5 Reasons Car Loans Are A Bad Deal

For most of the country outside of a few major metropolitan areas, cars are the primary mode of transportation. The car we choose and how we pay for it, however, can make a world of difference financially. According to the Federal Reserve Bank of New York, 107 million Americans had car loan debt in 2017. That’s about 43% of the US adult population. That’s complete insanity! While there are instances where taking out a car loan makes sense, it’s generally a bad deal.

Why Car Loans Are A Bad Deal

1. Depreciation

Most people don’t understand how costly depreciation is. Depreciation just a fancy way of saying that something is losing value over time. Depreciation for cars is steep. For example, the average new car cost about $30K, but the second you drive it off the lot, when that odometer goes from 0 to 1, the car lost 10% of its value. Imagine taking $3,000 out of your bank account, cash, spreading 300 Benjamins on the floor, pouring gas on it and lighting it on fire.
[bctt tweet=”Some people love the new car smell, to me, it smells like burnt money.” username=”moneyspeakeasy”]
 
Now that was just the first minute. The average car loses about 25% of its value in its 1st year, and nearly 50% of its value in the first 3 years. So that $30K car is worth about $15K three years later. Now, different cars depreciate at different rates, but the point is borrowing money for a depreciating asset is almost always a bad deal.
Let’s say you went to the store and saw an item you wanted that was $100, but the box was damaged, and it was the last one. Even though the box was damaged, you thought it was still good and wanted to buy it. Typically, they would take 10% off because the box was damaged and offered it to you for $90. What if I told you instead of paying $90, you actually paid $110? That’s what borrowing for a depreciating asset looks like.
When you borrow money, there’s a cost (interest). So not only are you paying the retail cost of the car, but you’re also paying interest while the value is rapidly decreasing.

2. Lengthy Loans

Now that you understand depreciation, you can see why having a long loan term loan is a bad idea. The average car loan in the US is now over 69 months, that’s nearly 7 years. The longer the car loan, the more interest you pay and the more likely it is that you’ll be upside down on your loan, meaning that you owe more on the loan than the car is worth. Trust me, you do NOT want to be upside down on a car loan. That is truly the sunken place. I hate car loans in general, but if you can’t afford to pay it off in 3 years, you honestly can’t afford it.

3. Credit Risk

It’s also a credit risk to have car loans. Within a 5-year span, it’s very likely that you’re going to have at least one major financial emergency. It could be a job loss, a health emergency, home repairs, car repairs or even a combination. If you’ve ever been in that situation, where money is tight because of an emergency, the last thing you want is a bulky monthly car payment. It makes dealing with a financial emergency much more difficult. When you’re in a cash crunch during those times of emergency, it’s much more likely that you’ll damage your credit by missing or being late on payments. One missed or late payment can affect your credit for 7 years.

4. Killing Wealth

The truth is car loans are killing wealth. We have somehow normalized going from car loan to car loan. That’s a recipe for staying broke. The average car payment today is $523/month. Over 30 years, that’s $188,280 worth of car payments. Imagine if we invested it instead.
$523/mo. invested over 30 years is $611,624 with a 7% annual return.
So you can either give $188K away to banks and car companies or earn yourself $611K. You choose.

5. Borrowing Money To Get To Work?

For many people, the majority of their mileage and the primary reason for their car is transportation to and from work. Think about how insane it is to pay over $6000 a year just to get to work. On an average income of $50K, that’s 12-15% of your income before you even start working. That’s not even including gas or maintenance! If you want to really blow your mind, calculate the number of hours you would have to work to pay your car payment for the year.
 

What to Do instead

Chances are you likely already have a car. Personally, I drive my cars until the wheels fall off because I would rather invest my money than pay car companies.
[bctt tweet=”Most people want to impress others with their purchases. I would rather impress myself with my bank account.” username=”moneyspeakeasy”]
Let’s say you just finished paying off your car loan. Instead of rushing out to finance a new car with a 5+ year loan. Be your own bank and buy a used car cash. You’re probably saying to yourself, “I don’t think I can save up that much money.” Think again. Let’s use round numbers to make this simple. Let’s say you want to buy a car in 3 years, the average new car is about $30K.

  1. Set up a savings account for your car and rename it to the car you want.
  2. Continue to pay a monthly car payment to yourself (i.e. $500/mo.) in that savings account.
  3. Three years from now, buy the car that you wanted 3 years ago. Buy it used with < 50K miles, CASH ($500/mo. x 36 months = $18K + interest). Remember that 50% depreciation? That same car you wanted 3 years ago costs $15K now.
  4. Sell your old car, and put the proceeds in the savings account for maintenance, repairs and/or your next car.
  5. Continue paying yourself the payment, but now invest it (401k, IRA)
  6. Drive it car note free, maintain it well, and when you’re ready for a different car (hopefully not for a long time) rinse and repeat.

Most Americans (76%) are living paycheck to paycheck, and the vast majority of people that buy cars finance them. If you want to be different, you have to do different! Get Out! Car loans are generally a bad deal. Think of the irony of going broke just trying to get to work! Be your own bank, pay cash for used cars, maintain them well and keep building wealth for yourself and your family, not car companies.

The #1 Killer of Wealth in America

It’s not a surprise to hear stories these days about the middle-class shrinking. A big part of that trend has to do with the lack of sustained wage growth for decades. Families were essentially standing still financially while the tide of inflation continued to rise. The tide came in and many families are underwater. However, stagnant wages and inflation are not the full story and may not even be the most important part.
During this time of relatively flat wage growth, one would think that personal spending would go down. Typically people spend less when prices go up. For example, when gas prices go up, people tend to drive less. However, over the years, the complete opposite happened, while wage growth has been flat for the past 30 years, consumer spending has shot through the roof!
How do you explain that? One word. Credit.

Misuse of Credit Kills Wealth

We’re not looking to bore you with the history of credit, but as consumers, the only way to spend what you don’t have is to borrow. Over the past 40 years, banks have made credit such a regular part of everyday life, that today, you likely may not know an adult that doesn’t own at least 1 credit card. Imagine before credit cards, where you had to walk into a bank and fill out all kinds of paperwork to get a personal loan. We must acknowledge, access to credit is actually a good thing when used properly. The problem comes when credit is misused or financial products are designed in such a lopsided fashion that debt problems are inevitable.
The way most people build wealth is to consistently save over an extended period of time. They use those savings to invest in the stock market, real estate, or to build/invest in businesses. Unfortunately, as credit availability grew and became mainstream, personal saving rates did the exact opposite.
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Above is a chart showing the outstanding credit since 1970. Keep note that credit cards really didn’t start becoming mainstream until the 80’s. You’ll notice that credit begins to skyrocket in the 80’s and hasn’t stopped since. Compare that to the chart below showing personal savings rates. People used to regularly save 12-15% of their income in the 70’s, but now it’s down to 5%. One guess on where that 10% difference went. According to a NerdWallet study in 2016, the average family with credit card debt pays $1,292 in credit card interest per year. That does not include interest paid on student loans, auto loans and mortgages.
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This is not all about reckless consumer spending, there’s plenty of blame to go around. Inflation, lack of government regulation and complex, misleading terrible financial products are a large part of the problem. For example, recently auto dealers started extending 8-year auto loans. Depending on the interest rate, a borrower could pay as much in interest on that loan as the car itself. Imagine paying $50K for a $25K car and at the end of those 8 years, the car is worth less than $5K. The point is paying interest to banks is the exact opposite of building wealth. The money spent on interest payments for credit cards, auto loans, student loans, mortgages is money not saved and not invested.
It’s not about whether credit/debt is good or bad. Consumers need to be much more savvy about the cost of borrowing money. It’s not simply the monthly payment, but the amount of interest over time and what one is losing out on by paying that interest. It’s about making an active decision about which side of compound interest you want to live on. You’re either paying interest and growing the profit of banks or receiving interest by investing and growing your own wealth. Choose wisely.

4 Reasons Financial Literacy is Essential 

April is Financial Literacy Month! The purpose of Financial Literacy Month is to bring awareness to and promote the importance of establishing and maintaining financial healthy habits. Unfortunately, in our country, financial literacy has not been prioritized as an essential topic of learning in Public K-12 or higher education. Too many are left to fend for themselves when it comes to managing money.

“College graduates spent 16 years gaining skills that will help them command a higher salary; yet little or no time is spent helping them save, invest and grow their money.”
Vince Shorb, CEO, National Financial Educators Council

1. Personal Finance is 20% knowledge and 80% behavior

There’s a big misconception that personal finance is about math. Some people will shy away from financial topics because “they’re not a math person.” This could not be further from the reality. Avoiding personal finance because you’re not a math person, is like avoiding learning to drive because you’re not a car person. You don’t need to know how to rebuild an engine to get a license and become a safe driver.
Personal finance is much more about the habits and behaviors utilized with our limited resources. Some of these are so ingrained that you may not even see them as habits.

  • Do you use cash or debit/credit cards?
  • Do you have a written budget monthly or do you just pay bills as they come?
  • How often do you check your financial accounts? Do you use an aggregator like Mint?
  • How often do you check your credit score? Credit reports?

Many of our personal finance habits are learned when we’re children. In many ways, we model what we see from our parents and older siblings. If you grew up in a household of spenders or if you grew up in a frugal household, you’ll likely carry some of those same habits today. In order to change those habits, we have to have the requisite knowledge of how to properly manage our finances, but knowledge alone isn’t enough. Much like weight loss, knowing which foods are healthy and how to workout is only the first step. Making the behavior changes into consistent habits is what makes the difference.

2. Some of the most important financial decisions you make are when you’re young

Another reason financial literacy is so important is because there’s another big misconception:  ‘We can deal with the financial stuff when we’re older.’ If you talk to just about anyone over the age of 50 about money, they will tell you they wish they had learned about managing their money when they were younger. The chief financial complaint of older Americans is that they didn’t start saving or investing early enough.

40% of Americans are counting on the lottery, sweepstakes, getting married, or an inheritance to fund their retirement
– Money Magazine

Money Management should be a required curriculum in Junior High, High School and College in every school in America. If the purpose of school is to train you to prepare you for the real world, it doesn’t get much more real that how you manage your money.
Decisions such as your level of completed education, financing higher education, choice of career, location, marriage, children, first home purchase are all decisions that can have a serious impact on your long-term finances and for many are decisions made while relatively young. Don’t make the mistake of waiting until you’re “all grown” up to take responsibility for your finances, you’re already making important financial decisions.

3. Companies are providing fewer guaranteed benefits and shifting risk to employees

We’ll spare you the history lesson, but companies used to guarantee retirement benefits in exchange for years of service. They’re called pensions and they are extremely rare today. Essentially, if you worked for a company for, say 25 years, the company would fund a percentage of your salary in retirement until death. It was completely managed and paid for by the employer.

46% of Americans have less than $10,000 saved for retirement.
– 
Employment Benefit Research Institute

Today, you are totally responsible for your own retirement. Which means you have to save enough money so that you live off your savings. If you participate in your employer’s 401(k), you might get some help from your employer in the form of a 401(k) match, but that’s optional.  You choose what to invest in, how much to invest or whether to invest at all. You have to fund your own account and none of the investments are guaranteed, so all the risk and responsibility of funding your retirement is on your shoulders.
If that wasn’t depressing enough, the safety net of Social Security will likely not be enough to live on for anyone under the age of 50 today, if it exists at all. It is essential that we fund and properly invest early and often to manage that big responsibility.

4. Consumer debt is devastating wealth

Another reason it is vital to learn and master your personal finances is that it has never been easier in to spend money we don’t have. We live in a consumerism culture and our natural inclination is to acquire more stuff. In generations past, cash was the major option. If you wanted to purchase something that you didn’t have cash to purchase, you had to physically walk into a bank, convince the banker for a personal loan and fill out loads of paperwork, and/or put up collateral.

60% of Americans spend about equal to or more than their income.
– FINRA Investor Education Study

Today, in order to spend money you don’t have, you can use a piece of plastic in your wallet or swipe your phone. You may never have to physically walk into a bank. Financial products like credit cards, leasing, payday loans, student loans, interest-only mortgages, adjustable rate mortgages are all products created in the last 30 or so years which allow more and more people access to credit. The downside of having access to credit is that if not used responsibly, it reduces the ability to save and leads to crushing debt. We only have to look at the most recent economic recession of 2009 to see the impact of having too much debt.
 
From a financial standpoint, it’s not at all a rosy picture. There’s no sugarcoating the fact that 76% of US Citizens are living paycheck-to-paycheck. 20% of them earning more than $100K per year. That means more than 3 out of every 4 Americans are essentially broke. This is why financial literacy is essential in order to avoid the traps that many Americans find themselves in. Again, financial literacy is essential, but it’s just the first step. One has to use that knowledge to change their mindset and their behaviors in order to be truly successful. Finally, financial literacy is a continuous process, it’s not one course, it’s not one topic, it’s ongoing. We hope you take the first of many steps in that ongoing journey.

Financial literacy is not an absolute state; it is a continuum of abilities that is subject to variables such as age, family, culture, and residence. Financial literacy refers to an evolving state of competency that enables each individual to respond effectively to ever-changing personal and economic circumstances.
– Jump$tart

Baby on the Way! Financially Preparing for Maternity Leave

Thinking about having a child? Or maybe you’ve recently found out you’re pregnant! A range of emotions hit you – excitement, bewilderment, surprise, and anxiety – but after some time, your rational mind kicks in and asks,

“Wait, can I even afford to have a child?”

“How much should I save?”

“Does my job even have paid maternity leave?”

These are the questions my wife and I had when we first started to think about having our first child. There’s so much involved with bringing new life into the world, we really didn’t want to add financial stress to the list.

We knew we would have to rip off the band-aid and talk honestly about what would be ahead. So first, we did some research and we came across some disheartening news.

  1. According to a newly released US Department of Agriculture study, the average cost of raising a child from birth through age 17 is $233,610 for a middle-income married family with two children. (not including college or vacations).The average middle-income family will spend $12,680 on child-related expenses in their baby’s first year of life.
  2. According to Pew Research, The U.S. is the only industrialized nation in the world that does not mandate paid leave for new parents.
  3. Family Medical Leave Act (FMLA) requires certain companies to offer 12 weeks unpaid leave. However, the vast majority of families cannot afford to go without a paycheck for three months, so many are forced back to work much sooner.

Pretty bad, right? The good news is that despite the costs and unfavorable policies, there are millions of American families raising happy, healthy children.

Below, my wife and I came up with the most important things to do and not do to financially prepare for maternity leave. We also created a FREE financial checklist, Baby on the Way! which covers many of these items below and more with additional resources. Fill in the information below to receive an email copy. 

1. DO: Check with your employer(s) for their maternity and paternity leave policies.

You’ll want to check with your human resources department to understand what their policies are and how they’ll apply to you. Maternity leave is actually considered to be a short-term disability, so you will want to understand whether you have or are eligible for short-term disability coverage, how long it lasts, and how much of your paycheck it will pay out (typically 50-60%). My wife was only eligible for short-term disability after being at her job for a full year.  We started trying once we knew she would be eligible.

You’ll also want to understand if any of your benefits will be impacted while you’re out. Accrued vacation? Sick days? Bonus? Health insurance? Life insurance? 

2. DO: Evaluate your health insurance coverage and check with your health insurance provider about maternity benefits they offer.

Along with speaking to your HR rep, also check with your health insurance provider. Many insurers offer benefits to assist you during pregnancy and post childbirth process, which can save you time and money. Benefits such as consultations, educational courses, breast pumps, and lactation consultants are just a few examples. The lactation consultant that my wife used two weeks after birth was as she claims, “A life saver”.

Also, make sure all healthcare providers are in-network. For example, make sure your obstetrician and their attending hospitals are in-network. There is nothing worse than getting a $2000 bill for your hospital stay that also comes home with you.

3. DO: Have a written monthly budget

Whether you have had a written budget before or not, it’s time to buckle down and write and stick to a monthly budget.

First, you’ll want to save as much as you can to prepare for a potential loss of income during pregnancy. You can start by cutting out non-essential spending to reallocate those dollars toward savings. Cutting cable, cooking at home, and reviewing monthly memberships is a good start. As a personal finance nerd, I was able to convince my wife to set up a baby fund before we started trying. It certainly came in handy when we discovered how expensive daycares were in our area.

Second, you can’t change what you don’t measure. You’ll likely have to reprioritize certain aspects of your finances. For example, if you were making additional payments on your student loans to pay them off quicker, you may want to reallocate that money towards an emergency fund or a separate baby savings fund.

Third, you want to have a pre-delivery and post-delivery budget to understand how your resources will be allocated before and after pregnancy. Particularly if your income will be impacted by short-term disability. What will it look like to live on 60% or less of your salary for a few months?

4. DON’T: Assume you can work up until pregnancy

Pregnancy can be quite unpredictable, so make sure you have flexibility in terms of your planning. You may be planning to work until your due date, but your little bundle of joy might have other plans! Understanding the financial implications of leaving work earlier will curb any additional anxieties if the situation arises.

5. DON’T: Go it alone. Lean on Your Village

Finally, and most importantly, you are not alone. Often times we have trouble asking for help, but this is an undertaking that is beyond one individual. The African proverb, “It takes a village to raise a child.” is so accurate. You’ll need to lean on others during this process. Often times we forget, the vast majority of the time, people are ecstatic to help us. Put yourself in their shoes. If you had a pregnant friend or family member ask you to give them a ride to a doctor’s appointment, how would you feel? Likely, you would be happy to help!

Financially speaking, baby showers are a great way for the ‘village’ to help you get what you need to prepare for the child’s arrival, but be sure to focus your baby registry on needs, not wants. Also, barring safety concerns with items such as cribs and car seats, second-hand items are a great way to save money.

For those in your village that may not be able to afford more expensive items on a baby registry, diapers, baby clothes, home-cooked meals, and babysitting are great low-cost substitutes. Allowing people to help and contribute, brings them joy and gives them a stake in the process and takes some financial burden off of you.  Find out who in your village has had a child three to six months ahead of you — they may be looking for someone to unload all of their baby clothes that no longer fit!

Again, millions of people have gone through this process and came out the other side and many of them have less financial resources. The best thing to do is to plan ahead and get organized. We wish you good luck!

For more additional tips and resources, be sure to fill in the information below to email a copy of our FREE Baby on the Way! Checklist.

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3 Money Lessons for Thanksgiving

Thanksgiving is my favorite holiday. It’s a holiday with the least pretense or pomp and circumstance and is almost exclusively focused on family, gratitude and quality time (a.k.a. the things that really matter). That focus is also extremely important for our finances. There is no shortage of distractions when it comes to things we can do with our money, so here are three lessons Thanksgiving can teach us about money.

1. An Attitude of Gratitude

Pilgrims arrived and anchored near Cape Cod, MA in 1620 arriving just before a brutal winter, which many spent on the ship. Between the 66-day voyage and that brutal first winter, half of the 102 passengers and 26 crew members died. In the Spring, when the remaining passengers moved ashore, they were greeted by Natives, who taught them to hunt, fish, farm and survive in this new land. Thanksgiving’s history begins with a celebratory feast where Pilgrims invited local Native tribes to a feast to celebrate their first successful harvest. These were not people of wealth or high status, they went through a traumatic voyage and a brutal winter and lost many lives. One would imagine they would be heavily reconsidering their decision to leave everything they knew in England to risk life and limb for freedom and opportunity. They were grateful for their freedom, they were grateful the gift of life and they were grateful to their gracious hosts, who without them would have certainly not survived.

The money lesson here is gratitude. Gratitude is free, unlimited and enhances your life immeasurably.

Gratitude unlocks the fullness of life. It turns what we have into enough, and more. It turns denial into acceptance, chaos to order, confusion to clarity. It can turn a meal into a feast, a house into a home, a stranger into a friend. – Melody Beattie

2. The Beauty of Simplicity

There are only three requirements for Thanksgiving – food, family, and fun. Each one of those can take different forms. Whether you have a turkey or go vegetarian. Whether you have a traditional family, or your own community, and fun can mean anything from falling asleep watching football on the couch to card games and uncomfortable conversations about politics. Either way, there are no religious requirements, expectations of gift exchanges, costumes, candy, ceremonies or fireworks. Thanksgiving is simply about spending quality time with the people you love and sharing a feast. There is a simplicity of Thanksgiving that makes it so appealing and universal.

The money lesson here is that money is just a resource if we break it down to its simplest form. Money doesn’t define who we are and it does not make us better than anyone else. Money doesn’t have to be complex and complicate our lives. If we use money wisely, we use it as a resource build or enhance things of real value like time, relationships and community. The very same things we are grateful for on Thanksgiving.

 

3. Death to Black Friday

Commercial interests have all but ruined Christmas, but over the last decade, those same commercial interests have made a full push to commercialize Thanksgiving. People are actually leaving their loved ones to stand in line at a retail store overnight to buy products. Think about the irony of leaving the dinner table after giving thanks for everything and everybody in your life to stand in line at a store overnight to buy more stuff.

[bctt tweet=”Don’t go from being grateful for what you have on Thurs, to buying things you don’t need on Fri!” username=”moneyspeakeasy”]

Make no mistake, Black Friday is a retail scam. It’s been proven that major retailers steadily raise their prices in the weeks and months before Thanksgiving for the appearance of steep discounts for Black Friday. Let’s not forget the reason for the season – Thanksgiving is about spending time with your loved ones, not camped outside of Target or Wal-Mart. One more benefit to not Black Friday shopping is that fewer employees will have to work crazy overnight hours on a holiday! Let these folks spend time with their loved ones.

So for this Thanksgiving, both with your loved ones and your wallets, be thankful for what you have, enjoy the things that really matter and let’s all sleep in or play flag football on Friday morning!

4 Money Lessons from the 2016 U.S. Presidential Election

The 2016 Presidential Election was historic on multiple fronts. Two of the most unpopular candidates battled in one of the most contentious, divisive and unconventional campaigns in modern history. For some, the result was a deeply shocking and painful event, for others it was redemption for voices long ignored. In all, nearly 120 Million Americans voted and the popular vote was separated by less than 200,000 votes, which is about the population of Little Rock, Arkansas. Regardless of your politics or preference of candidate, there’s no question that the country is divided politically. Whether you’re extremely disappointed or excited by the result there are lessons to be learned from the election and how it can affect our wallets and thus our livelihoods. How can the lessons from this election make us better managers of our finances?

1. Conventional Wisdom Isn’t Always Wise

Nearly every political expert and reputable polling firm who had been polling voters on a weekly basis for 18 months were completely wrong about the actual results of the election. Polling models that were used for the electorate in 2008 and 2012, became obsolete in 2016. Conventional wisdom can often be generalized and not specific to our individual situation.

There are certain standards of conventional wisdom in our finances that are also outdated or need to be challenged based on our individual situations. For example, conventional wisdom often stresses going to the best college one can get into (regardless of cost), pursuing a degree in a field of interest (regardless of expected future salary). This is not to say that people shouldn’t go to college or pursue a major solely based on expected future salary. It is to say that mode of thinking was developed at a time when people could pay their full student tuition by working part-time. That’s a 1970’s/80’s model, which needs to be challenged and may not take into account the realities of increased tuition costs and the impact of student loan debt on your future livelihood.

Our motto is Reject the Status Quo. In order to manage your finances well, there are times when you’ll make decisions that are not popular. The status quo embraces consumerism culture in which many people equate spending with projecting wealth or building relationships. It may be tough to navigate being the odd one out if you don’t subscribe to that mode of thinking. You may find that unnecessary spending actually doesn’t project wealth or make you happier, but rather delays and extends the time it takes for you to reach your personal and financial goals.

2. Prepare for the Unexpected

To say that Donald Trump becoming the 45th President of the United States was unexpected is a dramatic understatement, but life can often be very unpredictable. It was the Greek Philosopher Heraclitus who said, “Change is the only constant in life.” Sometimes change is good and sometimes it isn’t, but regardless, we have to plan for the unexpected. [bctt tweet=”Being unorganized with your finances is like playing Russian Roulette. ” username=”moneyspeakeasy”]

One of the lessons learned from the 2008 Great Recession was the people that were impacted the most were folks who carried high levels of debt and lived above their means. That’s not a judgment on them personally, but we need to ask ourselves if we have recession-proofed our finances. The following questions can help you assess your readiness:

Do you have 3-6 months living expenses in an emergency fund?

Do you have more than one source of income?

Do you have a written budget and track your spending?

Do you have life and disability insurance?

Do you have revolving credit card debt?

3. Depending on Government is a Losing Strategy

One of the truly negative impacts of having a divided country and a divided government is that even topics of general consensus may not get accomplished. There are serious financial issues, such as the cost of higher education, the cost of healthcare, student loan debt, social security, increasing wages and tax reform that can have dramatic effects on our finances, both positive and negative.

We believe the best plan of action is to treat your finances as if you will not get any assistance from the government and if you do, it will be a bonus. If you are under the age of 50, you should have no expectation that you’ll receive any social security benefits in retirement. If you have student loans, you should have no expectation that the government will help reduce the cost or forgive any portion of it, unless you are in a loan forgiveness program, have it in writing and understand the nuances.

The point is that our government is not a nimble organization, even when there is a consensus. Big changes can often take years, if not decades. Therefore government assistance should not be an important part of any financial planning.

4. Your Money, Your Values

Finally, if you want to know what someone truly values, you may listen to their words, you may even look into their actions, but one of the most revealing aspects of a person’s values is their spending. As they say, follow the money! We may vote for a Presidential candidate every four years, but we vote daily with our financial resources. [bctt tweet=”The more we control of our finances, the more resources we can direct toward causes we value.” username=”moneyspeakeasy”] For example, if a company decided to move a factory overseas or company funded organizations that were contrary to your values, an organized voter base could decide they were no longer willing to purchase products from that company and impact that decision. Just as many Americans believe that every vote counts, your dollars and purchase decisions count. Make sure your bank statement reflects what you value most.

5 Tips to Financially Prepare for the Holidays

Fall is upon us, football season has begun, and school is back in session. NOW is the ideal time to prepare financially for the holidays. Do yourself a favor and commit to not extending holiday debt into the new year! #noholidaydebt We’ll give you a start with 5 tips to financially prepare for the holidays.

1. Make Your Budget and Gift List Now

The holidays are a great time of year, but from a financial standpoint, the holidays can be really expensive. We are not just talking about gifts, but also food, travel, clothing, decorations, holiday cards, activities, and donations. If you’re not careful, you may end up purchasing random items for yourself while out shopping for others. November and December are likely two of the most expensive months of the year spending-wise. Planning in advance gives you some structure and discipline, just like having a shopping list for grocery shopping. It also allows you the benefit of time to take advantage of discounts. Flights, for example, typically get much more expensive a month before the travel date. Try to purchase flights months in advance to get the best pricing. Make a gift list with all people you plan on purchasing gifts for (don’t forget those unfortunate folks with late December/early January birthdays). Set a budget amount for each on of them and brainstorm possible gifts. Then list all of the additional expenses (travel, food, decorations, cards, donations) that you will incur during the holidays and set a budget for them.

 

2. Set aside money now and automate it

Many banks, especially online banks, allow customers to open additional savings accounts with no charge or additional paperwork. You can name your accounts and separate your emergency fund from your holiday savings.

Reminder: The holidays do not qualify as an emergency. Do not co-mingle or withdraw from your emergency fund for holiday expenses you could have planned for in September and October.

Set up a separate holiday savings account. Based on your regular monthly budget and your holiday budget from above, create scheduled deposits go into this account (weekly, bi-weekly, or monthly). The most effective way to save is setting up automatic deposits on payday.

3. Communicate with your family and friends

It’s important that you communicate early with your family and friends about expectations for the holidays. If you are struggling financially and are trying to get back on track. There’s no shame in that. If you were sick or injured, would your family have the same daily expectations of you? No! They would do whatever they could to support you getting well. The holidays should be about spending quality time and creating lasting memories with the ones you love, not spending money you don’t have buying trinkets your family and friends don’t need! If your family member told you, “Hey, one of my goals for next year is to get my finances under control, so I’m not going to be spending much on Christmas gifts, can we do <insert activity> together instead?” Would that make you feel underappreciated? Of course not. Communicate expectations early, you may be surprised that they are likely in the same boat and just didn’t want to say it.

4. Black Friday is a Scam. Period. Full Stop.

Let’s be clear. Spending all day Thursday giving thanks for who and what we already have to then sit outside of a retail store at the crack of dawn the VERY NEXT DAY to buy stuff we don’t need defies all common sense. The truth is many retailers steadily raise their prices from October through December only to reduce them temporarily to make consumers feel like they are getting a deal. Even the items that do have deep discounts often have very limited quantity. So if you really want discounts, start looking in September and October before the prices go up so you don’t need to trample people to save $50 of an espresso machine.

5. Be Creative

Last, but certainly not least, don’t forget the reason for the season. If you think about some of the best gifts you’ve been given, they likely weren’t very expensive and if you’re really honest with yourself, the time you spent with your family and friends was much more valuable and memorable than the gifts. With that said, creativity is often lost during the holidays because of the time crunch at the end of the year. We often end up with a bevy of gift cards. Starting early and getting creative can take many forms. Secret Santas, homemade gifts, family movie night, volunteering activities are just a few examples.

[bctt tweet=”Let’s resolve not to bring holiday debt into the new year! #noholidaydebt” username=”moneyspeakeasy”]

If we plan in advance, automate savings, communicate with loved ones, avoid scams and get creative we can leave our holiday spending behind us, enjoy and give ourselves the gift of no additional debt next year.

Three Lessons My Father Taught Me About Money

Believe it or not, many of our financial habits are developed before our teens and so our families have a huge impact on our relationship with money. Not only was my father savvy with money, but it was also important for him to teach us key financial lessons.
 
My father was aware that I wasn’t going to learn much about managing money in school. In fact, my allowance often required writing book summaries of titles he chose, and many of them were personal finance books  (I also had a sneaking suspicion he may have been paying me for cliff notes for titles he didn’t have time to read). Many of those books and his personal example set my financial foundation.
Working in the financial services industry for the past 13 years has given me even more perspective on my father’s money lessons and why they are still relevant today, especially for young professionals.

Lesson #1: Money is a Tool. It Can Build or Destroy

My parents emigrated to the U.S. from the Caribbean before I was born. Coming from a third-world country gives one perspective on how people can live satisfying and fulfilling lives with or without material wealth. It was important that we understood that money is neither good nor evil, but a tool. A hammer, for example, can be used to build a home or cause serious harm. Similarly, money can both build opportunities or destroy relationships. Money is not to be worshiped and it does not make one person better than another.
[bctt tweet=”The purpose of accumulating wealth is to gain greater control over your time and talent and to help others do the same.” username=”moneyspeakeasy”]
Unfortunately, our society idolizes celebrity culture where many use their wealth to validate their own self-worth. We can drape our bodies and fill our homes with expensive brands and trinkets, but those things fade quickly.
Think of a time when you bought something that made you feel important (a car, clothes, a tech gadget, a bag, shoes). If it was more than a year or two ago, you likely feel very different about it today and may not even still own it. We are encouraged to spend most of our money on things that give us short-term satisfaction. There are plenty of examples of athletes, artists, and lottery winners who painfully learned this lesson, where money was actually a destructive force in their lives and well-being because of the abuse and misuse of their finances.
[bctt tweet=”Money is simply a tool; use it to build or enhance things of REAL value like time, experiences, relationships and community.” username=”moneyspeakeasy”]

Lesson #2: Your Relationship with Money Should Mature Just Like You Do

Toddlers learn the idea of possession very quickly. The words “no” and “mine” are typical among their first words. Just try taking a favorite toy away from a 2-year old child! Children also lack the perspective of short-term and long-term consequences of their actions. So if they like cake and ice cream, they will continue to eat it until they can’t eat anymore and get sick.
In college, I noticed my classmates using credit cards for everyday items like pizza, gas, and clothes. Of course, everyone’s financial situation is different, but the idea of using a credit card (a short-term loan on plastic) to buy a $10 pizza honestly never even crossed my mind until I saw my classmates do it. My first credit card was in college and was a shared account with my father and explicitly used only for books and emergencies. So the idea of explaining to my father who Papa John is and why that pizza was an emergency was not a circumstance I was willing to deal with.
Over time, we mature and develop the perspective to understand the importance of giving and sharing as well as the short and long-term consequences of our actions. Unfortunately, our financial maturity doesn’t always follow our social maturity.
Here are a few questions to evaluate your financial maturity:

  • Do you know how much you spend and save each month?
  • Do you live on less than you earn each month?
  • Do you regularly donate money to charity or a specific cause?
  • Do you have written financial goals? Do you track your progress?
  • Do you have an emergency fund?
  • Do you invest for the future?

If you answered no to any of those questions, that’s okay! Everyone is on a journey; just make sure you are moving forward in a direction that tracks with your goals and values. Ideally, your relationship with money will grow from satisfying immediate desires to developing short and long-term savings to giving regularly to building wealth and a legacy.

Lesson #3: Managing Money Properly Requires Muscle: Use it or Lose It 

Managing your finances is not a one-time deal. If you’ve never done a monthly budget before, the first three months, your budget will be lousy and you’ll make a ton of mistakes. Much like working out, the first time you start making better decisions with your finances, you may experience some soreness. It may feel like you are punishing yourself when you halt some of your routine purchases, but when you start to see the benefits in terms of savings, it makes it worthwhile.
Financial management is an ongoing practice.
[bctt tweet=”If you don’t make decisions about your money, your money will make decisions for you.” username=”moneyspeakeasy”]
You build the muscle of financial management through continuous learning and practice. To this day, my father still reads books about personal finance and investing. He continually learns and grows in order to make better decisions with his financial resources. If you stop learning and stop growing, you will regress.
My father used to say,
[bctt tweet=”“Nothing in nature stays constant; we are either green and growing or we are ripe and rotting.”” username=”moneyspeakeasy”]
I was very fortunate my father taught me the lessons he did, but his personal example was actually more impactful than his words. For example, he actually saved mailing tubes that one would use for rolled up posters or paintings and would fill them with loose change. It was his version of a piggy bank. He had me pick it up to show how heavy it was and would later show me the bank deposit receipt. Some of those tubes paid for family vacations and to this day is a reminder to me of the power of saving in small amounts. Hopefully, his lessons and example assist you on your own financial journey.