealth building strategies.
If you’re lacking knowledge, it’s impossible to start your journey to financial independence because the money decisions you make without it are likely to do more harm than good.
But knowledge alone is not enough. Knowledge without guidance leads to information overload and analysis paralysis.
It’s what all financial professionals hear: ”You’ve taught me about the Power of Compound Interest. Great! And now I know about the Time Value of Money. Wonderful! But where the heck do I find an account with the interest rate I need to reach my financial goals?”
Tony Robbins said it best. “Knowledge is NOT power. Knowledge is only POTENTIAL power. Action is power.”
So before you create a strategy to start building wealth, learn how money works. Discover the financial illiteracy crisis and its impact on your peace of mind. Learn about the Power of Compound Interest and the Time Value of Money and how those concepts can make your money earn more money. Realize the wealth building potential of starting a business.
Then, get with a licensed and qualified financial professional. Start working through The 7 Money Milestones. They’re time-proven steps that can move you from financial hardship to financial independence. The Milestones are…
• Financial Education
• Proper Protection
• Emergency Fund
• Debt Management
• Cash Flow
• Build Wealth
• Protect Wealth
Why these steps? Because they apply what you’ve learned to simple strategies, like…
• Securing proper financial protection for your family
• Leveraging a side hustle to boost cash flow
• Protecting your wealth with an estate plan
The Milestones take your newfound knowledge and transform it into action. They move you from having the potential to be wealthy to walking the path towards securing your future.
In short, they help unlock your power to create the future you want.
Learn how money works. Follow the Milestones. Take control of your financial future. With this education, you can be on the road to wealth in no time flat.
How much cash do you have left at the end of the month after you’ve covered the essentials AND treated yourself? (I’m guessing not much.)
Wish your paycheck went a little further? You’re not alone—not by a long shot. Most Americans are living paycheck-to-paycheck and saving little to nothing. So how do you increase your cash flow so you can stop living in the Sucker Cycle and start saving and investing more?
In the book, HowMoneyWorks, Stop Being a Sucker, we attack this challenge head on in Milestone 5 of the 7 Money Milestones.
Here are a few tips to get your cash flowing towards your future…
Redirect your cash flow
There are a million little things that siphon away your paycheck. Credit card debt, monthly subscriptions, and your fast food habit all chip away at your income. This “death by a thousand cuts” is a foolish spending cycle that prevents you—and countless other suckers—from creating an emergency fund, protecting your income, and building wealth for the future.
That’s why it’s so important to make and maintain a budget. It’s like a map of where your cash is going. Once you have that knowledge, you can figure out where you need to dial down your spending and start redirecting your cash. Don’t get too detailed. You don’t need to get overwhelmed by spreadsheets. Try creating a one-page list of expenses, freeing up as much cash as possible. Take your budget to your financial professional and discuss how best to use this available cash.
Open up new income streams
Budgeting and cutting back on spending might not be enough. Life throws plenty of unexpected (and expensive) problems at us that might not have a budgeting solution. You may need to look for new income streams to maintain the lifestyle you want while also saving for the future.
You’d be surprised by how many possibilities there are to create additional income streams—many of which offer the chance to make money from home. Maybe now is the time to discover that your favorite hobby or area of interest is actually a way to earn some cash. That could look like a side hustle or weekend gig, but you might find that your skills and ideas are full-time business opportunities just waiting to happen! Research which of your ideas and skills are in demand, figure out how much time and effort it will take to get started, and decide how much time you’re willing to commit. (It could be easier than you think!)
Increasing your cash flow can open up a whole new world of opportunities. That extra money you have from cutting back on takeout and streaming services could be how you fuel the power of compound interest and finally start saving for retirement. That several hundred dollars you bring in from teaching guitar lessons each month could be how you pay off your credit cards and free up even more cash. There’s no doubt your options can really open up once your cash starts flowing!
Why are so many people so bad with money, even though they know it’s important?
There’s an article from Psychology Today titled “The Psychology of Money.” It was published in 1995, but the central question still rings true—why do people sacrifice so much for money, only to blow it all?
Michael Ventura, the author, asks the question in the context of Las Vegas, where hard earned money goes to die. He paints a vivid picture of brightly lit casinos packed with overweight middle-aged men in casual clothes hunched over blackjack tables and slot machines.
Not one of them looks happy.
They likely don’t talk much with their spouses.
They spend a few minutes each week in conversation with their kids.
All they do is work. Their income and financial resources define their social status.
And yet here they are, gambling it all away and hating every second of it.
And again, it begs the question of WHY? Why the insane urge to unravel everything they’ve worked so hard to create?
Here’s a thought—what they’re doing at the casino isn’t too far off from what the sucker does every day. They throw away money in hopes of a rush, and wait to see how the cards fall.
Think about it—they work and work and work for money, but for what? So they can buy a house, a car, and maybe take a nice vacation. Maybe they think it will make them happy. But what does that really get them? A bigger mortgage, higher monthly payments, and the constant worry about losing their job and being unable to make ends meet. They don’t know how to use their money to build wealth or a stable, happier life. How could they?
They’ve never been taught.
The casinos of Vegas call their patrons suckers. Banks give you a sucker on the way out the door. They both leverage the same Sucker Cycle, the same psychology.
So what’s the lesson from Las Vegas? That everyone’s a sucker? That you’ll never be good with money?
The lesson is that you must learn how money works. You must realize that something better is possible with your money. With your life. That you actually have what it takes to make decisions. To write a story with a better ending than hunching over a slot machine with a blank expression on your face.
It’s a fact – consumers prefer long-term care riders to stand-alone long-term care (LTC) insurance.
In 2018, 350,000 Americans bought long-term care insurance.¹
84% chose linked-benefit coverage.
In other words, their LTC insurance was a rider on a life insurance policy or another financial vehicle.
Only 16% chose stand-alone LTC insurance.
If you had to guess why riders won out, what would you say?
Because LTC riders are often far more affordable than stand-alone insurance?²
Because LTC riders aren’t subject to steadily increasing premiums?³
Because stand-alone LTC insurance is growing harder and harder to qualify for?⁴
If you guessed any of the above, you’d be right! They’ve all contributed to the rising popularity of LTC riders.
For many, LTC riders are a no-brainer. If something’s more affordable, easier to qualify for, and less subject to change, wouldn’t you prefer it, too? And considering that 70% of people age 65 and older will need LTC, it’s a form of financial protection everyone should explore.⁵
That’s not to say an LTC rider is the perfect solution for your situation. If you don’t need permanent life insurance, then a stand-alone policy may be the way to go.
That’s why it’s critical to meet with a licensed and qualified financial professional—they can evaluate your situation and what tools and strategies best meet your needs.
Automation is the simplest—and perhaps the most powerful—move you can make towards retiring wealthy.
Imagine if you could automate going to the gym. You download an app, tap a few buttons, and then… do nothing. Over the next few weeks, you notice changes. Your legs get firmer. Your biceps bulk up. You walk past mirrors and think “darn, I look GOOD!” Friends ask if you’ve been going to the gym. You smile, because you know the truth—you haven’t been once.
It sounds too good to be true. But when it comes to building wealth, “bulking up” can become a reality.
That’s right—you can automate building wealth. And it only takes a few moments.
Simply Google search how to automate deposits in your wealth building accounts, and follow the steps. It should take you less than a minute once you know how it’s done.
And just like that, you’ve started building wealth. Your money will effortlessly flow from your bank account into your wealth building accounts. It’s that easy.
Here are a few prerequisites before you start automating…
Decide which accounts are best for your situation
This isn’t something to do alone. Meet with your licensed and qualified financial professional, and review your situation and your goals. They’ll be able to recommend accounts and wealth-building vehicles.
Review your budget
What’s the most you can automate towards building wealth without derailing your lifestyle? See how much money you have leftover each month. If the answer is zero, slash your spending and automate whatever you free up.
Know when you get paid
The best time to transfer money from your bank to wealth building is right after payday. Review your pay schedule, then automate transfers to go through a day or two after.
Wealth doesn’t appear overnight. It can take years. But there are simple steps you can start this afternoon to make the process that much easier. It just takes a little knowledge and a few seconds. So get started today!
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.
Budgeting is good, budgeting is great. But if you’re building wealth, it will only get you part of the way.
Budgeting is usually the first move for anyone getting their finances in order. It’s basically just tracking your expenses against your income, and then slashing spending.
Consider that 64% of Americans live paycheck-to-paycheck.¹ Low income isn’t to blame—48% of families earning over $100,000 also live paycheck-to-paycheck!² So for many, budgeting is an absolute necessity.
But will budgeting alone put you on the fast-track to wealth? Probably not.
Let’s say you earn $45,000 per year (after taxes), but you spend $45,000 every year. Congratulations! You’re living paycheck-to-paycheck. When you decide to get serious about building wealth, you’ll face a stark reality—you have no money left over to save!
So you start budgeting. You move from your apartment in midtown to a hovel in the suburbs. You stop going out. You cook at home. You walk to work. You swap lightbulbs for candles. You scrap Netflix, Spotify, and cable—and you start whittling random sticks you find in the yard to pass the time.
By the end of the year, you’ve spent only $30,000. Good for you! You have $15,000 to devote towards building wealth.
But what if you’re still short of your savings goals? You’ve cut spending to the core. Unless you’re willing to scavenge for food and live in a tent, cutting your spending further is going to be tough.
You only have one option—boost your income.
What does that look like? It could look like scoring a promotion. Or getting a new job. It could also look like starting a side hustle or becoming a part-time entrepreneur. You actually may be surprised at how many of your talents and hobbies have income-boosting potential!
That’s why for the 7 Money Milestones in the book How Money Works: Stop Being a Sucker, budgeting and boosting income are rolled together into a single Milestone—Milestone 5: Increase Cash Flow. Budgeting will get you started, but to truly supercharge your savings, you’ll need to increase your income stream, or create a multiple income streams.
Think about it like this—Jeff Bezos drove a Honda Accord for decades, but that’s not what made him a billionaire. Rather, he began with frugality and then built an income-generating empire.
So if you’re just beginning to build wealth, start with budgeting. Clean up your spending as much as possible before boosting your paycheck.
If you’re already frugal, good for you! You’ve made a great stride towards building wealth. Now, it’s time to consider boosting your income further.
No one has money. You may think other people have money, but they don’t.
For each generation, it’s the same.
They don’t get taught how money works from K-12.
High school graduates head off to college. They don’t learn how money works there, either.
College graduates enter the workforce and start earning a paycheck… and spending their paycheck.
Soon, they enter a cycle of foolish spending. Earn a paycheck. Spend a paycheck. Earn a paycheck. Spend a paycheck.
They join the hundreds of millions living paycheck-to-paycheck. Always spending. Barely saving, if at all.
When retirement finally arrives or accidents or illness occur later in life, a terrible realization dawns on them…
They have no money.
According to a recent survey…¹
◼ Gen Z adults have saved an average of $37,000 for retirement ◼ Millennials have saved an average of $63,300 for retirement ◼ Gen-Xers have saved an average of $98,900 for retirement ◼ Baby Boomers have saved an average of $138,900 for retirement
Only Gen Z and Millennials are even close to being on track for retirement. Gen-Xers and Baby Boomers fall short of bare minimum savings by over half.
It’s not for lack of income—many Americans make enough to put their money to work.
Rather, it’s because they lack knowledge. They just don’t understand how money works beyond earning and spending.
The takeaway? If you’re a Gen-Xer or Baby Boomer, the time to start building wealth is now.
But for your income and skills to translate into wealth, you need tools. You need concepts like…
◼ The Power of Compound Interest
◼ The Time Value of Money
◼ Wealth Equivalency
These concepts will help you answer questions like…
◼ What interest rate do I need to close the gap between my savings and my retirement goals? ◼ How much do I need to save each month to retire with $1 million? ◼ Should you save a nest egg or start a business?
If those are answers you need to get, ask me how you can learn. I’d be happy to introduce you to resources that can set you on the right path towards discovering how money works and building wealth.
Despite your best efforts and planning, you and your family’s first line of financial defense might be eroding day by day. And it’s all because of inflation.
Here’s what’s happening…
Inflation is the steady increase of prices over time. A jug of milk that costs $2.85 one year could cost $3.00 the next. On average, prices have inflated at 3.25% annually since 1914.¹
But in 2021, inflation exploded. The market faced a perfect storm of low interest, pandemic-fueled supply chain problems, and consumers returning to stores. Demand soared while supply shrank.
The result? Consumer prices increased 7% in 2021, the highest rate since 1982.²
That means everything is increasing in price… including the services you need in emergencies.
But here’s the problem—it’s a challenge for your emergency fund to outgrow inflation.
Why? Because above all else, your emergency fund must be both accessible and stable. What good is an emergency fund if you can’t use it in a pinch or if it gets leveled by market fluctuations?
And good luck finding an account that’s accessible, stable, AND pays interest that’s greater than inflation. In today’s climate, it can be difficult to find a “high interest” savings account that pays more than .5%. Read that again. Not 5%. Point 5 percent.
The question then, isn’t if your emergency fund can outgrow inflation. It’s about minimizing the damage.
Here are two ideas that may make the difference between financial success and disaster in the face of emergencies…
Increase your income. It’s simple—the more you earn, the better positioned you are to navigate emergencies. Look for ways to increase your income through side hustles, a new opportunity, or even negotiating higher wages with your current employer.
Just remember—not all sources of income are created equal. The income from your job, for instance, has two critical weaknesses…
It may dry up if an emergency stops you from working
Wages haven’t kept pace with inflation for decades
In short, the best sources of income for emergencies work even when you can’t, and empower you to control your own wage.
Some options are…
Turning a hobby or passion into a side-hustleStarting a business that eventually becomes self-sustainingCreating and selling duplicatable items like books, courses, music, etc.
Split your emergency fund. If you have a substantial emergency fund you could split it between two accounts. One half would grow slowly but remain easily accessible and stable. The other half would grow faster but be less accessible and more volatile.
Be warned—this strategy will only work if you have substantial emergency savings. Before you opt for this approach, consult with your financial professional.
Shielding your emergency fund from inflation is possible, but it takes the right strategy. It’s always wise to consult with a licensed and qualified financial professional before committing to a strategy.
Not sure if you’re on track to become wealthy? The Rule of 72 can help!
The Rule of 72 is a simple mental math shortcut that estimates how long it could take your money to double. This is what it looks like…
72 ÷ interest rate = years to double
It’s simple, it’s easy, and it might change your life.
Let’s say you’re done living paycheck-to-paycheck and you’re ready to build wealth. You’ve downloaded a budgeting app, and you’ve set aside $150 each month to save. Look at you! That’s a massive step towards building wealth.
But now you face a dilemma—where should you stash that money each month?
Your checking account? A savings account? Retirement accounts? NFTs? Each person you ask has a different opinion, fully backed with anecdotal evidence.
But have no fear! Enter the Rule of 72. It’s your gleaming sword that can slash through false perceptions and help you conquer your savings goals.
Let’s say for the time being, you’ve kept some money in a “high-interest” savings account earning .5%. How quickly will that account double your money?
Simple—plug that interest rate into the Rule of 72, and you get…
72 ÷ .5 = 144 years to double…
That’s right—your money will take 144 years to double with your current savings strategy. Yikes! That’s enough time to move from steam power to SpaceX.
But that’s not all—that interest rate leaves you helpless to inflation, which as of the writing of this article is about 3.25%.1 Luckily, you can use the Rule of 72 to discover when inflation will double the cost of living. Just replace the interest rate with the rate of inflation, and you get…
72 ÷ 3.25 = 22 years
Think of it like this—in 144 years, your money would double once. But the cost of living would double 6 times. Without the Rule of 72 to reveal this truth, your savings strategy might erode your wealth instead of increasing it!
But suppose you found an account with a 6% interest rate. Plug that into the Rule of 72, and you get a very different result…
72 ÷ 6 = 12 years
Over a 45 year career, your money would double roughly 3 times. The cost of living would only double twice. So your wealth would be above the rising tide of inflation.
The Rule of 72 isn’t a guarantee of success. After all, past performance can never guarantee future results. But the Rule of 72 can estimate if your savings are on track to become wealth, or if you’re heading towards financial disaster. Use it often, and discuss your findings with a financial professional.
Warren Buffett didn’t become a billionaire overnight. Instead, he leveraged simple concepts over decades to build a vast fortune.
These are the same concepts you can use too.
To demonstrate this, let’s review the history of Buffett’s wealth…
Buffett started growing his money at age 11. He bought three stocks at about $38 a piece.¹
By the age of 30 he had become a millionaire.²
He didn’t become a billionaire until age 56.³
But the vast majority of his wealth wasn’t created until he was past the normal retirement age.
Over the next 36 years, his wealth surged to over $100 billion.⁴ If you include the $37 billion he’s donated,⁵ his net worth increased over 10,000%.
That’s a staggering figure.
And it’s all because he leveraged two simple concepts—the Power of Compound Interest and the Time Value of Money.
The Power of Compound Interest explains the exponential growth of Buffett’s net worth. Buffett used money to earn money. The more money he made, the more he could also earn.
By the time he was 57, he had $1 billion at his disposal to build further wealth. In short, he unlocked a virtuous cycle of growth leading to greater growth.
But it’s the Time Value of Money that explains Buffett’s massive success.
Compounding requires time to get the maximum benefits. The longer money compounds, the greater its ability to build wealth.
And Buffett started compounding early. Very early. Age 10, to be precise.
What if he had started later? Let’s suppose he started at age 30 with $25,000, earned 22% annually (Buffett’s career average), and retired at age 60 to play golf.
His net worth in this scenario? $11.9 million. 99.9% less than his current value.⁶
The takeaway? Be like Buffett.
That doesn’t mean going down the finance nerd rabbit hole. It definitely doesn’t mean adopting the Oracle of Omaha’s diet of fast food and soda!
Instead, leverage the Power of Compound Interest ASAP. Then, be patient and let the Time Value of Money work its magic over years and decades. And rest easy—you’re following in the footsteps of the greats.
The scandal of the American financial education system is that there is no American financial education system.
It doesn’t exist. And millions are suffering for it.
As it stands, only 21 states require financial education courses to graduate high school.¹ But that number is a mirage—60% of students in those states haven’t actually taken the classes!²
Simply put, almost no one in America is learning how money works. And it’s wreaking havoc on the lives of millions.
Would these statistics even exist if schools empowered students with financial literacy? You be the judge…
• $167 billion wiped out by foolish investments in meme stocks in early 2021³
• Over $1 trillion lost to volatile cryptocurrencies in a single week⁴
• Over $1 trillion in student loan debt shackling Americans⁵
• 1/3 of millennials believe they’ll never have enough saved to retire⁶
These numbers tell a story.
Students go through high school without hearing a peep about how to manage money or build wealth.
They sign off on student loans without being taught how debt can devastate their future.
Graduation comes around, and they start living paycheck to paycheck. How could they not? It’s all they know.
And then, no surprise, they’re suckered into get-rich quick scams that promise wealth but only deliver crushing losses.
Do these scenarios hit a bit too close to home? If they do, then know this—you cannot rely on the powers that be to show you how to change your story.
If you were let down by your school system—and even if you weren’t—ask me for a copy of How Money Works: Stop Being a Sucker. It may be the knowledge you need to turn your financial situation around and change your future.
The median annual salary for men is around $61,100. At 83¢ for every $1 earned by a man, the median annual salary for women is around $50,700.² For someone taking care of a family, how significant do you think that extra $10,000 would be?
By the time a woman reaches age 65, she will have earned $900,000 less than a man who stayed continuously in the work force.³ Consequently, retired women receive only 80% of what retired men receive in Social Security benefits.⁴
Women tend to be the primary caregivers for their children, parents and partners.¹ So women end up taking time away from their careers to care for loved ones.
These career interruptions can significantly impact women’s chances to climb the corporate ladder – promotions, raises, bonuses and full retirement benefits.³
Since women earn less, we have less money to set aside for our financial goals. Of the Americans who live paycheck to paycheck, is it a surprise that 85% are women?⁵ As a result, women own just 55¢ for every $1 owned by men. We accumulate only half of the wealth accumulated by men.⁶
We may not see the gender pay gap or the gender wealth gap close in our generation. But women can change the financial trajectory of their lives by learning how money works and applying the 7 Money Milestones. By understanding and paying attention to all of the things that make up our financial picture – Financial Education, Proper Protection, Emergency Fund, Debt Management, Cash Flow, Build Wealth, and Protect Wealth, we have the power to take control over our financial future and create equal wealth for ourselves.
And, women need to think about their career decisions. We should consider choosing a career that pays more to women and men equally. With a company that doesn’t penalize women for time spent taking care of loved ones. A place where women can create equal pay for ourselves.
Women have made a lot of progress in pursuing higher education and professional careers, but we’ve only made incremental progress in our finances. If we want to bring about profound change, we have to make it happen for ourselves. We have the power to close the gap in our lives for ourselves and our families.
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!
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!
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—around .03%.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—an average of $10,545 per checking account, 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!
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:
Reduce Your Debt
Increase Your Cash Flow
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.
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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