understanding your personal finance and money management fundamentals


the world of financial advice is a vast
and complex one and it could be hard to know where to start when you decide you
want some help for as long as there’s been money there’s been people who
charge a fee to hold it or manage it for you or tell you how to budget it if you
have a complicated financial life with property children different assets
perhaps a business maybe some debt and a complicated budget an advisor may be
just the thing you need to bring order to your investments first thing consider
your goals what problems are you looking to solve is it to save you time across a
variety of financial issues is it to grow your nest egg is it to help you
budget and save your goals we’ll narrow down the different type of advisors that
are right for you you should also keep in mind that
there’s a difference between an investment advisor and a financial
planner & investment advisor is focused on growing your assets while a financial
planner is focused on the spectrum of your financial life from insurance to
trusts to budgets if it’s the latter you want look for someone with a high
certification level such as a CFP which is a certified financial planner in the
u.s. one extremely important thing for anyone who presents themselves to you as
an advisor is to ask what credentials they have the main thing to find out is
if they’re bound to you by a fiduciary duty that means they must act in your
best interest versus theirs you know those people who try to get you to buy
higher interest CDs when you go into the bank they have no fiduciary duty to you
their goal is to get your money out of your savings account and have it
committed to the bank for a fixed term the question are you a fiduciary very
quickly separates the advisors from the salespeople in the u.s. CFPs
and registered investment advisors are bound by a fiduciary standard
stockbrokers are not measuring progress against your goals when working with an
advisor is simple make sure they outperform the market by at least the
value of their fee every year not as an average for example if your advisor is
charging you 2% and the market which is measured by the SP index is up 8% then
you can reasonably expect that your advisor should make you 10% growth that
year or if the mark is down you want your advisor to protect
you from the downturn by at least the value of their fee so let’s say the
market is down by 5% you want your loss to be no more than 3% this is why the
most important question to ask an advisor is how has my portfolio
performed net of fees in comparison to the market sometimes people are
uncomfortable asking questions like these we may feel intimidated by the
advisors role as an expert especially if this is an area of our lives that we’re
not confident but any reputable advisor should be able to answer this question
professionally but we’re of those who respond with a lot of jargon or
technical language it’s a tactic to distract you and make you feel
disempowered trust your gut if you feel like your advisor isn’t giving you the
straight story or is talking to one partner and ignoring the other you
probably want to take your money elsewhere
one last thing what if you don’t have money to invest right now and just need
help with budgets insurance and debt reduction for example financial planners
can be very helpful here in setting you up with the plan shop around for fee
only advisers and make sure you’re comfortable asking questions of them the
important thing to remember is that when you’re clear about what you need to do
to move your financial life forward you can then choose how to do so whether
that involves a financial advisor or not you there is so much confusion and emotion
around money for so many people but 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 are risk free it’s
easier 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 fun in 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
averse 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 earned 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 a 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 the
room to spare or access to our vacation property check out Airbnb 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 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 lawnmower or even your house on sharing
sites look for platforms like peer buyer 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 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 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 loan 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 crowdsource 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’d 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 the 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 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 have
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 Mayson like a great idea 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 great 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 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 tinkering 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’ve 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 means 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 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 missed 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 it’s been said that the most dangerous
concept when it comes to the economy is this time it’s different history has
shown that the economies of the world move in cycles it’s easy to slip into
that mindset because economic cycles feel abstract and they talked about so
much that economic news just becomes more noise to tune out but when you can
see where you are in the context of the economy you can do two things you can
adjust your behavior and you can take advantage of opportunities here’s how
start by making key economic ideas personal you may think that interest
rates currency values and unemployment don’t have much to do with you but they
can influence your life more than you know the first thing to understand is
that economies expand and contract expansion means the economy is growing
and there’s more money flowing through businesses and individuals in times of
expansion there’s often new developments within the public sector like
governments building your airports or upgrading roads in times of contraction
there’s less money if there’s three successive quarters of negative growth
this is called a recession and if a recession lasts six quarters it’s a
depression during a recession company’s share price will often go down and stay
down as long as sentiment about the economy as negative savvy investors wait
for down cycles and buy low so at the time of this recording the US
unemployment rate is five point five percent interest rates are near zero and
the US dollar is very strong so what do you do with that information
first unemployment when unemployment numbers are high say above five percent
that means there’s a lot of people looking for work who could potentially
replace you at lower cost businesses have fewer incentives to grant pay
raises when there’s available labor in the marker conversely when unemployment
slow you can push a little harder for more money or benefits because it’s
harder to replace you if you leave and what about interest rates if the
government raises interest rates it means two things you’ll be paid more
interest for deposits that you have in the banks which is a good thing you’ll
also pay more on the debt that you owe such as variable mortgages or credit
card which is absolutely not a good thing when rates are increased
do all you can to pay down debt at the lower rate currency values have an
impact too when the US dollar is trading at 79 cents to the Canadian dollar it
means that the hotel room you stayed in a year ago when one Canadian dollar
equal the US dollar that room is now 20% cheaper and that’s why it’s called
economic cycles everything is related buying a cheaper hotel room seems great
but it means that whatever the u.s. is producing for export has become more
expensive for people in other countries to buy so that can push down production
which can increase unemployment now there’s brilliant people all over the
world who spend their lives doing economic analysis and predictions but
guess what with all the tools in the world even
they must admit this no such thing as future facts no one knows what’s going
to happen to the economy so the best thing to do is to have an understanding
of where you are now and to plan for your future self to be well taken care
of that means adjusting your behavior and lowering costs in advance of
economic contractions plus increasing your savings should you experience job
loss but it’s not all doom and gloom history has shown that there will always
be good years and bad years and at least knowing that can help you make bigger
decisions like buy versus rent when to increase investments or sell-off and
perhaps the most fun decision if you have a vacation budget in what country
will your money go the farthest there’s no question that the economies
of the world are changing at an extremely fast rate a century ago when
the Industrial Revolution made manufacturing the cornerstone of the
economy products and services became available from mass market and the
prosperity of the world grew exponentially since then much of the
world has consumption based economy’s growth was assured by constantly
increasing levels of purchases since the post-war boom of the 1950s until now
individuals and family consumption has been the source of growth expanding
populations needed places to live appliances food clothing and technology
but recently something has changed the ownership culture has shifted a little
whereby people are rejecting the notion that you need to own all your own stuff
and if you do own stuff you can put it to work by renting it out to others this
is the core idea of the sharing economy in the u.s. right now every second
household is struggling with credit card debt so the widespread adoption of buy
less and share more is a good thing let’s look at a few ways that you can
benefit from this change one of the most high-profile changes for urban dwellers
especially is the idea of car sharing when you add up the cost of a car itself
what a cost of pocket service it register it and insurance then cheapest
car maybe costing you thousands of dollars every year look into services
like Zipcar to see whether you can rent one on demand instead and if you do need
to have one or more cars in your life is there a way to put them to work to
generate more income services like uber and lyft allow for you to sign up to
become a driver and work as much or as little as you like or looking to Touro
where you can allow people to rent your car when you’re not using it think of
other big-ticket appliances in your life that you need but don’t use all the time
lawn mowers leaf or snow blowers or bikes look for local versions of zilog
calm where you can list your stuff your availability and your price to rent and
your biggest ticket expensable your home a B&B has revolutionized travel and is
allowed for people everywhere to generate extra ink
by renting out some or all of their homes the world of Finance has also been
impacted you can now participate in the cycle of borrowing and lending the way
that banks have done for years by depositing money with Lending Club or
prosper and then earning interest as other people borrow your money of course
there are ideas that have been around a long time that are essentially sharing
economy carpooling babysitting clubs shot my closet clothing swaps even
potluck dinners anything where a cost can be shared by a group of people this
has taken on yourself here’s an idea why not set a goal today to get extra money
in your pocket by reducing some of your own expenses or generating some income
or both if you haven’t heard of the frugal
movement you’re not alone but it’s very real and is growing fast being frugal
isn’t just about making ends meet when you’re short on cash it’s more about
being able to buy options later in life versus spending all you earn now the
frugal movement has some great lessons for all of us
let’s explore four of them first buy less stuff the advertisers of the world
all have one goal make you buy and then rebuy their product over their
competitors the big question for you is do you need to buy it at all the sharing
economy eBay and plain old going without are all alternatives and if you think
you’re already economical with how you spend your cash here’s a great way to
commit to the buy less stuff mantra think of all the holidays in the course
of the year and make a concerted effort to celebrate without buying all the
stuff that goes with them second live with a smaller footprint we fall in love
with neighborhoods and homes often without doing the math on the financial
commitment they’ll take before moving compare the short and long term
cost differentials between options first the total cost of buying versus renting
and then the ongoing cost of furnishing heating cooling ensuring and maintaining
different homes spoiler alert smaller is better and after decades of
building bigger and bigger homes the trend is now reversing to downsizing new
developments so they aren’t so expensive to run the most extreme example of
downsizing is the tiny house movement I recommend doing a search to see how
whole families are living happily in homes the size of the average American
kitchen their creativity and commitment is quite amazing now if you’re not up
for buying less stuff or downsizing the least you can do is recycle everything
the frugal movement is all about buying less but better stuff nobody needs a
wardrobe makeover or new stuff every season take pride in making things last
or exchanging them with family and friends for the things that you need
keeping up with the Joneses is a fallacy it’s extremely difficult to truly know
another person’s financial situation but it’s a strong possibility it’s not the
same as yours no matter how much you think you haven’t
common take pride in living below your means and understand that for every new
car that appears in your neighbor’s driveway it’s more than likely that’s an
extra bill that they’re taking on to spending money to try to be like someone
else is a dangerous slippery slope you have to accept that everyone in the
world has either more or less money than you and we have to get comfortable
making choices that are in line with our financial circumstances and values
remember you don’t have to live in a tiny house or weave your own shoes but
learning from this movement will help both your wallet and the environment and
best of all every dollar that you don’t send out into the world today is
available to you to invest so your future self will have more money and
more options tomorrow 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’re 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 Clemen 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
a 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 u.s. 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

3 comments on “understanding your personal finance and money management fundamentals”

  1. vyko says:

    thank you, your videos are very much appreciated.

  2. Ahmed Elmaghraby says:

    It's kinda excited to learn from these videos, I'm really grateful for it❤️❤️

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