5 Topics All Couples Should Agree On Financially

Let’s be honest, money is emotional and complex! It impacts nearly every aspect of our lives and most certainly impacts our relationships with our significant other. Since money is still such a taboo topic in our culture, miscommunications can create small cracks in the bonds of our relationships. Like a small crack in a windshield, it can expand over time and damage the entire windshield. However, it’s also true that small cracks can be repaired simply if they are identified and corrected early.
When thinking about finances as a couple, we must understand that we’re partnering two people with different backgrounds, experiences, goals, and values when it comes to money. A couple partnering their finances is essentially entering into a business partnership, with the exception that businesses typically have a formal written contract which stipulates the rules each partner must abide by, most couples don’t have a written contract. In absence of a written contract, we need to come together to have a common understanding of some fundamental questions.
Before we get into those fundamental questions, let’s be cautious about how we set up these conversations. Personal finance is just that, personal. When we’re having conversations about money, they can be extremely intimate and bring up emotions of shame, defensiveness, guilt, and even anger. Do NOT corner your partner in an interrogation room Law & Order-style with a bright light asking intimate financial questions. You want to create an environment that is safe, positive, private, honest, and free of judgment. This is also not just one conversation but should be several and ongoing. Make it a finance date! We’ve created a checklist of items to discuss to make sure you can cover all your bases.
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So let’s get to the questions! The following are 5 topics couples should agree upon financially.

1. What are our financial values and priorities when it comes to money?

As we mentioned before, we have different priorities and values when it comes to money. One partner may view money through the lens of power and control. For example, they may be a meticulous planner and want to maximize every penny. The other partner may believe money enhances their experiences and relationships. They may see money as a means to see more and do more. In this situation, one partner views their partner’s financial behavior as controlling/limiting and the other partner views their behavior as undisciplined and wasteful. If we only view our partner’s behaviors through our own frame, it can create a purely biased and unbalanced view that can create many small cracks in the bond. It’s important to discuss these views openly and come to terms with what your joint values and priorities are.

2. What are our individual and joint financial goals?

After discussing your values and priorities, then you can discuss financial goals. Goal setting is important individually, but it’s even more important as a team to ensure you’re both rowing in the same direction. Your goals have to be specific, written and shared.  An unwritten goal is called a wish. Can you think of any successful teams, businesses or organizations that don’t have specific written goals? Come up with your financial goals individually and then bring them together to set joint financial short, medium and long-term goals.

3. What is our plan for managing debt?

Misuse of credit is one of the largest contributors preventing people from building wealth. Debt is essentially present borrowing against future income. Unfortunately, too often people find themselves in a situation where their future catches up with them, and their new present is unbearable. Living paycheck to paycheck can create ever-present stress because financially they are just treading above water, knowing that one uncontrollable change could cause them to start drowning. Working hard just to pay off debt from the past and not being able to take advantage of opportunities in the present or save for the future can put a serious strain on both the individual and the relationship. Discussing current debts, and being on the same page in terms debt that you may incur in the future (mortgage, business loan, student loan) is vital.

4. What is our plan for handling emergencies/loss?

You know the saying, $%*? happens! The question is not whether it will happen, but rather are you prepared for it when it does. Having an emergency fund is vital for anyone to have, but that’s just a first step. Once you’re in a committed relationship and are partnering your finances, you need to discuss how to handle a situation in which one or both of you are disabled or passed on. If you think those are difficult conversations now, think about how much more difficult it would be in the absence of these conversations afterward. Don’t add financial stress to grief.
Life insuranceDisability Insurance, Living Will, Healthcare Power of Attorney, and organizing confidential paperwork and passwords. These are examples of items you can take care of relatively inexpensively which go to piece of mind.

5. What is our plan to build wealth?

So you’ve sorted your values, set goals, managed debt and planned for contingencies, now let’s talk about wealth building. Most people who work simply exchange their time and skills for money. At some point, they may no longer want to continue that exchange. Some people call it retirement or financial independence, the goal for most people is to amass enough financial resources to have independent control over the use their time and talent. The best way to do that effectively is to plan, save and invest as early as possible. There are a zillion routes to get there; combinations of employment, entrepreneurship, equity investing, real estate investing, inheritance just to name a few, but you and your partner want to be on the same page in terms of what is the end game, how much do we need, and approximately how long will it take?
We created a checklist of items for your finance date and we are also developing an online course with live coaching to help couples dig deeper into some of these topics to get on the same page financially.
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Discussing finances as a couple can be a very tough road to travel. There can be potholes, detours, roadblocks, speed bumps, accidents, and traffic. However, if you and your partner can agree upon where you’re going, how to manage challenges and which routes to take, it’s much more likely that both you will get there, together.
 

5 Steps to Financially Prepare to Be Laid Off

It’s very possible, and some would argue very likely, that you could experience being laid off from your job at least once in your career. There really is no such thing as job security these days. Experiencing a layoff unexpectedly can trigger a range of emotions. The company you have devoted thousands of hours of your life to, away from your family and friends, abruptly informs that you and your services are no longer needed. Betrayal, frustration, anger, sadness, anxiety, and embarrassment are just a few of those emotions. It doesn’t have to be that way though! If you are financially and emotionally prepared for a layoff, it can be an empowering experience.

1.    Your Employer is Just Not That Into You

Unless you’re in a union, have a written employment contract or live in Montana, employees of private companies are likely subject to at-will employment. Three-quarters of American workers are subject to at-will employment. Let’s understand what that means:
At-will means that an employer can terminate an employee at any time for any reason, except an illegal one, or for no reason without incurring legal liability.
Again, there is no such thing as job security! With a few protected exceptions, (e.g. based on race, sex, gender, national origin, age, disability), a company can terminate your employment at any time for any reason, or for no reason at all. Many of us don’t realize this simple fact and base our livelihoods around our employer. Where we live, what time we wake up, what time we sleep, when and where we vacation. Most of our lives are centered around our employer and that connection can be ripped away for any reason or no reason at all.
This is not to bash corporations, but rather simply to put into context that many of us are centering our lives around a relationship that has little to no contractual stability. In other words, you are not married to your employer, you’re just dating.
Corporations, especially publicly traded companies, have one primary goal – Increase shareholder profit. Regardless of what it says on your employers’ ‘About Us’ page, everything your company does centers upon that one primary goal. Corporations are like animals in the wild. That animal may look cute and cuddly, but the second it even perceives a threat to its survival, it is deadly. If company leadership decides that it needs to remove 10% of its workforce to be more competitive, it is their fiduciary duty to do so. It’s not even about you. They are just not that into you.

2. You are the CEO of [YOU], Inc.

Once you understand that you are not wed to your employer, the next step is to understand that you yourself are a corporation. The employment contract has changed dramatically from the days of our parents and grandparents, pensions have all but vanished, unions have diminished. You are solely responsible for your financial well-being, that includes preparing for layoffs and managing your own retirement. Once you begin to see yourself as a business, ask yourself a simple question: Can you think of any successful businesses that only have one client/product? Probably not, because if that one client leaves or the product stops selling, they would be out of business. Well, if you are an employee and your employer is your sole source of income, that’s exactly what you are doing.

3. Build an Emergency Fund

Once you get your head around the fact that you are not wed to your employer and you are actually a business, a world of opportunities can open up to you. By no means are we advocating quitting your job, but once you see your employer as one client and one revenue stream, you can start to focus on other things.
You have to build an emergency fund. No excuses, it’s vital. Three to six months of your essential monthly expenses (in cash in a separate bank account) is a great goal and gives you the peace of mind that you can pay your bills if your employer breaks up with you suddenly.

4. Evaluate Your Skills In the Marketplace

If your employer is your primary client, can you use that same skill set for other clients? If you do social media marketing for your employer, can you do social media marketing for other companies in other industries? You may also have skills that are completely outside of what you do from 9-5 that you can think about monetizing. One way to evaluate this is to ask yourself three questions:

  1. What do people come to me for advice for personally and professionally?
  2. What problems do I want to solve?
  3. What value do I bring to the marketplace that people are willing to pay for?

Since you are a business, you must think about solving problems for others and providing value to the most amount of people. Once you start thinking this way, the gears will start to turn and you can develop side hustles and other sources of income outside of your employer.

5. Let Your Employer Help You

Finally, utilize your employers’ resources. You may just be dating your employer, but there are advantages to dating wealthy. Here are a few suggestions on how to make sure you’re getting the most from your relationship with your employer.

  1. Maximize Your Employment Benefits – don’t leave money on the table because you haven’t looked at the HR Portal in a while
  2. Take Employee Development seriously – You must continuously learn and grow to make yourself (and your business) more marketable. If your employer (primary client) is willing to pay for you to develop new skills, that can be valuable in your current role, future roles and for other clients.
  3. Build Your Clientele – Now that you know that you’re just dating, give yourself permission to see other people. Network within your company, your company’s business partners, and competitors. There are people within all three of those groups that can be future employers and/or future clients.
  4. Check Your Value in the Marketplace – Employers have a financial incentive to pay you less than market value, especially over time. Remember, their #1 goal is to increase shareholder value and your salary may be in direct conflict with that goal. You are solely responsible for ensuring you are getting paid market value, no one else. Every 3-5 years, you should be testing that value in the marketplace by applying for jobs. Not only is applying for jobs good for networking and building clientele, but it also helps keep you from being severely underpaid, costing you tens of thousands of dollars in the long run.

Thirty-year employees are increasingly rare each day. You most likely will not work for the same employer for your entire career. Understanding the true nature of your relationship with your employer and your responsibility to your own financial well-being is vital. If you understand your value in the economic marketplace and maximize that value not just for your current employer, but also for [YOU], Inc., getting laid off can be an opportunity, not a catastrophe.

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

If You Hate Maintaining a Budget, Track these Two Numbers Monthly

As personal finance nerds, we are interested in where every dollar goes, what bucket it falls into and how that compares to the previous week, month, and year. Most people are generally not interested in tracking every dollar. Some people say, “I’m just not a math person” or “that’s just more detail than I care to know.”

If forced to come up with two metrics to evaluate your financial progress, we would have to say without a doubt, it’s your net income and net worth. Let’s define both and then let’s talk about why these are the most important financial measures to track.

What is your Net Income?

Your net income is simply taking your monthly after-tax income (the amount that comes into your bank account) and subtracting all of your expenses during the month (housing, food, utilities, transportation, debt payments, personal, etc).

Net Income = After Tax Income – Expenses

If you were a business, your Net Income would be called ‘profit’. You need to know what your profit is each monthly. You don’t want to run a business that’s losing money each month. You want your net income to be positive each month and you want it to be growing over time.

A common mistake people make is that as their income increases, they increase their spending along with it (a.k.a. lifestyle inflation). So if you get a 3% raise at work, but you increase your spending by 4%, you could actually be worse off financially, that’s why tracking net income (profit) monthly is so important.

 

What is your Financial Net Worth?

Your financial net worth is simply adding up all your financial assets (everything you own) and subtracting all of your financial debts (everything you owe).

Net Worth = Assets – Debts

Financial Assets can include real estate, securities (stocks, bonds, mutual funds), vehicles, checking, savings, cash or anything you can sell and turn into cash. Alternatively, your debts can include mortgages, credit card debt, personal loans, home equity loans, student loans, etc.

Let’s be clear about a few things, first, never confuse your financial net worth for self-worth. Regardless of whether you’re a millionaire or your net worth is negative, it says nothing about who you are as a human being. We live in a ‘more is always better’ culture, we glorify millionaires and condemn the poor, but that is not the goal of this measure. Your financial net worth is simply a number that applies to you individually or as a family to track and increase over time to assess how close you are to reaching your financial goals (i.e. financial independence).

Second, the majority of Americans have either zero or negative financial net worth, so if they sold everything they owned, they would either have nothing left over or would still owe money. Many young professionals fall into this bucket due in part to student loans. Building your savings and getting out of debt both increases your assets and reduces your debt, thereby increasing your net worth.

Why are net income and net worth the most important numbers to track?

Good question! Why not Salary? Savings? Credit Score? The answer is simple, your net worth is the bigger picture goal, net income is how quickly you’re moving towards that big picture goal.  In your financial journey to your financial destination, your net worth would be the miles traveled to your destination, your net income is how fast you’re driving.  There are all sorts of metrics that you could measure if you were taking a cross-country journey, but if we had to choose only two, we would want to know how far we’ve gone (net worth) and how fast we’re moving (net income).

Both Net Income and Net Worth are simple formulas and there are only two ways to increase them:

  • Increase income/assets
  • Reduce expenses/debt

Increasing Income/Assets

Unfortunately, the majority of our expenses (after our essential expenses) are for items that decrease or depreciate in value. So when we buy a pair of shoes or a phone, if we were to sell it used a month later, we would receive much less in return than we paid for it. On the other hand, if used the same money to purchase stock ownership in the company that manufactured that shoe or phone, that stock could potentially increase or appreciate in value over time. When you hear phrases like ‘the rich get richer and the poor get poorer’ that is partially because wealthy people are more likely and able to purchase appreciating assets (e.g. businesses, securities) and the middle class and working class are more likely to buy depreciating liabilities (i.e. debt – a.k.a. stuff that makes us look/feel rich, but actually make us less wealthy). A depreciating liability, such as a car note, is a double loser because not only is the car rapidly declining in value, but it’s also financed from a bank, which means paying additional money in interest (increased cost & reducing value).

We have to change how we look at what we buy and whether showing off our expensive stuff is more important than actually growing our wealth. Recent studies have shown that 76% of Americans are living paycheck to paycheck, that includes high-income earners, so the people we compare ourselves to or try to impress are likely broke.

We also have to change the way we think about our income. It’s often said when talking about investing, that ‘you don’t want all your eggs in one basket’, you have to diversify your investment assets to reduce risk. Well it’s much less talked about, but just as important to diversify your income because having one source of income is just as risky as having all your investments in one stock.

In order to put more wins in the asset/income columns, the focus should be to develop multiple sources of income and free your income to purchase assets that appreciate in value. Building an emergency fund, increasing your 401k contributions, contributing to an IRA, are all ways to increase your assets in the near term.

Reducing Debt/Expenses

The other end of increasing your net worth is reducing your debt. Everyone has different types and levels of debt, but the most advantageous position to be in financially is having no debt. There are entire industries that rely on people getting and staying in debt. Credit cards, auto manufacturers, mortgage lenders, banks are examples. In fact, the credit card industry calls people that pay their balance in full every month, deadbeats. They are deadbeats because the card companies aren’t making any money off them in finance charges. If you choose to use credit cards, please be a deadbeat! Unfortunately, in our culture we have become accustomed to debt as a way of life. When we start to understand how much debt impacts our ability to reach our financial goals, we begin to make different choices. Keep in mind, our debt is someone else’s asset (i.e. banks, credit cards, auto companies, mortgage lenders), just like your loss is someone else’s win.  If you are a lender, the loan contract is an asset that appreciates. You lend someone $20K for a car purchase and you’re paid back $22K over 5 years.

In order to reduce losses in the debt/expenses columns, the focus should be to free your income to pay off debt more quickly and avoid additional debt. Also, reduce the purchasing of items that depreciate in value. Tracking your spending for a month, using only cash for 60 days or selling possessions are all ways to increase income or reduce expenses in order to reduce debt.

The Bottom Line

The bottom line is that we cannot wear or drive wealth. In one camp, the majority of millionaires live well below their means, drive used cars, and live in modest homes (read: The Millionaire Next Door).  However, in the other camp, the majority of Americans live far above their means, live from paycheck to paycheck and finance their lifestyle with debt. There are free online financial aggregators such as mint.com that will allow you to centralize all your financial accounts and calculate your net worth automatically. Tracking your net worth monthly allows you to become more aware of not only which camp you’re in, but also allows you to know how close you are from moving from one to the other.

Yes, It’s Your Parents’ Fault You’re Broke!

 
If you were born after 1980, you are likely the children of one of two generations that were absolutely lousy with money. Baby Boomers and Generation X are two of the most indebted generations in the history of the U.S. The 1970’s – 1990’s saw a massive expansion of consumer credit and innovations in financial products that fundamentally changed what the middle class could ‘afford.’
Their parents (many born in the 30’s and 40’s) were children of the Great Depression. They did not have credit cards, car leases, home equity loans, adjustable rate mortgages, 0% financing, payday loans, etc. They had to save cash for what they wanted and if they couldn’t afford it, they simply went without it.
Unfortunately, we do not typically develop our money habits and behaviors from our grandparents; we typically learn money management from our parents. Whether our parents talked to us about managing money or not, we learned from their behaviors. Some studies have shown that many of our financial habits are formed by the age of seven and parents have the greatest influence. What were your early childhood experiences with money?

  • Were you spoiled as a child with seemingly endless amounts of toys?
  • When was the first time you were aware of money? The first time you went to a bank?
  • Were you aware of lack/scarcity in your childhood? Did other kids have things you wanted but your parents couldn’t afford?
  • Were you rewarded with money or toys for good grades or behavior?
  • Did you have an allowance? When did you open your first savings account?
  • When were you aware of how much your parents made and how that was different from your friends and classmates?

When you think back to those experiences, it may highlight some of the subconscious decisions you make with money.  For example, some people resented growing up without material wealth and it is a driving force for how they present themselves to others. They may purchase items to communicate to others that they can afford expensive items (even if it causes them to go into debt). They worked hard and thus they ‘deserve’ nice things. Others may have grown up with material wealth but never learned how to manage it or accumulate it so they may simply go on living the lifestyle they are accustomed to, but their finances are struggling to support it.
So yes, you can blame your parents for not teaching you positive financial habits! However, chances are if you are reading this, you’re way too old to blame your parents for anything, ever. It’s now up to you to break those habits and create better habits for yourself and the next generation.
How can you break the cycle of bad financial habits? I’m glad you asked! Here are some questions to get you started. The more honest you are with yourself, the better.

  1. Do you have memories from your childhood of feeling inadequate when it came to material things (i.e. clothes, shoes, car, home)? How does that affect how you spend money? Are you trying to prove yourself or get validation of being “successful” by spending?
  1. What are your default behaviors, values, and attitudes with money? For example, what did you do the last time you received an unexpected sum of money (bonus, tax return, student loan disbursement, birthday gift)?
  1. What are your current giving and saving habits? Do you save or give with what’s left over or do you prioritize it before spending?

Personal finance is indeed personal. It can be as much or more about your values, experiences, and emotions than dollars and cents. If you want to change your money habits, understand the why behind some of your choices. Once you understand the why you’ll be well on your way to creating better habits.

Why Retirement is Obsolete and the Goal Should Be Financial Independence

When you ask people under the age of 40 when they want to retire, you typically get three common answers:

  1.  ‘Age 50 or as soon as I can afford it’
  2.  ‘I have no idea. I can’t think that far ahead’
  3. ‘If I love what I do, why would I retire?’

The concept of retirement is based on an outdated model that doesn’t quite fit with today’s economy or the values of the millennial generation. In past generations, the corporate contract awarded you a pension if you worked for a company for 30 years that would cover your retirement. Pension plans have all but disappeared and now the corporate contract sounds more like the following:
Cubicle40 years (ages 25-65) of work, from 9 AM – 5 PM, Monday – Friday with two weeks of vacation per year.  Employers can terminate your employment at any time, so you may end up working for multiple companies and have several careers. You are responsible for your own retirement including how much you contribute and your investment selections. Employers can also choose whether or not to contribute to your retirement.
 
There are several issues with this corporate contract, but one of the most important is flexibility. Young professionals place the utmost value on flexibility and control. Flexibility in the hours, days and years they work.

  • If I can do my job effectively from 10 AM – 2 PM, why do I need to be in the office for 8 hours?
  • What if I’m more effective working in the evening than I am in the morning?
  • Of our 16 waking hours, we likely spend 10+, either working or traveling to work, which leaves us less than 6 hours per weekday to spend with family and/or handle any personal affairs.
  • Five days working for every two days off is not ideal for anyone
  • Children are not conducive to 9-5 work schedules; they typically do not get sick on the weekends.
  • The idea that we may not get an opportunity to spend more than one week at a time on vacation until after age 65 is depressing.
  • Unpaid maternity leave is a joke. It makes no sense to have to work harder to afford to pay others to care for a child whose survival is dependent on the mother.

That is just a small sampling of the challenges that occur with the traditional corporate contract. This means young professionals must be radical about taking control of their finances in order to overcome these challenges and give themselves more flexibility and control in their careers. Financial Independence does not mean saving for retirement isn’t important, quite the contrary, it means you should drastically reduce your debt and expenses so that you can save even more!
Let’s give it a definition and describe what it looks like:
Financial Independence – The state of having sufficient personal wealth to live, without having to work actively for basic necessities.
Let’s take a family whose basic necessities (housing, food, health, transportation) are $2000/mo. Now remember, this family is debt free. Once that family develops enough passive income and/or built enough of a nest egg (interest/dividends from investments) to cover the $2000/mo, they will no longer be dependent on an employer. They canchoose to work, choose to volunteer, or choose to pursue their passions and interests.
People will say, “Easier said than done, I’m barely making it!” How much could you save each month if you didn’t have student loans, a car note, a mortgage, credit card payments, or personal loans? It doesn’t take much to imagine what could happen if you stopped paying banks interest and started paying yourself.
Please understand that if you’re in debt, your financial past is stealing from your financial future! Debt is simply an agreement that ‘Someone will give you money today if you pay them more tomorrow’. The problem is, like the Bond movie title, Tomorrow Never Dies. Credit card debt revolves, people in their 40’s and 50’s are still paying off student loans, and people continue to trade-in or lease new cars.
FlowingAmericanFlagPursuing financial independence is not a get-rich-quick scheme. We’re simply making the argument that if you want flexibility in your job and your life you have to earn it! If you want to renegotiate the traditional corporate contract, you have to have leverage. If you are able to save/invest enough to cover your basic necessities, you have leverage. The best way to accomplish that is to reduce your expenses, eliminate your debt and save radically.
So the next time you consider buying/leasing a new car, getting that new bag or great shoes, or the latest tech gadget, weigh that decision against the potential of moving closer to financial independence.  GM, Coach, and Apple are already wealthy; maybe you should focus more on investing in yourself.