personal finance pro tips for beginners


there is so much confusion and emotion
around money for so many people that learning about investing or how to grow
your money can seem very overwhelming so where do you start
confidently asking questions about money is step one towards financial
empowerment and investing don’t be afraid to channel your inner
five-year-old the simplest questions can often be the hardest repeat why what how
how much until you really understand what’s being discussed and if the person
you’re working with is not helping you understand that it’s time to work with
the new person once you’re on the road to understanding how to start investing
the focus needs to turn to you you may want to invest but should you
understanding your financial position and risk profile will help you determine
how to get started if you’re very risk-averse starting with lower risk
assets like bonds or CDs could help build your confidence or if you’re
looking to build your knowledge about how investing works sometimes buying
stocks or funds in things you already know and care about can help to
contextualize investing there’s three ways to get yourself set up you can work
with an advisor who will invest on your behalf you can set up a trading account
and do it yourself or you can work with the hybrid solution
so open an account fund the account and go I’m a big believer in investing what
you know and learn as you go investing is a lifelong journey and the
earlier you start the better even if it’s with virtual dollars virtually
buying and selling stocks and funds is a great way to build your money muscles
what your balances go up and down because they do go up and down and
history has shown that you’re better off in the market than not in the market and
then when you’re comfortable go in maybe start with a smaller portion of what you
are invest just to get a feel for it if someone is investing on your behalf make
sure they’re following a strategy that you’re comfortable with ask lots of
questions and don’t ever assume that that money that you work so hard to earn
is doing just fine without your attention last remember the great
opportunities exist in downturns if you can buy when everyone else is panicking
ask this question of the experts you come across if prices went down
significantly what would you do get familiar with how
investing works and be ready for when the new york stock exchange goes on sale
like many things in life the simplest things are often the best asking simple
questions can yield powerful learning opportunities ideas and ensure
accountability so take a deep breath and us so you want to get better with money but
you don’t have money right now to invest there’s a great way to get you started
with no risk to you and no money down and that’s by building a virtual
portfolio a virtual portfolio or sometimes called a practice portfolio is
a collection of investments that you can buy and sell and watch over time the big
difference is that you don’t use real money so why would you do this a few
reasons first virtual portfolios are a great way to try investing without
actually investing it’s a super easy way to learn second I truly believe this
such a thing as money muscles like regular muscles the more you work them
the stronger they get third and most importantly the best time to learn about
investing is before you put your money in virtual portfolios a risk free it’s
easy to set up a virtual portfolio online at places like investopedia or
see if your online bank has that capability once you’ve got yourself set
up then the important part begins the market goes up and down all day every
day so there’s no point crying or celebrating in the short term the goal
of your weekly check-in is first to track how you’re doing and second to
gauge your reaction to how you’re doing do you get super anxious if your
portfolio has gone down 2% are you already mentally spending your gains
when your portfolio is up 10% over time you’ll learn to manage the ups and downs
and learn how to take the emotion out of investment decisions the single biggest
thing to learn is that you don’t panic when things are down and don’t jump on
bandwagons after things have gone up but if you do feel terrible when your
portfolio is down you should think about moving away from stocks and look at more
conservative investments like bonds your investment strategy should reflect your
risk tolerance also a giant benefit to virtual portfolios is that when you’re
ready to invest you’ll have already built a wish list of exchange-traded
funds and stocks that you believe in finally I recommend you bring friends or
family members along for the ride learning is always more funding groups
and maybe you can encourage each other to spend lists save some money and get
going for real you
how do I make the most of my fixed income while this is a common question
from retirees there’s some great lessons for everyone now fixed income can mean
many things from payments from an annuity to living on Social Security or
a pension the key is that every month you have a finite level of income here’s
three ways to optimize your fixed income life it goes without saying that you
need a budget and that your expenses should be less than your income not
breakeven you should not spend every dime that you get this may mean some
adjustments to the way you live and change is never easy but on a fixed
income with the assumptions that things get easier over time the sooner you make
the necessary adjustments the better life is full of surprises good and bad
so include a buffer each month and if you don’t have any surprises great put
that money aside as savings and put it to work which leads to the second point
contrary to popular opinion that retirees especially should be risk of us
if you have money that you’ve put aside you can still put it to work and earn
money on it now I’m not suggesting risky or speculative investments but you can
now put smaller amounts into lower risk balanced portfolios that could earn you
more than what a savings account can but remember all investing involves risk
so only put in what you can afford to potentially lose also regardless of how
you earn your living or currently get your fixed income there’s ways to make
more money for ideas look at the next generation of workers we’re having a
side hustle or multiple sources of income is increasingly becoming the norm
start with the sharing economy what do you have that you can rent a car that
sits in your garage 99% of the time put it to work and maybe you have a home
with a room to spare or access to a vacation property check out air B&B
remember that there’s always work to be done from proofreading to serving
coffees to teaching it probably won’t make you rich to do side hustles like
these but there’s an upside the time that you spend working and earning money
isn’t time you spend spending your money lastly a warning with all the advances
in technology there’s increasingly creative ways of getting scammed be
suspicious of anyone offering easy money or demanding upfront payments for future
income if you’re younger and work in a profession with the pension or you have
an annuity that will pay you a set amount for the rest of your life start
planning now for ways that you can maximize or subsidize your income and
keep your cost of living in check I’ll leave you with this thought living
on a fixed income doesn’t have to be an exercise in restriction and deprivation
but it should be your starting point from which to build on you focusing on your paycheck is great and
making sure you get paid a fair wage for your work is super important but if
you’re trying to maximize your earning potential it’s always good to look
further than your paycheck there’s three main areas where you can look your
skills the things you own and your liquid assets first your knowledge and
experience is always worth something but as a person with finite hours in the day
it’s hard to exponentially grow income based on your job but don’t let that
stop you from exploring side hustles from teaching to participating in focus
groups to making things to sell on Etsy doing something with your time that can
convert to cash is a great way to create multiple income streams next look at the
things you own especially the things of value that can be turned into cash and
with the advent of the sharing economy it’s much easier to unlock the potential
of any asset look at listing your car or lawn mower or even your house on sharing
sites look for platforms like Pia buy that are available in your area and
don’t forget if you’re willing to put in the time there’s always a market for
selling your secondhand goods and clothes the third way to generate a
different income stream is to put the money you have to work through investing
this is a side hustle that you can do while you’re working hard at your other
job or jobs growing your money in real estate your investment portfolio or
businesses should be a part of everyone’s money mindset regardless of
how much money you have right now you work hard for your money make it work
hard for you in the US and in many countries investment income is taxed at
a much lower percentage than salary which is why the one percent aka the
rich probably pay a lower tax rate than you so investing can be a second income
stream if that’s your goal but the key thought is that 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 net worth can grow you the thing about loans is this if you
need to borrow money you generally will find a way obtaining a loan can be easy
but paying it back is not borrowing money has become the default way to pay
for the big things in life like education and housing but for many
people it’s also the default way to pay for things that they can’t afford right
now and buying things that way means that they will cost you more in the
future sometimes a lot more let’s consider the many types of loans they
include student loans mortgages car loans home equity loans credit cards yes
they are considered loans cash advances and payday loans the most important
thing to know is that interest rates and terms matter enormous Li and they vary a
great deal depending on the loan let’s talk about this in terms of good debt
and not so good debt let’s start with good debt good debt is debt that is
manageable predictable and buys you something of value that means interest
rates are low terms along and rates don’t fluctuate drastically the most
obvious example is mortgages low interest student loans can also fall
into the good debt category especially when the rates are fixed for the term of
the loan in the US and other countries there’s programs that type payments to
your income level thereby keeping the loans manageable not so good debt
Alone’s that you cannot predict how much they’re going to cost you in the future
or take a considerable percentage of your income or have high interest many
variable loans fall into this realm some mortgages private student loans and
personal loans are often variable because they’re not secured against an
asset whose future value is predictable these loans are higher risk to the
lender hence the higher interest rate and
higher risk to you if you can’t plan your budget accurately let’s say you
have a $10,000 personal loan with a 5-year term if the interest rate goes
from 5% to 7% you’ll have to find an extra $600 for interest payments so it’s
in your best interest to pay down as much as you can when rates are low if
you have multiple sources of debt car loans credit card debt personal loans
it’s worth seeing if you can consolidate into a single
which has a more predictable payment term consolidating your debt only works
if you’re committed to not going back into debt so hide those credit cards and
be careful where you consolidate your debt
the first thing not to do is to go to predatory lenders like payday loan
providers solving a temporary problem through a payday loan becomes a rolling
process of taking on more debt to pay for all debt online lending options like
so far for student loans and Lending Club for access to crowd source capital
also make it easy to get a loan but if you’re consolidating federal student
loans you’ll lose the benefit that comes with them so do the math on what that
will really cost you also don’t overlook your bank as a source for consolidation
they’re more interested in keeping you as a customer than seeing you to go to a
competitor so they can usually work something out so let’s do a quick dive
into interest rates the key thing to look for is APR specifically how much
does the interest rate being offered to you deviate from APR if the cost of
money is 1% from the central bank as it is now and a lender is asking for more
than 6 or 7 percent that means they’re making quite a profit on your loan so
look for better alternatives the last and most important thing is that loaning
money in any form means that you’re taking on an obligation in the future to
pay it back you must understand the agreement and
the implications especially if the loan is secured to any of your assets do the
math on your repayment terms and understand the consequences of what
happens if you miss a payment and if you ever feel pressured to sign something
that you don’t understand do not sign it ask questions seek advice and do the
math until you fully understand what you’re signing your future self will
thank you you paying fees is a part of life there are
convenience fees fuel surcharges extra baggage fees account maintenance fees
ATM fees fees and surcharges are everywhere and avoiding them can be
something of a competitive spot one of the biggest offenders in this
annoying fee game are financial institutions
their fees are not only high but they also target those least able to pay them
first of all you should know that banks make a ton of money off fees overdraft
fees alone generate 27 billion in revenues for banks and it isn’t getting
any better free checking accounts have dropped from 76% of all accounts in 2009
to 37% today and fees themselves have risen 21% over the past five years by
calling something a fee instead of a loan lenders can avoid regulators and
charge whatever they want for example if you buy a $20 lunch but don’t have the
funds in your account to pay for it your bank can lend you the money to pay for
the lunch for that loan you’ll get charged a twenty seven dollar overdraft
fee for the sake of argument instead of calling a fee let’s call this a loan
which really it is your twenty seven dollar fee would be equal to a loan with
a three thousand five hundred and twenty percent interest rate payday lenders are
the champions of this fee game they’ve been restricted from charging exorbitant
interest rates so now they play with fees and if you convert their fees into
interest rates many payday loans bear interests of over a hundred percent
another fun game that banks play is to reorder transactions to maximize
overdraft fees some banks will process transactions from largest to smallest so
if the big purchase puts you into debt the smaller transactions will each
trigger an overdraft fee even if you think you’ve done the right thing and
waited to make the big purchase until the last minute the reordering can cause
a cascade of fees that can be shocking it’s in everyone’s best interest to
minimize fees so here’s a few ideas how to help number one never set foot in a
payday lender and if you have pay off the loan and never go back
Bank fees may be heavy but payday lenders are terrible overdraft
protection may sound like a but the fees you pay can be astronomical
many banks automatically opt you into the programs you can opt out facing the
embarrassment of a rejected payment is often better than being charged
overdraft fees it can also help to find out your bank’s fee policy if you can
make sure you keep a buffer of cash in your checking account while debit cards
are grade they’re the main reason people get dinged with overdraft fees if you’re
running out of funds in your checking account consider using your credit card
for a few days until your paycheck clears if you have room on your credit
card interest on a few extra charges will almost always be lower than
overdraft fees if you need overdraft protection consider an overdraft
transfer it’s a form of overdraft but uses one of your secondary accounts to
fund your overdraft the fees are still high but lower than a standard overdraft
to avoid other account fees try to find a no fee checking account they still
exist but they are harder to find they all have limits on what you can do but
try to find one that has no account balance minimums in the u.s. new players
like Bank mobile work well for fee free banking and use cash
remember cash try this for a month take out what you need at the start of each
week and only spend that amount you’ll never overspend because you only have
what you have and you’ll limit transaction fees and ATM fees because
you only need to go to the bank four times a month and no overdraft or
insufficient fun fees it’s not easy to avoid fees but it is possible and
there’s increased pressure on banks and lenders to at least be clear about the
fees that they charge and remember the more you save on fees the more money you
have to pay down debts or invest you let’s just all assume that at some point
in your life you’ll receive some money that you didn’t earn in your day-to-day
job it could be an inheritance a bonus a legal settlement or if the odds are
truly in your favor a lottery win which just so you know you’re just as likely
to be struck by lightning as when big in a lottery still what happens so here’s
three things that you need to do when a windfall comes your way
first check if the money is taxable and if you will owe tax on it take that
amount and don’t touch it until your tax bill comes an unexpected tax bill can be
a nightmare then consider this question how can this money improve my long-term
financial situation for the 50% of American households that are carrying
credit card debt the number one best thing to do is pay it off the interest
rate you pay on credit card debt is higher than what you can earn on most
investments so don’t even think of trying to make money off the investment
to pay off your debt if there’s still money left over after high interest debt
is paid off great now you can make a plan for that
money a tool called the reverse budget can really help when managing a windfall
or any other lump sum basically the rule is before you spend the first penny
figure out where every cent will go park the money temporarily in savings account
so you’re not tempted to fritter it away then step back and do a self-assessment
to figure out where the money should go you can do it in a storytelling format
like I just received 5,000 dollars that I don’t have to pay tax on
I’ve stopped incurring you dead but I still have a balance of $2,000 on my
credit card my goals are to get out of debt establish a financial cushion for
emergencies and invest for the future I’m going to allocate $2,000 towards the
dead $1,000 towards my cushion and contribute $2,000 to my IRA of course
you can change those numbers but the idea is you figure out a plan for your
whole amount before you spend anything so you can end the story with some sort
of result I’m moving forward debt-free I protected my financial stability by
establishing a cushion and I’m making progress towards my future goals make
sure that plan is one from which your future self also gets to benefit that
investing versus just saving the money the more you invest now the more your
future self will be able to cash out later I’d recommend at least 50% of the
money after tax and debt reduction to be put aside for investing if it makes you
more comfortable get professional help someone who you pay a flat fee for an
unbiased opinion then and only then do you start thinking about spending the
money on yourself or helping out family or friends or giving to charity here’s a
thought that flies in the face of most people’s understanding of their money
you don’t save what’s left over from spending you spend what’s left over from
saving and when you receive a windfall this is sage advice indeed you if you don’t know where you are how can
you determine where you’re going it’s a thought that applies brilliantly to your
financial life whether you like it or not there’s a lot of data out in the
world about you and your financial life banks credit agencies companies even
your trustee ups know more about you than what you might think it’s important
for you to know what they know for a few reasons
specifically accuracy privacy and planning the first thing to focus on
with your financial data is accuracy make sure you check your credit rating
at least once per year check accuracy of all the data and also look at the data
being measured you’ll find that credit agencies measure how much of your credit
you actually use what your high balance is how many different types of credit
you have and how often you miss payments poor ratings in any of these measures
will lower your credit score now privacy be very careful when you sign up for
account aggregation services to understand where your data goes remember
when you get a product or service for free what’s really being sold is your
data bottom line with privacy understand where your data is going last make a
plan there’s amazing tools available for budgeting investing and broader
financial planning what used to take a lot of research and paper shuffling to
get a picture of where you are can now be done through tools like level spendy
and you need a budget another business concept to borrow is KPIs key
performance indicators what are your financial KPIs
I recommend building a set that makes sense of your progress against your
goals it could be saving a set percentage of
your income setting a monthly debt reduction plan or deciding on a monthly
transfer to an investment account what you want to have at the end of this is a
snapshot of what you own and what you owe plus a personal or household view of
your cash flow now none of this may seem particularly pleasant and there’s no
perfect time to get your financial data in order overcome that obstacle by
setting yourself a time on your calendar to do it and schedule something that you
love doing right afterwards remember once the facts are in front of you it
doesn’t matter if it’s an excel sheet a mint calm account or a plain old pen and
paper keep coming back to those numbers and track them over time you work so
hard to earn a living doesn’t it make sense to spend a little
more time on tracking exactly what’s going on with your money you
so it’s coming up on tax time do you have a feeling of dread when I say that
or did you think great I’m all set I can skip this video taxes do bring up all
sorts of emotions but regardless of the feelings that tax-time invokes you will
most likely be paying taxes here so let’s see how we can minimize the stress
and maximize your return if you’re lucky enough to have a salary your employer
has most likely had tax taken out of each paycheck via the pay-as-you-earn
system depending on the with holdings you signed up for when you took the job
you will have either overpaid in which case you’ll get a tax refund or
underpaid in which case you’ll owe additional tax either way you’re better
off than independent contractors and small business owners who need to keep
track of taxes they owe in the course of a year and put money aside to pay them
in order to feel less stressed about tax be aware of expenses you can deduct all
year round not just prior to tax time to make things easier have a folder for
things that you think might be deductible business and school expenses
charitable donations or child care and medical expenses keep it in sight and
organized so it’s not a source of stress rather it should give you a sense of
being in control in the u.s. if you made less than 62 thousand dollars last year
you can file directly with the IRS for free they even have some state forms
that you can also file for free go to irs.gov and look for the Free File link
also research the different online services like TurboTax and H&R Block
these programs have developed a lot in the past few years if you’re claiming
itemized deductions these services are a great alternative to the higher price of
accountants if you live in the US make sure to check if you are eligible for
the Earned Income Tax Credit this is one of the only tax programs that is a
refunded credit it’s free cash and 25 percent of people eligible for it don’t
claim it the IRS has an e ITC tool to check if you’re eligible then do one
more thing if you think that you may owe taxes here make sure to set up a goal
within your savings account or a new account completely and create a direct
deposit on a month basis to cover any surprise tax bills
here’s the great thing about that should you be hit by a bill it won’t eat
into your savings or worse put you deeper into debt but in the US the odds
are in your favor eight out of ten American taxpayers get a tax refund so
if you do get a refund make sure you don’t spend it right away
think about prioritizing these two things paying down debt or increasing
your investments these aren’t as much fun as a new TV but both of these
options will pay off more in the long run lastly a word about fraud these last
few years have seen an increase in fraudulent tax returns with people going
to file their taxes to find that they’ve already been filed and their returns
have been cashed by someone other than themselves try to file earlier to reduce
the chances of this happening doing these things can help you focus on
what’s really important making sure that you’re taking advantage of all the
deductions that you can and more importantly making sure you’re focusing
where it really counts on earning as much money as you possibly can you for most people under 50 the concept of
retirement can be difficult to imagine let alone plan for how do you plan for
something that seems so far away and how do you navigate the minefield of
acronyms and regulations and service providers if you’re lucky enough to live
in a country where you’re provided a pension or a defined benefit for your
life beyond employment congratulations but that doesn’t mean you don’t need to
think about what the third phase of your life will look like for many people all
over the world their comfort level in retirement is determined by a simple
factor prioritizing your future self over your current self but think of
yourself at the age of 71 can you imagine what you’re going to be
doing on a Tuesday morning when you serve anyone it’s not easy right here’s
four building blocks to make sure the 71 year old you will rock your retirement
number one take advantage of any free money offered to you usually in the way
of a company match for your contributions in the US this is your
401k you should contribute enough to get the maximum company match if your
company doesn’t contribute a 401k loses some of its benefit it’ll still lower
your taxable income but you won’t get the long term benefit from your
company’s extra cash also look at setting up a separate long term taxed
advantaged account in the US this is an IRA which is an individual retirement
account try to deposit the maximum allowed each year these accounts will
allow you to grow your money tax-free or deferred until you retire also make sure
the funds are invested and not sitting in cash the easiest way to do this is to
buy a super low-cost ETF which is an exchange-traded fund or an index fund
that tracks the overall market in the US these two funds are the best known
lowest cost examples your retirement accounts are for your future self there
are often huge penalties if you want to withdraw money early 25% of Americans
take money up before retirement and they hit with huge taxes and fines so make
sure the money you put into retirement accounts can be left there until
retirement and depending on when you start contributing and how much you put
in it still may not be enough that’s where it’s important to consider your
assets across your life tracking your worth over time and prioritizing ongoing
investments many people rely on their homes to be a core asset when they
retire but homes aren’t liquid meaning you can’t get cash out of them quickly
and many people want to remain in their homes and you need to live somewhere
right so don’t rely on your house as your retirement plan lastly the biggest
impact on your long-term financial health isn’t how much you earn but how
much you spend it’s an annoyingly simple formula spend
less than you earn and prioritize saving and investing think about the
relationship between your short-term wants versus your long-term needs that
is rethinking retirement and it’s much easier than trying to imagine the 70
year old you as much as human nature conditions us to live in the present and
make ourselves happy the more you can prioritize your future self the better you

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