If Only I had Learned this when I was Younger

Whenever we appear at a public forum or workshop, the one comment we are guaranteed to hear is: “If only I had learned this when I was younger!” Once people have learned just a few of the financial fundamentals they simultaneously realize how much money they have lost to unscrupulous life insurance agents, credit card companies and advisers that were selling products with the highest commissions for themselves. Yes, that sounds a little harsh but is, unfortunately, all too common. Once you have learned the steps to eliminate the cause of your losses, the most important determinant of the size of your savings is: time.

If you’re approaching retirement age it’s not too late to start saving – in fact, it’s critical to your quality of life to do so immediately. Please invest some time in educating yourself on the basics. It’s easier than you think. The fact is, the earlier you are able to start saving the better. So, imagine yourself as a teenager again. If you had learned these lessons at that time, and started a savings plan, you would be retiring to a million dollar nest-egg. It makes you wonder why these lessons are not taught in most schools. 

When we were researching our book “The ABCs of Making Money for Teens” we met some incredibly smart and motivated teens that had achieved amazing things, such as setting up international charities, or corporations dedicated to saving the environment. Others were focused on saving for college or travel. They were all able to understand the concept of living within or below their means and, as a result, will retire to a very comfortable lifestyle – even if they choose to do so in their 40s or 50s! Think about that.

Knowing how money works can mean the difference between living paycheck to paycheck, carrying a lot of debt and stress, or enjoying the life you want for you and your family. Want to get started?

How to Get Financially Fit for 2020

It’s the start of a New Year, and the start of a New Decade. It’s an exciting time and a time to stop and ask yourself: How happy am I with my financial life? Are you content with your lifestyle or are you living paycheck to paycheck? Do you love your job or do you tolerate it only because you can’t afford to lose it? Does your heartburn increase every time the mail delivers more bills you can’t really afford to pay? Let’s make 2020 the year you eliminate all that stress and start to really enjoy life.

That may sound simplistic but the steps to achieve it really are pretty simple. Here are the basics

1. Review your day-to-day spending. Keep track of every penny you spend for a two-week period. It’s amazing to see just how much you spend without thinking about it – and how much could be eliminated painlessly.

2. Review all your monthly commitments. Do you really need to pay for all those extra TV channels when all you’re watching is Netflix? Do you need to keep paying for all the bells and whistles on your monthly phone plan? Try calling your provider and telling them you’re switching to their competitor and see if they’ll cut your rate. Do you actually read all the magazines you’re subscribed to? If no, then cancel.

3. Read all your statements carefully. Are there any unexplained “Service fees”, “Account fees” or “Statement preparation fees” that can be eliminated? It’s your money; why make a company rich?

4. Review all your insurance policies. Do you have a Whole Life or Universal Life policy? Get rid of it; it’s a blatant rip-off. Get a Term Life policy instead. Do you have credit insurance (credit card balance, mortgage etc)? It’s another cash grab – your Term Life policy will cover you. (See our book: Getting Rich – How to Avoid Getting Ripped Off by the Insurance Industry for more).

5. Eliminate all your debts. With the exception of mortgages, most lenders charge extortionist rates. Credit cards are the prime example. They are SO easy to use but if you carry a balance – and the average American carries more than $6,300 – you’re paying 19% if you’re lucky (!) or 29% if it’s from a big box store or national chain. Paying the minimum every month almost guarantees that you’ll be paying forever. Stop the madness! Take every penny you saved in the first 4 steps above, start carpooling, brown-bagging lunch, selling off unused stuff in your closets and anything else you can think of and devote it to paying off your debts. You will thank us forever for following this one bit of advice.

6. Accelerate your mortgage payments. Stop thinking of mortgage interest as a great tax deduction – all you’re doing is making banks rich. If you own a home - after you’ve paid off all your other loans and debts – start accelerating your payments to increase your equity and eliminate another debt responsibility. Even another $50/month will do wonders.

7. Know your Net Worth. Your Net Worth is a measurement of your financial health. Just as it’s important to monitor your blood pressure and heart rate, checking your financial health can point out potential problems before they become life threatening. If you owe more than you have in Assets you could be in trouble if you lost your income or there is a serious downturn in the economy. (See our blog: How to Determine Your Net Worth)

8. Start some savings plans. Set some goals for short and long term needs and start putting money away. If you’re currently stretched, even $5/week can start to add up over time and you can add to it when you free up some more money in the future. Get your bank to divert the money from your paycheck and the savings will be pain free.

9. Upgrade your Skillset. Upgrading your skills can make you more promotable at work and protect you against a layoff in a downturn. Or you can look for a new job, maybe in a different category or industry, which would give you more fulfilment and money.

10. Increase your financial literacy. Following the simple steps above can save you hundreds or even thousands of dollars over time. And, these are just the start. Why not invest a bit of time reading some of the great personal finance books out there. You can get many for free at your local library. There are lots of blogs you can read, and we’ve just started an online course you can take in the privacy and comfort of your own home: (www.financialgps.teachable.com).

You see, these steps are not that difficult. No need for major hardship, just some simple modifications to what you’re already doing and life will become much less stressful and much more fun. And, if you’re a parent, you’ll be a much better role model for your kids. Enjoy the new decade!

How to Determine Your ‘Net Worth’

This is a question we often get and here’s the simple explanation: Your ‘Net Worth’ is a measurement of your financial health. Just as it’s important to check your blood pressure and heart rate for your physical health, checking your financial health can reveal potential problems before they become life threatening. If, for example, your blood pressure is high, then you need to avoid stress, coffee, alcohol, sugar, salt and fatty foods. In money terms, if you owe much more than you have in Assets you could be in serious trouble if you lost your income or there’s a downturn in the economy.

How to do it? There are loads of templates around (we have a very simple but comprehensive one in our books and online course) but many of them are overly complicated. It’s really as simple as drawing up 2 columns on a piece of paper: one for Assets and the other for Debts. Assets are all the things you own that you can sell fairly easily if you needed to, and you have to attach a realistic value to each item.

So, even though you think your home is worth a million dollars, if all the houses in your neighbourhood are currently selling for half that, you should go with the lower amount. Same thing with your car: it may be in immaculate shape but if there are lots of other models of the same vintage for sale in your area, that’s what you can expect in a sale. Look up your car model on Auto trader or Kelley Blue Book to get a realistic appraisal. Your bank balance, stock portfolio, if you have one, and your 401 (k) are all very simple – just get your latest statement for the current value.

Under the Debts column list everything you owe: credit cards, lines of credit, student loans, mortgage, car payments etc. Total up each column and deduct the Debts from the Assets – the result is your Net Worth.

Now, lots of people have a negative Net Worth, particularly young people who have just entered the workforce with lots of student debt. As long as you have a secure income it’s not necessarily a big problem, but it is - and should be - a wake-up call to do a course correction and reduce those debts as soon as possible. Just like the blood pressure check this could be a life saving piece of information that keeps you out of the hospital.