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How Money Works Educator - Wes Wyatt

Wes Wyatt

HowMoneyWorks Educator

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November 22, 2022

Why You Must Know How Money Works

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Why You Must Know How Money Works

November 22, 2022

Why You Must Know How Money Works

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

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

What will your reality be?

It will largely depend on how you think about money.

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

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

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

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

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

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

Test your literacy with the HowMoneyWorks challenge.

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

Read the HowMoneyWorks: Stop Being a Sucker book.

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

Meet with a financial professional.

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

Grand failure or grand finale?

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

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The True Cost Of Financial Illiteracy

November 15, 2022

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

November 10, 2022

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?

November 4, 2022

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

Building Wealth In Your Twenties: What Complete Beginners Need to Know

October 27, 2022

Building Wealth In Your Twenties: What Complete Beginners Need to Know

If you’re reading this article as a twenty-something, congratulations!

By the time you’re done, you’ll know more about building wealth than many of your peers—and even people older than you, too.

Here are a few actionable truths for the start of your financial journey…

Your future depends on your financial education.

Until you understand how money actually works, you’ll lack both the knowledge and motivation to seriously build wealth.

Read How Money Works: Stop Being a Sucker to discover the basic concepts that you should have been taught in school.

Before long, you’ll know how you can put what you learn into action.

The time to start saving is NOW.

It’s simple—the longer your money grows via compound interest, the greater your potential for building wealth.

Collaborate with a licensed and qualified financial professional you can trust to find the right growth vehicles for you. Then start saving.

Speaking of saving…

Save whatever you can—even if it doesn’t seem like much.

You can only save $25 per month? That’s not too little to make a difference—time, consistency, and compound interest can transform even small monthly savings into a foundation for your financial future.

As your income increases, scale up your savings to match.

Take ownership of your income.

If you’re in your twenties, the skyrocketing cost of living is among the greatest threats to your ability to build wealth. As prices rise, the less income you have to save.

So what can you do if your paycheck is lagging behind the cost of living?

A common solution is to create a tight budget. But you can only cut back costs so much, especially if prices keep inching up.

That’s why it’s also essential to find ways to increase your income. Asking for a raise, finding a new job, and using your skills to start a side hustle are all strategies you might leverage to boost your earnings without launching a new career or going back to school.

Manage your debt before it derails your finances.

Make no mistake—ignoring your debt is dangerous.

It doesn’t take long for those monthly payments to completely consume your income—and your ability to build wealth.

Manage it now, before years of interest payments cost you a potential fortune.

Now is the time to secure proper financial protection.

Few young people realize that their twenties can be the perfect time to buy affordable life insurance.

That’s because the premiums for life insurance are based on risk of death, which, on average, tend to be lower in your twenties than later on.

Meet with a financial professional and explore which options are best for you. You may be surprised how much protection you can secure at a price that fits your budget.

If you take one thing away from this article, let it be this—you’ll likely never be better positioned to build wealth than in your twenties. Implement just two of the ideas in this article, and you’ll be miles ahead of your peers. Implement them all, and you’ll be well on your way to a prepared financial future.

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The Credit Score Playbook

October 18, 2022

The Credit Score Playbook

If you read this blog before, you 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/

Let’s Talk About Money

October 13, 2022

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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Is Diversification for Dummies?

October 4, 2022

Is Diversification for Dummies?

Do some digging, and you’ll find mixed opinions about diversification, especially among the wealthy.

Billionaire investor Mark Cuban said diversification is “for idiots.”¹ Warren Buffett claimed diversification is really just a “protection against ignorance” for novice investors.² Dozens of articles across the web reach the same conclusion—diversification can be an unnecessary precaution.

There IS a kernel of truth in their opinion… If you’re in that special class of billionaire investors.

Both Mark Cuban and Warren Buffett made fortunes by investing. And every investment they make is based on careful research, expert advice, and decades of experience. They have little need for diversification because their moves are calculated. To them, diversification would be like putting training wheels on a motorcycle—an unnecessary precaution for a fast and powerful machine.

But what if you’re still in first gear on the road to wealth?

Diversification can serve as a useful safeguard—your personal financial training wheels. Diversifying investments across multiple assets with varying degrees of risk can help soften the impact of losses within your portfolio. In other words, putting your eggs in more than one basket can help compensate for lack of expertise.

Are you leveraging the strategy of diversification? How diversified is your portfolio?

Contact a licensed and qualified financial professional ASAP and start planting the seeds of your future wealth.

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¹ “Robinhood and Reddit: A timeline of two apps tormenting Wall Street,” David Ingram and Jason Abbruzzese, CNBC, Jan. 28, 2021, https://www.nbcnews.com/tech/tech-news/robinhood-reddit-timeline-two-apps-tormenting-wall-street-n1256080

² “Horizontal diversification in action,” Winnie Makena, The Standard, Apr 28, 2021, https://www.standardmedia.co.ke/business/article/2001411132/horizontal-diversification-in-action

Finding Your Creditworthiness Is Easier Than You Think

September 27, 2022

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/

Two Rules for Creating a Watertight Emergency Fund

September 22, 2022

Two Rules for Creating a Watertight Emergency Fund

So, you’ve got a shiny new emergency fund. Congratulations! You’ve officially completed Milestone 3 of the 7 Money Milestones.

It’s a turning point in your journey towards real wealth. You now have the resources to extinguish financial fires without resorting to debt.

But just because you have an emergency fund doesn’t mean that you can start pulling from it willy-nilly. If your emergency fund starts leaking money, you may find yourself staring down a financial forest fire with an empty bucket.

Here are two simple rules for creating a watertight emergency fund that can be there for you in your hour of need…

Rule #1: Your emergency fund is ONLY for unexpected emergencies.

That’s all. It’s not for last minute birthday presents, much needed spa days, or irresistible Black Friday sales. It doesn’t matter if it sits in your checking, savings, or a separate account—as long as it doesn’t tempt you to use it for anything but a true emergency.

Rule #2: If you need it, use it.

If you’re facing a broken down car, a leaking refrigerator, or a kid with a knocked out tooth, use the money in your emergency fund. Fix the car, replace the fridge, pay the ER fees. That’s what it’s there for. Just make sure that afterwards you add back a little money every month until your emergency fund is full again.

Follow these two rules and your emergency fund will be there when you need it most. It’s the foundation of financial security as you conquer the remaining Money Milestones without fear of unexpected setbacks.

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Not Knowing How Money Works Sucks

September 15, 2022

Not Knowing How Money Works Sucks

Can everyone agree that not knowing how money works sucks?

It sucks up your time.

It sucks up your freedom.

And, most importantly, it sucks up your income.

So where does it all go?

It goes to your mortgage lender.

It goes to your credit card company.

To your bank.

To Apple, Amazon, and Netflix.

You know—the guys who know exactly how money works.

And here’s something else they know—the moment you also learn how money works, their power evaporates.

Why? Because you’ll suddenly start seeing all the ways your money can work to make YOU wealthy, instead of someone else.

You start recognizing—and avoiding—the raw deals that banks keep throwing your way.

And you’ll finally stop wasting time feeling like a fool—and start living your life and providing your best to the people you love most.

It’s really simple. The only antidote to the pain of not knowing how money works is to actually learn how money works.

Get a financial education, and watch the amount of suck slowly drain from your life. I’ll be right here the moment you’ve had enough.

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Veronica Does NOT Need Life Insurance

September 9, 2022

Veronica Does NOT Need Life Insurance

Veronica does NOT need life insurance.

Veronica is a 38 year old independent woman. She lives in a cabin at the edge of a lake on property owned by her best friend, Kim.

Veronica gardens, hikes, and plays solitaire while listening to old jazz records she inherited from her late parents. She has no kids. She owns no property, assets, or even a bank account for that matter. She doesn’t even have a mobile phone. She does have an old computer though, so she can keep track of what’s going on in the world. This allows her to communicate with Kim, who visits Veronica once a year to bring her seeds for her garden and a bottle of wine.

Veronica has no family, no dependents, no spouse, no parents, and no job. It’s just her and the cabin, the lake, and her vegetable patch—and you know what, she likes it that way.

Veronica’s situation isn’t typical. She really doesn’t need life insurance.

If you’re NOT like Veronica, meaning you do have kids, a spouse, a house, assets, a bank account, etc.—you probably need life insurance. And with the speed at which life changes these days, you probably need a life insurance review ASAP.

Veronica can remain off the grid, she’ll be just fine. But for those of us who live ON the grid, make a point to check in with your financial professional this Life Insurance Awareness Month to discuss your updated financial security needs.

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Benjamin Does NOT Need Life Insurance

September 9, 2022

Benjamin Does NOT Need Life Insurance

Benjamin does NOT need life insurance.

Benjamin is a 73 year old author. He lives in a small apartment in a mid-sized city that he leases for free from an old business connection.

Benjamin wakes up every day at 6am, stretches, makes instant coffee on his stove, and then starts typing. At this point, he’s not interested in writing the next great American novel—he wrote four of those in his early 50s. He splits the sizable royalties, which continue rolling in each month, between his spartan lifestyle and funding his top ten favorite charities.

His daughter is financially successful, so he has no dependents. He hasn’t received bills in the mail since 2010. His greatest expense is splurging on the senior special at the diner up the street, which is owned by one of his biggest fans. And all that means is that his meal is usually on the house.

His life consists of his morning stretching routine, instant coffee, feeding the pigeons on the fire escape, and writing short stories for his two grandkids. And he goes to bed every night with a big smile on his face.

Benjamin is unusual—he doesn’t need life insurance.

But if you’re in a period of life in which you carry significant financial responsibilities for the people you love, you’re not like Benjamin. You most likely DO need life insurance. And even if you already have a policy in place, there’s a good chance you don’t have enough coverage. LIMRA reported in 2021 that there are over 102 million people in America who are uninsured or underinsured—that’s almost one in three people!1

And with skyrocketing costs of living and an ever-changing economy, you likely need a review ASAP.

So if your responsibilities involve more than sharpening pencils and making sure your plants are watered, schedule a checkup with your licensed and qualified financial professional. It’s Life Insurance Awareness Month, so now is the perfect time to fine-tune your financial protection.

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¹ “Facts About Life 2021, Facts from Life Insurance Awareness Month, Help Protect Our Families,” LIMRA, Sep 2021,

Calculating Your Cash Flow

September 6, 2022

Calculating Your Cash Flow

Cash flow is the money you have available to spend or save… and it’s perhaps the most important metric of your financial health.

To be precise, cash flow is the net amount of money flowing in and out of your accounts each month.

If you have more cash flowing into your accounts each month than out, you’re cash flow positive. If you have more cash flowing out than in, you’re cash flow negative.

Why is it so critical? Because positive cash flow gives you options.

It means you have money at your disposal for building wealth, securing financial protection, and creating an emergency fund. You may even have enough positive cash flow to treat your family to a nice vacation.

Negative cash flow restricts options. You may have to choose between affording necessities and building your future.

Fortunately, calculating cash flow is really simple.

First, write down how much cash is entering your primary spending accounts from all sources. That covers dividends, rental income, side hustle income, and employment income.

Note: You’ll want to exclude things like asset appreciation for your house or investment accounts—you can’t access that cash in a pinch, so they don’t impact your monthly cash flow.

Then, list how much cash is leaving your accounts each month. Remember to include everything from living expenses to money flowing into wealth-building accounts to the miscellaneous things that come up day-to-day.

Finally, subtract the total out-flowing cash from the total in-flowing cash.

The remainder is your monthly available cash flow. That’s your existing financial power for doing things like eliminating debt or going all out on building wealth.

If that number is closer to zero than you’d like, don’t sweat it. By completing this exercise, you should have an inkling of where you’re overspending so you can cut back accordingly. It may also be the wake-up call about your income—the best way to boost your cash flow is to increase your income!

But you won’t know where you stand until you do some number crunching and find out. Don’t wait—calculate your cash flow today, and then review your results with a financial professional.

Together, you can strategize how you’ll leverage—or increase—your cash flow so that you can begin building wealth.

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The Rule of 72 Explained

August 30, 2022

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

August 23, 2022

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.

Are You Brave Enough to Answer These Two Big Money Questions?

August 16, 2022

Are You Brave Enough to Answer These Two Big Money Questions?

Let’s get right to it. Here’s question one: Are you building wealth?

If you answered, ‘yes,’ good for you! Now, let’s get a little more specific… Are you building enough wealth to afford the lifestyle and independence you want until the end of your life?

If you’re like many Americans, you can’t answer that question for two reasons. First, you haven’t calculated how much wealth you’ll need. And second, you don’t know if you’re saving enough now. Have you run the numbers on your 401(k)? You might be shocked at how fast it might run out in retirement. What about Social Security? Any clue how much that will add up to? If your future financial security hinges on these two income sources, you might freak when you realize how little you’ll have to live on each month.

61% of Americans across all ages fear running out of money in retirement.¹ And it’s no wonder! We’re living longer than ever, meaning we need enough savings and passive income to last what could be 20 years (or more).² Being able to jazzercise and waterski with the grandkids at 75 is great—unless you’re broke.

Rather than thinking like a sucker and assuming you’ll somehow have enough for the future, it’s time to start thinking like the wealthy. They don’t put their heads in the sand and “hope it all works out”. Money—to them—isn’t anything to be ignored. They learn everything they can about how it works and start developing strategies to make it last. To the wealthy, money is not boring, mysterious, scary, or frustrating. They consider the lifestyle they want and then backwards engineer how to get there, by making money work for them.

To the wealthy, money equals possibilities, goals, gifts, and solutions to problems. Once they have the knowledge, they do everything they can to take control of their future. Money becomes wealth.

But if you don’t know how money works, your money can also become… someone else’s wealth.

Here’s question number two: How do you think about money? Do you think about money like a sucker? Or like the wealthy? It’s not a criticism. It’s a choice.

If money still seems mysterious, confusing or intimidating to you, take these two steps immediately…

Read the book, “HowMoneyWorks, Stop Being a Sucker.” (You can contact me to get a copy.) Then, sit down with a financial professional and find the answer to question one, “are you building enough wealth to afford the lifestyle and independence you want until the end of your life?”

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Sources:

¹ “Reclaiming the Future,” Allianz, https://www.allianzlife.com/-/media/files/allianz/documents/ent_991_n.pdf

² “How Long Will Your Retirement Really Last?,” Simon Moore, Forbes, Apr 24, 2018, (https://www.forbes.com/sites/simonmoore/2018/04/24/how-long-will-your-retirement-last/#5b6be5c77472)

Is Your Cash Flowing?

August 2, 2022

Is Your Cash Flowing?

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

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

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

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

Redirect your cash flow

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

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

Open up new income streams

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

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

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

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Exposing the Roots of Your Financial Insecurity

July 21, 2022

Exposing the Roots of Your Financial Insecurity

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

Do you agree or disagree with these statements?

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

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

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

It’s because your finances are in grave danger.

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

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

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

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

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

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

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

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Lessons from Las Vegas

June 28, 2022

Lessons from Las Vegas

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

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

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

Not one of them looks happy.

They likely don’t talk much with their spouses.

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

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

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

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

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

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

They’ve never been taught.

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

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

No.

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

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