personal finance 101, understanding personal finance basics and fundamentals
When. People introduce themselves they. Usually talk about their jobs their, families their. Passions, one, thing you rarely hear, is their, money story which, is their relationship to money now. Ask yourself these questions do. You feel in control of your money are you organized, who'd, you learn from with. Money a taboo, topic when you were growing up do. You like to manage your money yourself or are, you more comfortable trusting, someone else and if it's the latter is that, because of a lack of confidence a lack of time or just, because, you've told yourself you, can't do it I look. At financial empowerment as a circular, process that. Covers earning, spending. Saving. And growing, your money where. There's opportunities, to move yourself forward in each of them but. The ultimate goal isn't, so much to get organized, or feel in control but. It's to move into the realm of taking, whatever money, you have and growing, it wisely in. This. Course I'm going to review the building, blocks of personal, financial management. I'll cover the basics, of paying down debts working, up a good credit score what, tools you can use to get organized, and help, you prepare to, be a confident, investor. You. This, video will outline a way of thinking beyond, the Paycheck that, enables, a more productive, and less fearful. Approach, to money we. All work for multiple, reasons making. An impact in the world following. Our passions, expressing, creativity. And of, course earning a living interestingly. Many. People are willing to talk about their weight their love lives or their deeper secrets but find it very difficult to talk about their income the. Goal in this video is to unlock your reservations. We'll, review three ideas that can help you think differently, about your income and conclude. With the golden rule of earning, more, the. First thing to consider is, that even, if you're on a salary stop, thinking of your income as a fixed, number but, as a number that grows as you grow, my. Personal, goal when I first started working was, to always earn more next year it. Wasn't a specific number or tied to a promotion, it was, an expectation of, myself, that I took responsibility for. Remember. Salary, increases, are rarely given they're, earned and even, more importantly, they're, asked, for, over. The years I've done performance, reviews with hundreds, of people all over the world and one, thing I've learned is that the people who asked, for more money were, generally not the people who really deserved it they, were just more confident, so make, sure you, ask. Second. Consider. How you spend your time time. Is truly a finite, resource once, you spend it it's gone if you're, actively, looking to grow your income start. Looking and how you invest, your time, spend. Time expanding. Your skills or finding, a mentor, or taking, classes, or invest. Time in figuring out where else your income can come from or what. To other companies in your industry pay into, my previous point how, can this all help you earn more next year, third. Follow. The money this, is a recurring theme in this series when, you're paid to do something where does that money really come from go.
Upstream, And figure, out who. Is paying your salary and how, you are, creating, value for them rethink, about who your boss really is maybe, it's not your supervisor, or the owner of the company but, the customer, or the client who, the chunks. Understanding. This leads, directly to, the golden rule know, your worth, your. Worth is not what you're paid but the value, that you bring when. You know your worth you can negotiate you. Can confidently, present, your value to your employers, or your customers, your, worth is also, relative, what, do other people make for doing the same thing, have, you taken on additional, tasks that has saved your company money then quantify. It and protip, don't, wait until performance, review time make, your case now, later. On in this course I'll share with your advice on how to ask for what you're worth but. For now remember, you, worked hard for your money make, it work hard for you. When. We use a word income the white-collar world thinks, salary, and if, they're lucky there's a bonus or stock options and if they're very lucky a pension, or retirement plan. But. The world has changed and, fast, faster. Than the vocabulary, to describe work, an income can move in, this, session I'll cover a different way to think about your income including, a more contemporary view, of income sources and your, role in making sure that you're getting paid in more ways than one. The. Biggest positive change, for this generation of workers is that there's much more transparency, into how you're paid in many, countries the government has led the way into this new transparency, with, government workers, assigned rankings, and levels and the salary bands within those levels are published and clear you, know where you are and you know where you're going in this situation, which, is very different to companies where opacity, around salaries, works in favor of the employer, which. Brings us to a big negative change the. Onus is now on the employee to. Investigate, their Worth and to make the case for increments, and a. Big part of taking charge versus, leaving your income in the hands of your employer is to, be more creative or even more aggressive, with the types of income that you can consider an, easy.
Way To put this into context, for where you are and where you're going is to, ask this question who. Pays you let's. Look at the possibilities, there's. The companies you work for there's, companies, you've invested. In there's. People, who buy things from you there's, people who pay for your time or services, and then, there's people who rent things from you, spend. A moment and list out who's paying you now and how, you think you can be paid a few years from now and I, do hope, that investment, is on your list. During. The signup process for, clients at my business we have a two minute financial, consultation. That tells you whether you're ready to start investing, the. General, rule of thumb is that your expenses, should be less than, all your income, the. Key thought here, is that however much money you have you should be looking into investing, as a key to growing your money over time, remember. In the US and in many countries investment. Income is, taxed at a much lower percentage than salary, which. Is why the one-percenters. Probably, pay a lower tax rate than you the. Higher percentage of your income that's investment, income the, lower percentage, of tax that you pay and a. Further thought on investment, income I go into more details, in Chapter four but, the key thing to remember is, that if the value of your portfolio goes. Up that's, not income not, unless you sell some or all of it and you realize the gain, income. Is in the form of dividends, from companies, and interest, from bonds, so. Let's, say you have a $500,000. Nest egg by the time your salary job goes away and you expect, to live off the income, from that nest egg at a, conservative. Four percent return that's, only twenty thousand dollars a year I, believe. That the future is coming fast we're to have a side hustle will be the rule and not the exception. Salaries. Are becoming less predictable, as companies, benefit, from a flexible, workforce, putting. The money you have to work through investing, is a side hustle that you can do while you're working hard at your job or jobs, as one. Of my mentors told me no, one ever got rich through their salary his. Point was at equity, in real, estate or in your investment portfolio or, in businesses, equity. Is the key to long-term financial. Success. Empowerment. Comes with multiple income, streams even. If they're a trickle at first it's better than nothing longer-term. Multiple. Income streams buy, you options, in life, investing. Your time attention. And money in more avenues, than just your primary career is a great way to ensure, that your income can grow long term. There. Is so, much anxiety wrapped, up in our relationship to money we, all work so hard, to get it and it's so easy to spend it and every. Day we're bearish with messages, about what we should be doing which, for many people just makes you feel bad but. It, doesn't have to be that way in this, video I'm going to share a practical, perspective on tax time as well, as ways to keep more of your hard-earned money. The. First thing to consider is, that tax shouldn't, be a surprise it, happens every year and it certainly shouldn't bring an unpleasant, surprise where, you have to write a big check, as an. Aside you should know that the tax rates on wages are generally, higher than tax rates on investments, so, if you're in a high tax bracket your earnings, from actual labour can be taxed at over 30%, on the, other hand your earnings on Apple stock can be taxed as low as 15, the. US tax, system definitely. Looks more favorably, on money earned through investments. My. Goal as an investment advisor is to get people out of the day-to-day money, in money out cycle, and start, thinking of themselves as, investors, the. Sooner that happens the, sooner benefits, like tax advantages, can start to pay off for you so. Let's start with how to reduce taxes, again, with the goal of saving money not, to spend but, to start investing, or to contribute to existing, investments. There's. Three, ways to reduce taxes, first. Are the income reductions, you, can lower the income that taxes, assessed on a number, of ways. Contributions. To IRAs, and interest on student loans can, generally, be used to reduce your income subject. To earning limits. Employer-based. Flex, spending accounts for expenses, such as transit, parking, education, and childcare some. Can sometimes, be used to reduce your taxable income these.
Lower Your taxable income thereby, lowering the amount of earnings that you're taxed on. Second. Use. Credits, to reduce your taxes, make. Sure you check if you can get the Earned Income Credit on your tax return the. Earned Income Tax Credit sometimes, called a ITC, is a tax credit to help you keep more of what you've earned, to qualify you must meet certain requirements, and file, a tax return even. If you don't owe any tax or you're not required to file an. Estimated. 25, percent of people who qualify for the EITC do. Not apply for it and you. Can get it credited even, if you missed it for the last three years make. Sure you check. There's. Also credits, available for, education childcare. And for savings they're. Geared to people earning under fifty thousand per year but check to see if you qualify for these, last. Deductions. These, are things you can claim, to, lower your taxable income it isn't. A dollar-for-dollar benefit, but it reduces your tax by essentially, showing you have less income to tax here's. A list of things that can be used as deductions, interest. On mortgages, property, taxes, state, and local taxes, charitable, donations, and some, medical expenses, if, you. Add up these deductions, see if they're greater than the standard, deductions, if they, are greater you shouldn't itemize, your deductions in, your tax return it will save you money, also. Be, aware of other miscellaneous, deductions if, they, amount to over 2%, of your adjusted gross income you, can claim them - these. Include tuition, dependent. Care tools, for work magazine. Subscriptions, fees, you pay to get your taxes prepared and, expenses, incurred looking for a job, confused. Absolutely. This is confusing, if you, qualify for a lot of the deductions, and credits I've just talked about it may, be a good idea to get some help there's. A lot of tax preparation services. Online that are good and cheap many. Have free tools to help guide you through some of the process and file, some if not all your, tax return for free take, advantage of them but. If things look super complicated get, a professional to help and get a quote up front for you begin, your. Goal should be to make sure the cost of the professional, is less than the extra money you'll get back, tax. Is an inevitable, part of life if you're just starting out on your working life now's a good time to form good habits and, if you've been doing it for many years and dread it there's no time like the present to look at it with fresh eyes. The. New year is a time when, traditionally, people reassess. Where they are financially, and set goals for the year to come in this. Video we're, going to discuss a method of goal-setting that's less about vague numbers, that you beat yourself up for later and more, about practical, steps to make new habits that stick so forget. The New Year and think tax, time, regardless. Of whether you're doing your tax return yourself or you have someone doing it for you take, this time once a year to reassess, where you are as much. As this time is about reviewing, the past year and literally, paying your dues it can, also be a time for planning, and setting goals, tax. Return times a great deadline, to make a commitment to yourself out, of, all the, money you expect to earn in the next year what. Are you gonna pay yourself. Two. Things you need to do to figure that out are one. Pick. A percentage, of your post tax income, that you're gonna save and set, in place a plan I recommend.
Between 10 and 30% which sounds like a lot but remember, you're, paying a lot of people, before you pay yourself so let's flip that thinking, to. Maximize. Your pre-tax dollars and invest as much as possible from that pool it's, critically, important, to consider, your pre-tax, dollars as well as your post tax take-home, pay, the. More pre-tax, dollars you use the better off you'll be let's. Say you're paying 20 cents on the dollar in tax if you invest after, tax dollars you have to get a 25 percent return just. To get you back up to that dollar well. It can take years to get a 25, percent return, on a dollar which. Is why it's a total no-brainer to, maximize, whatever pre-tax. Advantages, you can get if. Your. Employer has a tax free plan in place your, goal is to get as many pre-tax. Dollars into, these plans as possible, and contribute. Whatever will, get you the highest match also. Known as free money unfortunately. One. In three people who have this option never take their employers, up on it it's, by no means a perfect system but it's way better than doing nothing so. Take. A moment and consider the, coming year whether you like it or not you're paying for your housing your car your food your doctor's visits your utilities, your clothes and much more, now, instead. Of making them the priority make, you the priority I'm not, saying don't pay your bills I'm saying pay yourself first and then look at how you can pay your bills every. Little bit helps, what's, important, is making that commitment to yourself in the. Meanwhile try to ignore the many fear-based messages. Leading up to tax time it's, a great time of year to reset your financial, goals. It's. Impossible, to watch TV for more than 30 minutes and not have a big financial institution. Ask you do, you have enough money to retire. There. Goal is to have people move their nest eggs to them with, a promise, that they will work with you to ensure that you, two can spend your glory years watching the Sun go down from a beach chair, these. Ads touch on a very core, human fear who'll, take care of me when I'm old but, they're also based on a flawed premise that, work is something that starts and stops on a predictable schedule in this. Video we're going to cover two things you can do now to set, yourself up for income when you're no longer at a traditional job but. First a thought to set the stage we. Need to reframe retirement. Or whatever, we're going to call it when the boomers are done that, life doesn't, stop at 65, so why, should your income, first. Think, of people for whom retirement, is irrelevant, writers. Artists. And musicians designers. Even. Religious, instructors, it's. Interesting, that careers that are callings, don't have an expiry date my. Point is not to become a writer but, to think of the things that you love to do that, will pay you beyond, the age of 65, and that you can start, to build beyond, your current scope of work for me I love, to talk and I love to teach my. Goal is that I can share the benefits of my experience, and be paid for it well past the age of 65, I'm, also a long-term investor, which certainly, doesn't have a use by date my. Hope for myself is that I'll have enough assets, to have a great lifestyle, with, income, to cover day-to-day, expenses that's. How I've tamed my personal, retirement monster. The. Second, thing to do is to get smart about investing, if only. To be able to ask the right questions, of the people who manage your money the. World is filled with experts, who are paid handsomely, for, their expertise, on how to manage your money but. They get paid first. Remember. The idea of follow the money follow, yours. Understand. What you're paying for and what, you're getting in return just. To have that knowledge will help you a lot in figuring, out what to do now and what to do later a hint, from now is to roll over any old 401. KS into IRAs, where you have a lot more flexibility. Over what you can invest in, the. Bottom line is that money can be overwhelming. At the best of times and combining, it with the fear of what happens to you when you're older can, create a retirement, monster, that seems untamable.
Let's. Start with the premise that the current, view of retirement, is a historical. Aberration, for. Millennia, older, people have worked whether, it's in the home looking after grandkids, growing. Their own food or, practicing, their craft my. Grandparents, generation certainly. Didn't have the idea that at 65, they could put their feet up this. Is very much a personal, view of mine but I use it to illustrate a point we, all spend money till the day we die now. That, there's no jobs for life and pensions are going away fast where's that money going to come from a, happy. And functional, third phase of your life is not something that'll just happen as with, all good things in life you have to make it happen and don't, just rely on a big financial institution. Who says trust a professional. Invest. Your time yourself to, really explore, where, you are and where, you're going. I talk. A lot about following. The money and knowing, your worth but these things do nothing, to help you increase your income if you, don't ask in this. Video we'll cover the practical, advice on how to ask for more money first. Of all your starting point is critically. Important, if you're. Looking to break into a new job you have to make sure that your initial. Salary is adequate, raises. Come in small increments and when you move jobs it's unusual, to get more than a 10 to 20 percent jump, so, you need to make sure you start as high as you possibly can, otherwise, you'll always be working just to catch up. Next. It's vital, that you understand, the context, of your ask and, what is happening, behind the scenes at your company. Specifically. Ask. Yourself, these questions, question. One how's. The company doing are you expanding, and hiring new people or, shrinking, via laughs if the, company is shrinking. You can still be paid more in fact, during tough times it's even more important, for companies to keep their high-value team members so. Never let that put you off asking. Question. - how. Does a company see, you are, you high-profile, respected. And seen to be contributing or you keep your head down and hope that someone will notice. Question. Three do, you have a skill, that pays a premium, sometimes. It's not the bosses that make the most money but the people who do the specialized, work that's hard to hire for. Question. Four who. Makes, the decisions, about salaries, in many, companies it's not the boss who has the final say but the finance team their. Job is to keep to budget so at least understand, why you're getting a no if that's what happens, question. 5 what time of year is it asking. For a raise when the business is close to the end of the financial year when every dollar counts, is really tricky, question, 6 is there a formal, review cycle, do, you know when conversations.
Will Happen or is it ad hoc either. Way don't wait until your review to bring up your requests. Most. Businesses, have budgets, and people's, salaries, are forecast, usually, at least year in advance. Well-organized. Companies, also have a pool of money that's, forecast to cover razors but, consider this if you, expect, to get a 15%, raise, but the company only forecast 3%. Per person that, means that you took the equivalent, of five people's razors. Find. Out when your company does budget allocations, and have your conversations. Well before that day it was, a surprise, in my early years of being a manager that I had to get many layers of approval before I could give people raises, and it always came back to the same issue was. There room in the budget and whether, other people who also needed, significant, raises, so. How, do you go about ensuring, that you're being considered for an increment first. Do, your homework on your scope of work what. Were you hired to do and what, are you doing now the, most powerful tool you have is, a record, of the value that you add to the business if, you're. Saving the company the need to hire another person it's. Easier to justify an increment, use. Online tools, such as Gaston command pay scale calm to, find competitive and comparative, positions, gather. Data on what other people within your scope of work and experience, are being paid and go, a step further ask your colleagues what they're being paid but, be warned that can be a conversation, that can change your view of your job a colleague. Once found that someone who was more junior than her was earning fifty thousand a year more for a similar scope of work that, knowledge although valuable, had a very negative impact on her view of her company, if. You're, lucky enough to work for an organization, that publishes, salary data make, sure you're clear that what you're asking for is in line with what's published. Next. Figure, out who is best to talk to the. First conversation. You have should be with someone who's empowered, and in, your corner if you. Have a good relationship with your boss or supervisor they. Can negotiate with HR, and Finance on your behalf if you, don't have a good relationship you'll, need to work much harder to, show your value and your boss's word can undermine all the hard work you've put in, interestingly.
A, Friend of mine who's a chief talent officer for, a large global company, says, that every, day she has people complaining, about their compensation, but, rarely, do the complainers, propose what it should be don't. Be that person. Next. Have, the conversation, remember, this, is a negotiation and, one big rule of negotiations. Is that you shouldn't take a No from someone who isn't empowered, to say yes, don't. Be like Oliver Twist asking, for more gruel this is not a favor to be dulled out but a business case to be made the. Top four points, for you to present are your. Scope of work and the increased value that you bring, comparative. Data from your own company or your industry, your. Commitment, to the company and your intention, to continue to, expand your role to bring increase value and your. Number first. Think, of what you think is fair then. Add 10 to 20 percent to that number and that'll give you some room to negotiate down. Next. Practice, your conversation your, pitch should be no more than 60 seconds to cover those four points but, have an extra few points ready should, the person you're talking to want more detail make. The ask then. Stop, talking. Don't. Leave the conversation open-ended. And clearly. Ask what, the next steps are and how you can help make them happen even. If you get a no persist, with requests for performance, for a few dates and insights, into why you've got the no remember. There's always a lot going on behind the curtain it's, often not even about you, last. Even. If you get a no or you aren't able to secure the money you want there are other ways for you to benefit, from your loyalty, and contribution, to your employer, instead. Of money you can ask for extra time off or have the company pay for courses or continued, education or, perhaps. Ask for a flexible work arrangement, or a more challenging assignment. Or even a transfer, to a different location all. Of, these things can help you increase your long term earning potential. There's. A lot of anxiety around asking, for more money at work it's, tied so closely, to our self-worth, that it can be far more comfortable to, wait but. You. Are your own champion if you, have a sponsor or mentor in the organization, recruit, them into but. The most important, thing is that you ask. You. It's, not how much money you earn but, how much you keep that, is a key to your financial success and the, Delta between those two numbers is how much you spend in. This video I'll cover the idea of conscious, consumption and how being more objective, about what you spend can, help you long-term. According. To eMarketer advertisers. Around the world spent over half a trillion dollars last year marketing. Their wares a third. Of that 180. Billion dollars is in the US and of that 36. Companies all of whom you know well spent, over a billion, dollars in media it's, no wonder you want a shiny new car the. Way that you feel about certain companies, and brands and products it's, no accident there. Are brilliant people all over the, world that spend their whole careers figuring, out exactly how their, shampoo, will make you feel energized, or their gum will empower, your day or their car will make you feel like a rock star but. It's not all advertisings, fault, humans. Are hard-wired to compare, themselves to others it, helped us survive during, much tougher times when, the weak ones of the tribe had to be left behind, this. Hardwiring, manifests. Itself now into the syndrome known as keeping, up with the Joneses, in, the. Words of Will Rogers too, many people spend the money that they earn to buy things they don't want to, impress people they. Don't like in. This, chapter I cover tips on budgeting, and managing your credit cards there the practical, manifestations, of controlling, your spend in this. Video I'd like to explore the idea of conscious consumption, my.
Goal With my business is to turn consumers. Into, investors, and step, one of that transformation, is for, people to be more aware of, what they're spending their money on. Conventional. Wisdom says to pause before you make a purchase research, the options wait a few days comparison. Shop you, can, do all those things but. If they worked the average debt of a household, with credit card debt would not be fifteen thousand as it is now my. View is different I'm a big, believer in the idea of follow the money in both, your career and in, having a better understanding, of where your money goes, you. Work hard for your money everyone, does and then, you give your money to companies, for the things that you want to need those. Companies work hard for your business but, their primary, responsibility is. Their, shareholders, those. Brands, that empower and energize and make you feel like a rockstar they're. Working, for the people who've invested in them or to, put it differently the, outcome, of your hard work and the hard work of these companies is making. Mystic Connecticut hedge, fund manager richer, so. Who owns the companies that you spend money with and who's getting paid they're. Much more powerful, ways to be conscious, of your consumption, habits than, just pausing, or price checking, before you buy now. Do one more thing look. Around at all of the stuff that's made it into your home and into your closet how, much of it do you truly value how. Much is functionally, important, and how, much is just stuff you could have done just fine without or, perhaps, it's, things that you wish were better quality. Remember. This mini order the next time you're shopping every. Dollar you spend is a vote for the companies that you're buying from are they, companies, that you trust and believe in or you're just buying out of habit your. Money is enormous ly powerful, use, your votes well. My. Favorite, quote about budgeting, is it a budget can tell you what you can't afford but, it can't stop you from buying it anyway in, the, previous video on why we spend we covered a few tricks for how to resist, the lure of the latest shiny object, the. Next step in conscious, consumption is understanding. How money flows in and out of your household, and making. A budget to set goals and track your progress against, them, the. Four main reasons to set a budget are, to. Live within your means to. Get out of debt to, have money to invest and, to pay for bigger things like cars or vacation, or education. Or the latest, must-have, design, a bag, the. Entertainment, world is filled with Scrooge, McDuck stories. Penny-pinching. Millionaires, who are seen as an aberration, but. The reality, may be closer than you think the.
Conscious Decisions, that you make about how you spend your money have, a far bigger impact, on your long-term financial success. One. Of the most powerful things you can do before committing to larger items that need to go into your budget is shop around for, example. A mortgage, is probably the biggest financial decision, you'll make in your lifetime but only, 25%, of people shop, around before making that decision the. Impact, of a few percentage points in interest can be tens of thousands, of dollars that would otherwise be available for, your budget. There. Are many free apps and browser-based budgeting, tools available it's. Well worth your time investigating. How some of these could help provide some structure to the way that money flows through your households, but. Not all households, are the same so, here's. Different budgeting, tools for different types if you're. Sharing a home with roommates, or a family where you all contribute, to the bills then you might want to check out bucks fur this. Site specializes. In group budgeting, and shares expenses, between friends, or roommates and tracks shared bills. Couples. Could check out better halves for. Individuals. There, are many paid, and free solutions, one, that's very user friendly is level money. There. Are a few other noteworthy tools, out there like, mint which is a very widely used tool, that can auto categorize, her Spenser's and money. Strands which allows you to link all your accounts and create a 12-month spending plan, to. Get started I recommend, you try a free service first and get to know whether this will work for you or whether you need to pay. Many. Of the free tools mentioned are based on the envelope, system a tried-and-true. Method from the days when cash, was king where. Households, would have different envelopes for different expenses, food, entertainment bills savings, and once. The envelope was empty you knew you'd reached a lemon for. The technologically. Challenged, envelopes, are still a great solution, but. Now with credit cards in our pockets it's a lot harder to face the reality, of empty envelopes so once again it comes, back to you a budget. Won't change your behavior, only, you can do that, step.
1 - making a budget work for you is to have a budget that you're comfortable with building. In wiggle room for emergencies. And extra, shoes if you can step. 2 is not just stick to it as many advisors would have you think but, to be much more conscious, with your spending decisions, both, the little ones like your daily latte and the, really big ones like which neighborhood, you live in or public, versus private education. For your kids if you, really, want to dig into the psychology, behind the myth that is if you skipped your daily latte you'd be rich I found. The book pound-foolish, by Helen Oren to be extremely, useful. The. Best part of having a budget is that once you're saving money and have some investments, underway it's, a great feeling to see your numbers go up on a monthly basis there's. Nothing, fun about paying, down debts or trimming costs, but it is essential, to provide, the foundation, for future growth and buying, yourself better options in life I'll. Leave, you with this thought that is very applicable to budgeting from the great Eleanor, Roosevelt it takes. As much energy to wish as it does to plan. You're. In the money now. One if, you, ask old-school. Investment, advisors what keeps them up at night it's, the concept of wealth transfer. The. Generation, that was able to buy a home for $10,000 and sell it 30 years later from million they're retiring and they're, starting to pass on the. Wealth that they've accumulated over their lives is being inherited by their children and their grandchildren which. Is something that gives these old-school, investment, advisors nightmares, you. See this next generation is far less financially, literate than perhaps they could be but, they're spectacular, consumers. What. Does a sudden big check from a recently deceased relative, let's say $100,000, mean to the average person, if this. Was a game show these, would probably be the top five answers, new-car. Vacation. Pay off debts new, house help, out family, and friends, nowhere. In that list is invested, and certainly. There's no sense of let's give it back to the financial advisor that helped aren't moored with her money so. You see where this is going how. You spend, a windfall big or small will, speak volumes about your financial muscles, the. First thing to do is make a plan I know it sounds terribly, boring compared, with the idea of running to a jewelry store or telling your boss that you quit but. Bear with me set. Aside an amount that feels too small like you're cheating yourself as someone it could, be 10 to 20 percent of the amount, now. Prioritize, what you're going to do with that money perhaps. Set a budget of the, 20% of the windfall you plan to spend where, will that go be. Clear about what you want to need and take some time before, you start writing checks in the. Meanwhile invest. The rest and before. You stop this video right here consider. This if you. Were to win the lottery jackpot, tomorrow you, have a 90%, chance of, spending, it all within five years and then, being back at work and if, that happens, to people who win unimaginable. Wealth what, will happen to your windfall, without, some active management of your behavior, if. You were to invest the majority, of your windfall especially. For larger win Falls as possible. You could live off the interest and income that your investment, generates, maybe, not by your own plane lifestyle, but, one way your options are far broader than if you did buy the plane and end up broke in five years anyway. The. Second thing to consider is that if you're eyeing the assets of your relatives, as your own retirement plan don't.
Things. Change and they can change quickly think. Of your inheritance as a bonus, versus your call plan unless. Of course you're Malcolm Forbes who famously said I made, my money the old-fashioned, way I was very nice to a wealthy relative right, before he died, if. You're holding credit-card debt, use, your windfall to pay down as much as you can it's. Such a terribly, boring way to spend money but, as we highlight in a credit card video the, impact, of getting rid of your credit card debt is the inverse, equivalent, of having an investment, that's paying 15 to 20 plus percent. Planning. For a windfall is different, to wishful thinking, our, instincts. Has finally, trained consumers, as to spend to upgrade to enjoy ourselves, should. You be fortunate enough to have money come to you keep, your present self on the path that you're on unless. Of course you're in dire financial straits, and pay, your future, self far more handsomely, than your present self. The. Last thing to consider is, that if you're handing over your windfall, to someone else to manage you, must be in a position to ask the right questions, as an. Investor, it's your responsibility, to know how much your money is earning, for someone else the. First question, to ask is how much, in fees will I be paying you the. Second question is how does my return on investment, after fees compared, to the rest of the market. Asking. These two questions and acting responsibly on, the answers will do more to protect and grow your windfall than anything else you can do and you don't even need to be Malcolm Forbes to do it. Let's. Start with this credit, can, be a great thing credit. In the form of consumer credit or credit cards allow you to borrow money in order to finance the, purchase of something, that may normally be out of reach, it's a great thing if you need to buy a refrigerator or, a couch. The. Downside, of credit cards is that they charge an exceptionally. High interest, rate when, I say exceptionally, high as an investment, advisor I mean you're flushing your money down the toilet hi in, this. Video I'll be talking about credit, cards their benefits and pitfalls and how to make sure you manage them correctly and if, you're like fifty percent of American households that, have credit card debt I'll share, some tips and tricks to help you manage that debt. Currently. The, average interest rate on credit card debt in the u.s. is fifteen percent when. You charge that against the average debt on a US credit card which is about fifteen thousand dollars the, average American, with credit, card debt ends up paying two thousand, two hundred and fifty dollars in interest every year and if, you miss a payment and, your interest rate is raised to the penalty rate of twenty nine percent you'll.
Be Paying four thousand, three hundred and fifty dollars per year in interest that. Makes for some really expensive fridges, and couches. Credit. Card debt can be debilitating, so here's some hard truths first. If you can't save money you really, shouldn't be using a credit card how, are you going to pay off your debt if you don't have money to pay it off next. Pay, as much as you can if you're, only paying your minimum every month try to find a way to pay more every month it will pay huge dividends, in the long run third. If you use a credit card try, only to use it for big purchases, and have a plan to pay it off as quickly as you can. Finally. Your, goal should be to pay off your credit card in full every month that. Means you pay no interest and wouldn't that be great so. It's, tough medicine I know but I'm not a big fan of credit card debt so here's. Six tips to help you, first. Set. Up an auto-pay it. Will ensure you don't miss a payment and have, your interest rate shoot up I Auto, pay my credit card once a week by. More frequently, you can keep your average, balance lower it, doesn't, lower the interest you owe but it will help your credit rating a fact. That not many people know the, US credit agencies, only want you to use 10% of, your available, credit it's, crazy but true, keeping. Your balance as low as possible will, make you look better to credit agencies, so when the time comes to take out a mortgage or another big loan you'll, get much better interest, rates and pay less for that loan. Second. Transfer. Your balance to a low interest card sometimes. These low interest cards, are hard to get if you don't have a good credit rating but, if you can shop around for lower rates if you can find, a 0%, introductory. Rate for a 3% transfer. Fee it's. A great way to pay your balance down and if, you do transfer, to a new card do, not cancel your old card your, credit score drops when you cancel a credit card I learned, that the hard way so, keep, the card but stop using it.
Third. Consolidate. Your debt banks. Will sometimes, give you loans at a much lower interest rate to consolidate, all your credit card debt, unfortunately. They may ask, you to cut up your credit cards when you take the loan but, it may not be a bad idea if you're swimming in debt. Fourth. Use, all the benefits, your card offers, use, the price matching, the cash back car, rental insurance extended. Warranties and loss protection that your card offers spend. Some time reading the benefit summary of your card you may find interesting benefits, you didn't even know about. Fifth. If you're, close to paying your balance off pay it all off, if you. Have a thousand dollar balance and pay off only 999. Dollars you'll, be charged interest on the full thousand. Not the one dollar of remaining debt. Finally. Know, the triggers for fees and penalties missing. Payments going, over your credit limit and not paying your minimum will all trigger, penalties the. Most severe of these is a higher interest rate this, can happen if you miss even one payment, and it's automatic, after two the. Good news is is that there's remedies, to lower your rate which, your bank must tell you about if, you, don't know the penalty, triggers for your card talk, to your bank it's better to know early than too late, all. Of this is enough to make your head swim but, the convenience of a credit card comes at a high cost and now. With your card on file at your favorite sites and payment through your phone it's easier, than ever to get into trouble a last. Thought to leave you with imagine. A scenario where you actually come out ahead by, using credit cards it is possible, by, choosing cards, at payee rewards, especially. Cashback and paying, in full each month you, can make a small return on your spend but. Unless you're paying in full each month the benefit, of points programs, are nowhere near the cost that you're paying in interest, so. If you're, not paying off your full amount each month see. My video on budgeting, for free online tools, to help you manage the way your money flows through your household and pay, down that credit card debt as soon, as you can. You. You. Work hard for your money and once, you run it there's four places your money can go you, can spend it save, it give, it away or invest in in this. Session we're going to talk about savings. And the three steps that will enable you to think differently about the value, of savings, in your life, first. Let's put your money into context, why, should you save consider. This every. Dollar you make an spend is part of the bigger picture of the economy, it's your spending, and people just like you that generates, the value in the economy, not, the banks or the factories or Wall Street it's you, how.
Much You keep of what you earn and what you do with it is your own personal economy, it's one that you have control over. There's. So much competition for your attention, and for your dollars and unless you have a specific strategy, or plan it's, all too easy for your savings. To become your vacation, budget or the way you pay for your car repairs, so. To get that plan together consider, the second, step which, is how you save, the. Way many people manage their money is to have separate, savings and checking accounts, checking. Accounts of for your day-to-day spending, the money you need for your life to run it's your food car, clothes, home, insurance, entertainment. Savings. Account are used to store what money is left over they're. Promoted, by the banks as a safe, place to save now. They are safe but, they're not strategic, to. Think strategically, consider. Three separate, goals to, have for savings, emergency. Savings, short-term. Goals and long-term savings, for. Emergencies, it's important, to have money accessible, the, rule of thumb is to have three to six months of savings should you lose your income and you don't want to go into debt and if, you're already in debt like 75% of Americans, it's still important, to save so that in times of emergency, you don't go deeper into then. Short-term. Goals are the things that you should not, go into debt for taking. A trip upgrading. Your computer, or holiday, gifts these. Are higher cost items that you should pay for by setting aside savings, and, long-term. Savings is the money that you need to build the future you want consider. These investment. Phone, by. Separating, these three goals you can manage yourself, and reduce, the temptation to dip in to emergency, or investment, funds for, your short-term goals. The. Third step is where, you save remember. Your, money is powerful, but when it's sitting in a bank account your, money doesn't do much for you conversely. For your bank your, money does a lot your. Bank lends your savings, out to others and charges, them interest if they, lend it to someone to use on their credit card for example they. Can earn up to twenty five percent interest. Or twenty five cents on the dollar for that privilege, your bank pays you less, than one percent, or a fraction of a penny so, using your money, your, bank can make hundreds, of times more than what they pay you for using it your. Money clearly, has tremendous, value and leaving it in the bank beyond what's necessary for emergencies, is actually. Costing you money now as a, cost of living goes up your money should be working to gain interest, and not lose value, the. Good news is is that there's instruments, like certificates, of deposit, government, bonds and corporate bonds that are relatively, liquid but pay far greater interest, than savings account they, may be a bit more complicated to set up but, they're far more powerful, and profitable uses for your savings. Getting. Smart about savings, is a fundamental. Pillar in long-term financial, success you, can change your financial future if you start to think beyond the bank and put your money to work for you in the. Next video I'll reviews better ways to save that a low risk and pay much better returns with, similar liquidity, and safety to your trustee savings account until then, remember, your grandparents, were right when they tell you you have to save your money we, just need to think beyond, the bank for the why how, and where, of savings.
In. This video we'll explore options, beyond, savings, accounts, where your money can grow before. We look at these options consider, the three FS of growing your money the, first is FDIC. Which, in the u.s. is the government, body that stands for Federal, Deposit Insurance Corporation. Most. Banks and credit unions are, FDIC. Insured which, means that even if the bank goes out of business the, federal government, will refund, the money in that Bank to you most. Countries, have an equivalent to the FDIC. Most. Investment, accounts however are not FDIC. Insured or, backed by government agencies. Hence, investing. Is riskier, than savings, but, it has higher returns, the. Next F and bear with me is fiduciary. It's, a fancy word for an investment professional that has your best interests, at the core of what they do, fiduciaries. Are bound by regulations. To get you the best price and recommend. Investments, or savings products that are appropriate, for your age your financial status and your, risk level it's. An important, word that you can use defensively, from now on if your. Bank is telling you to buy a long term savings product, ask, the person if they're, a fiduciary, and are, they acting in your best interest, or are, they just trying to sell you something this. Question, brilliantly, deflects, most of the confusing, pictures, from your banker the, last F is of course B's. Most. Options, for where to save have fees attached to them it's, your job to figure out how much these fees will eat into your savings before. You move money into any savings, option, ask for, a full list of fees is there, a fee to open the account is there a monthly maintenance fee, is there an annual paperwork, fee is there a fee because it's Friday fee. With. This in mind let's, look at where your savings can go while. Still, being FDIC. Insured I recommend. That you keep your emergency savings fund in a place that's easily accessible, in case of emergency, first. Up there's online savings plans like Capital One 360 they. Have no fees no, minimums, and they're linked to your checking account, for direct deposit but. They, only pay at this point in time. 0.75. Percent interest, so. Let's say you put in a thousand dollars today in one, year's time you've. Only earned an extra seven dollars fifty and in ten years time, compound, interest builds, it up to seventy seven dollars but. Consider this the, regular savings, account at one of the top three banks starts, at, 0.01%, and tops, out at less, than 0.1%, so.
You're Earning less than $10. On your one thousand dollar deposit in ten, years, so. The safe option is only slightly more lucrative than leaving it in a regular savings account. Banks. Also sell CDs, or certificates. Of deposit, the, interest rates on these are locked in when you get them they're a good way to put money away where you can't touch it but they're also priced right now with interest rates that are still very low. Government. Bonds and corporate bonds pay higher returns, have, variable, timeframes, such as one year five year or ten years and they generally have higher returns, these. Can be purchased through a trading account and they, do require more research, they're. Not FDIC. Insured but. A bond is like a loan that the government, or the company, is legally, responsible to. Pay back to you except. Of course if they go bankrupt and even, then you're likely to get some of your money back, there. Are also new kids on the block like Lending, Club comm an online, marketplace where you can deposit, your money for, other people to borrow clearly. This is on the riskier end of the saving spectrum, your, deposits, are not insured and there's no recourse in case of default so. Look carefully at where you're saving your money it goes without saying that a checking, account is not the right place to organize your savings. Having. Savings, on hand is a critical, part of financial health but, it's not the best thing you can do for your financial future my. Recommendation. Is to have enough savings to see you through three to six months in case of emergency, and then, get busy with investing, the rest. Keeping. Your credit score healthy is probably, more important, than you may think when. You apply for a job or, fill out a rental application or, you apply for a credit card or by a car, or apply for a mortgage your. Credit score will most likely be checked bad. Credit can keep you from landing a job from. Getting an apartment and, it may penalize, you with higher interest, payments, on loans.
To. Pay the least amount possible in interest should, be one, of your lifelong, financial. Goals and to, do that you, need to make sure that your credit score is as high as possible in, this. Video I'll, cover how you can track your credit score as well, as how to improve it over time. First. Thing you need to look at your credit history, every. Year you're allowed to go to all three credit agencies, to look at your credit history go. To annualcreditreport.com. This. Is the only place, for a free credit history, make, sure everything, is correct, one. Big thing to look for are errors that may indicate identity. Theft when. An organization that you have not had dealings with in the past year has looked at your credit it may, be that someone's trying to get credit in your name for this reason, alone you should carefully review your history and if you see any errors make. Sure you get them fixed there's, a process on the side to remedy any errors, once. Everything, looks clean, then find out your actual credit score pick, one of the three credit agencies, and by a single, score do. Not buy the monthly, credit watch they're not worth the expense. Experian. Offers the FICO, score which is the most common, score you, can buy your FICO score as, part of the free annual report it's, about twenty dollars or some, banks, or cards, may offer your score, for free so. The next time you're on the phone with your bank or in a branch ask them, and make, sure you ask if they do it for free there. Are also services, like creditkarma.com. That. In exchange, for you sharing, your bank details with them they will give you your credit score free. Now. That you know your score you can track it over time and make, sure you. Track from the same company then. You can work to improve it so, this is how you do it these are the things that credit, rating agencies, like to see first. Never, miss a payment missing. Payments will significantly reduce. Your score set. Up a direct debit and pay something every month second. Have different, types of credit if you, have different types of credit this looks good, so car loans mortgages, credit, cards, and store credit cards are considered, different, credit the.
Easiest, Way to improve your score is to get a store card and not, using. Third. Use, only a small amount of, available credit the, best scores go to people who only use, 10% of, their available credit and who does that, but, there's tricks to it one, is to never cancel, a card reducing. Your available, credit looks terrible, also. Try, to make payments multiple times a month this, keeps your balance a little lower than it would be if you kept piling charges, on until the end of the month also. Ask to raise your credit limit it won't, hurt your rating if they say no and then don't use the extra credit, fourth. Watch, for spikes in your credit if you hit your credit limit this looks bad so, if you have a huge item hitting, your bill like a plane ticket move, money onto your card before the, charge hits it'll, keep your balance from spiking. Fifth. Remember. Your credit history starts, early credit. Agencies, like you having a long credit history there's not much you can do about this just make sure you don't cancel a card, sixth. Try. To limit inquiries. If you apply for a lot of credit but don't get in it may, affect, your credit score so, apply for credit carefully. Finally. Put, money down one, last thing you can do to raise a bad credit score quickly, is to get a secured, credit, card if you have spare cash you can put it down as security, against, the credit on the card so, if you give your bank $1,000. They'll hold the money and give you $1,000, credit limit on a card to, the credit agencies it, looks, like you just landed, new credit it's, a great way to boost your credit score if. You take the time to work on how you use credit you can boost your score regardless, of where you are now the, difference between the lowest scores and the higher scores, can, be as much as three times the, interest rates which, for, things like a mortgage, a lower, interest rate adds, up to tremendous. Savings, over your lifetime and like. All good things in life it's worth, the hard work. It's. A question that comes up without fail. At every, event where money is the topic what. Should I do if I'm in debt should, I pay it down and start saving and investing or should, I do both at the same time now. If there was an easy answer the whole financial, event industry would probably collapse in, this. Video we're going to cover a few different, strategies of how, to reduce debt while, building your investments, and we're, starting, with the premise that you probably have done it and you probably don't have investments. Beyond what your work may provide for you to. Start consider. What rungs on the debt ladder you are this. Is a scale, of bad to good debt in accordance, with the highest to, lowest interest, rates most. Likely, you'll have some debt on a few rungs of this ladder, there's, mortgage, federal. Student loans home, equity loans, private. Student loans car. Loans and, credit. Card debt a good. Rule of thumb is the lower on the ladder your debt is the faster, you should work to clear it the. Top half of the ladder is considered, good debt has. Lower interest, rates with long-term benefits as, you, move down the ladder the, interest rates are costing you real money a, factor. That can change things considerably. For you is whether, your debt has fixed interest or variable. Interest with. Fixed interest you can rest assured that your repayment amount is predictable, with. Variable, the rate will change and, your repayments are less predictable. The. Next thing to consider is, your savings are. You living paycheck, to paycheck do, you have a small amount in your savings or do, you have your emergency fund put, away if you're, in debt it's important, to have emergency savings at the very least because, if something happens to your income you, don't want to go deeper, into debt as you, secure, your next job the.
Next Thing to consider is, the effective compound, interest it's the, basic, idea that you earn money on your money. Compound. Interest works against, you when, you're in debt and it works for you when your inversed so, let's explore that thought if you. Have debt where you're only paying, them ooh you're. Being charged, interest, on the interest and. If you have investments, where you've made money you'll earn interest on the money made. The. Last thing to consider before I talk about the three strategies is that your, life doesn't always go according to plan take. Into consideration. Your job prospects, your health your family situation as, you, decide how to tackle, the debt reduction, and savings, plan for you. Strategy. Number one is the balanced strategy, as long as you can afford it pay down an acceptable, amount of debt while putting money into savings, first. Your emergency savings and then start investing, to. Make it happen, set yourself up with direct deposits, remember, smaller, weekly, payments, to your credit card via direct debit both, help your credit score and avoid. The big monthly fluctuations. In your bank account this. Strategy, reflects, the mantra of pay yourself, first. Strategy. Number two is, the focus, on debt strategy. Reprioritize. Your spending, in the short-term to pay down bad debt as quickly as, possible, while putting aside enough, money to, cover at least a few months of expenses, this. May involve taking, on an extra job or an extra roommate or significantly. Cutting your expenses, but, the reality, is that the interest on your credit card keeps on mounting, up and it takes real focus, to become one of those households that, pace a credit, card bill in full each month your. Number one job is to pay down the bad debts before, moving on to for more focused, saving, and investing. Strategy. Number three is, the focus on growth strategy, if you have debt but it's mostly good dirt then, incorporate, it as an expense in your life and get busy with building your investment, base yes. You can save money by paying down your mortgage faster for example but, the earlier you start investing. The greater the returns over your lifetime so the. Short answer for, most people, on whether to pay down debts or to save and invest is, to do both be.
Mindful Of how money flows in and out of your household and optimize. That flow to pay down your debt and increase. The savings and investing, buckets. How. Much goes to debt reduction, in your household can only be two determined by looking at the big picture of your financial life be, ruthless, about how you spend money and be, creative about, how you generate, more and then, create, a plan that works for you to, check all the boxes of paying down your debts, creating. An emergency, fund creating. Savings, and investing. To grow your savings. You. So. You have some money saved, terrific. That's a huge, first step so, what should you do with them in this. Video we'll talk about investment, options, with, each I'll talk about the, associated, risks I'll start, with bank accounts then, move on to bonds stocks, and funds so. Let's start with bank accounts right. Now banks, paid less than 1% interest on deposits and with, fees your money could actually lose, value, while sitting in the bank not, a good deal at all and, we won't even talk about how much money banks make off your deposits, so, let's look at some alternatives. Banks. Are also offer certificates. Of deposits, also known as CDs these. Offer better rates of interests in standard, checking, or savings accounts. CDs. All have fixed time, lengths ranging from one month to several years the, only problem, with the CD is that you must keep the money in the CD for the duration if. You, withdraw it early you'll get penalized, many. People find CDs, too inflexible and the interest too low if, you, can handle a bit more risk you should look at bonds bonds. Are basically, alone that you the bond holder, make, to either a government or a company, for. This privilege the bond issuer, will pay you interest, the. Nice thing about bonds, is that independent agencies, give every, bond a rating based on how likely you are to get your money back so you can gauge risk very easily, bonds. Pay a wide, range of interest and have various due dates which is the dates when the principal, is paid back the. Highest quality bonds are called investment. Grade bonds and they, pay lower, interest, rates but, even these lower interest rates can be attractive, especially, for, the low risk that they offer the. Lower quality, bonds funnily, enough called, junk bonds pay. The highest interest but have much higher risk levels, the. Nice thing about bonds, is that, you can easily, buy and sell them you don't actually have, to wait until they mature you. Can buy and sell them at any time for a small fee the. One drawback to, a bond is that the value, of the bond itself can change in, the, worst case scenario the company that issued the bond runs into financial trouble if that, happens, the chances of you getting your money back for the bond decrease, if you, now try to sell the bond early you may not get the full value for the bond but, that's the risk to reward of, bonds.
They. Can pay higher interest than banks but, you take the added risk of not getting as much back as you initially thought, now. If you're okay with more risk then stocks, might be a good option, stocks. Are actual, ownership stakes in companies as, an, owner you get to share in the profits through dividends, and share in the growth of the company through, an increase, in the value of the stock the. Price of a stock is the amount of money that someone, will pay for that stock at this moment in time based. On all the currently known information about, a company but. The future is always unknowable. So the true value of a stock is unknown, the. True value of stock is the current, value plus, the untapped, hidden, potential, that the company, holds the. Goal of buying stocks is to find the stocks that are undervalued and avoid. The ones that are overvalued, this. May seem like a very subjective exercise. But everybody. Has the skills to pick an undervalued stock, we'll talk more about how to value stocks in our next video but, taken, carefully, investing. In stocks offers the best year-over-year. Returns. Of any financial instrument. Finally. There, are funds there, are lots of funds from mutual funds to exchange-traded. Funds there, are prepackaged. Pulls of bonds and stocks they. Can be either actively, managed, where a manager works day and night to improve the return of the fund or they, can be passively, managed, funds where, the manager sets the fund up and lets it run making a few changes along, the way because. Active, funds are managed by an expert, it's assumed, that they offer better returns this. Assumptions debatable, but what is true is that actively. Managed funds are mor