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Money & Kids: Kids DO Listen When Parents Talk about Money But What Are They Hearing?

If you’re a parent, at some point you’ve probably wondered if your kids ever listen when you speak.  Then you hear some of the same words and phrases being parroted back (often some we don’t necessarily want repeated!) and you know that those ears are wide open and taking it ALL in!

Parenting groups encourage us to talk about not doing drugs, not smoking, staying safe, etc. because the mantras we hear over and over again as kids tend to stick with us throughout our lives.  The same is true when it comes to money and finances.

But what are your kids hearing from you as a parent about money?  Quite possibly, you’re repeating some of the same things you may have heard growing up without really thinking about the messages you’re sending or the way your kids will interpret them:

  • We can’t afford it / It’s too expensive
  • Money doesn’t grow on trees
  • Debt is bad
  • Money is the root of all evil
  • Rich people are snobs

Kids are capable of internalizing and processing some pretty complex ideas.  They may not engage in direct discussion or they might take time to mull things over but kids see, hear and listen, and they make sense of their world by processing all the information and cues around them based on their own limited experiences.

As parents, we are in a unique position of influence that shapes the way our kids think about and treat money.  Kids listen to what we say and look at what we do.  If we don’t dialogue with them, though, those verbal and non-verbal cues are open to interpretation and the conclusions that your kids draw may not be the ones you intended.

For example, you might think your kids will see you working long hours every day and, by that example, develop a great work ethic and commitment.  However, they might interpret it as work/money is more important than family and resent that field/job/industry/you/etc.  Discussion is a vital part of communication to ensure that the message intended is indeed the message received.

People need to talk more about money.  Not the ‘How-much-do-you-make?’ kind of talk, but conscious conversation, real talk about money, like how you think and feel about it, what it can and can’t do, how to get and how to make more of it.

Although not the main idea of the blog, I read this great post on New Methods that to me, really underscores the importance of talking to your kids about money on an everyday, spontaneous basis.  The kid asks his dad how he’s able to go fishing in the middle of the day when most of the other people he knows are at work and dad explains that by owning a business, it can keep working even when he isn’t there. Just a 30 second exchange can have a significant impact on an 8 year-old kid, how he thinks about money and how it can help to shape his life (be sure to read about the author at the end of the post!)

The post also made me think about Robert Kiyosaki’s Rich Dad, Poor Dad, which distinguishes between the mindset of an employee vs that of an owner.  The parent in the blog is sending an owner-mentality message about money.  Instead of the typical ‘work hard, get a good job’ message, the advantages of being the boss or owner are communicated.

Does that mean that we all have to be business owners to talk about money to our kids?  Of course not.  Talking about financial alternatives and options just lets our kids know that there are many different ways out there to make a living.  It also doesn’t give a free pass from talking about money to those who are well-off.  In fact, financially successful people who don’t talk to their kids about money and fiscal responsibility often end up with a very short legacy indeed!

The first step is to be aware of your own thinking and what you’re saying about money.  After reading this article, I’m willing to bet you’ll start hearing yourself all the time!  Once you realize how you communicate about money, you can decide if those really are the messages that you want to share.  If not, you can alter the phrases to convey a different kind of message:

  • We’re choosing NOT to spend our funds on X because it isn’t a family priority or goal right now
  • Money can grow on ‘trees’ – referral trees and networking that brings more customers/business/revenue
  • Some debt (like credit cards) can be dangerous but some debt (like a mortgage) can be a helpful tool to build wealth
  • Money is just a tool; the person using it decides how it will be used
  • People of character do good things regardless of the amount of money they have
Start thinking about the messages you WANT your kids to hear from you about money so the words and ideas are readily available when those spontaneous, teachable moments come up.  Otherwise you’ll default back to the same old standard phrases.   
I like to tell the story of a discussion I overheard between my two sons because it really reflects the difference in my own mindset based on my own understanding of money, how I talked to my kids and where I was at in life when each of them was growing (they are 8 years apart):

Older Son:  One day I’d like to manage a nice restaurant like this.  I could do a great job.

Younger Son:  Great!  You can work for me because one day I’m going to own a nice restaurant like this!

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Investing Takes Effort: Would You Let the Dealer Pick Out Your Car?

When purchasing a big-ticket item like a car or a house, don’t most people usually do a little research, shop around, compare prices and look for specific features that suit their needs?  Of course they do.  So why do many people not bother doing the same when it comes to their investments, especially their retirement, arguably one of the most important big-ticket items a person will ever own?

It always surprises me when people talk about their portfolio but have no clue as to what they are invested in.  They’ll often joke about it and make a comment about leaving it up to the professionals or that’s why they pay their stock broker/adviser the big bucks.

Let me ask you this:  Would you let the dealer pick out the car you’re going to purchase?  Or how about letting your real estate agent pick out your home?  Highly unlikely.  So why would you let anyone else have the last say on your retirement or investments?

Think about some of the reasons why you probably wouldn’t leave the decision-making up to a dealer or agent:

Perspective.  The fact that there are six – count’em, six! – cup holders may be a fabulous feature but not as high on your list of ‘Auto Must-Haves’ as it might be for the car-pool commuter.  An agent might find the school next door to be most convenient but your spouse working the night shift might disagree when trying to sleep during the day.  Different people are always going to have different opinions based on their unique personal perspective, especially when it comes down to the details.

Priorities.  The dealer may also not realize that you’d rather give up side air-bags for an extended warranty, even though you indicated that ‘safety’ was a priority.  An agent  might consider a view to be more valuable than a yard.  Many of us don’t even realize our own priorities until we start looking at options and are faced with making some decisions.

Cost.  It’s way easier to spend someone else’s money.  It’s also easier to take risks and overlook ‘minor’ issues when it’s not your buck.  The agent or dealer won’t have to live with the stiff clutch or the less-than-functional kitchen layout.  And if compensation is based on a percentage of price, they might not be as aggressive in negotiating the sale.  Always track the money chain.  Fee structure can often make a big difference in how much you end up actually paying for something.

Value.  No one will care as much about getting the best bang for your buck as you will.  These are your hard-earned dollars so it makes sense that you’ll want them to work as hard as you do (or harder!)  That’s why we usually take the time to shop around, to get the most value for the best price.  We each have a different cut-off point when we feel we have a good idea of the ‘going rate’ and are comfortable with the intrinsic value of the purchase.  The dealer or agent might only look at 2 or 3 options before making a decision.

Reliability.  Choices can be tough, either having too few or having too many.  It’s hard to know all the in’s and out’s of every product in every field and it can be even harder to slog through all the information out there and filter it down to manageable, suitable options.  That’s one of the reasons why we look to loan brokers, agents, lawyers and other professionals.  Hiring a specialist in the field and leveraging their knowledge and experience is usually well worth it.  But…

How reliable would you consider the data or opinion if the dealer/agent providing the information was also the owner of the car or property you are about to buy?

Don’t get me wrong.  I think it’s VERY important to seek professional assistance and advice, especially for infrequent, large and/or complex transactions.  But just like an auto dealer or real estate agent, their role is to give information, guidance, advice and support through the transaction.  You might decide to outsource some of the legwork but ultimately you need to make the final decisions.

All of these concepts apply when making any major decision, including investment and retirement planning.  If you leave all the decision-making up to someone else, you are basically at the mercy of their choices.  You don’t have to be an expert but you owe it to yourself to do a little research and have a basic understanding of the core concepts, even when you use a professional, so that you can effectively evaluate the information you are given and make informed decisions.

NOTE:  Many employer-sponsored retirement and 401k plans are limited to a few select investment funds but they usually include dollar-for-dollar matching contributions.  It’s hard to go wrong with free money!  Just be sure to monitor statements and fund performance, and discuss options or concerns with the fund manager.  Don’t forget ~ 401k accounts can normally be rolled over into an IRA when employment has ended.  Know where your funds are and what they’re doing!

Million Dollar Formula: Anyone Can Make a Million Dollars

I just read an article by Timothy McMahon, editor at Financial Trend Forecaster entitled All it Takes to Make a Million Dollars is Time, Consistency and Rate of Return.

McMahon shares some numbers and data to support this formula and it got me thinking about a pretty exciting reality:  Anyone can be a millionaire.

It’s true.  The tools are available, especially here in opportunity-rich North America, for anyone with a little bit of self-discipline and a willingness to learn.  A-a-a-a-and there’s the rub.  Despite having the key to the Million Dollar Formula, those two little characteristics make all the difference when it comes to WANTING a million dollars versus actually MAKING a million dollars.

Think about it.  We all know that a journey of a thousand miles begins with a single step.  And then another and another, until we finally reach the destination.  We know the destination is there waiting for us even though we can’t see it.  We know that paths are available to get us there, sometimes many different routes. So why do so many of us never actually make it there?

Self-Discipline

It’s been said that ultimately we are the sum of our choices in life.  Nowhere is that more apparent than in our financial picture.  Good habits are the cornerstone of success but to develop them you have to be willing to prioritize and maybe even curb some indulgences along the way.

The ability to delay gratification is a huge struggle for most of us.  But it’s also your most powerful tool when it comes to money, saving and investing.  If CONSISTENCY is one of the keys to the Million Dollar Formula, then having a plan and a system can really help you balance and manage the process, as well as to stay focused on the end goal.  This is especially important when the goal is long-term, like retirement and the benefits can’t be seen or felt immediately.  Make it as easy as possible for yourself to be successful!

Temptation and accessibility are the silent saboteurs when it comes to your money and savings.  Take steps to make it harder to access your funds, like setting up a separate savings account that is NOT linked to your ATM card or locking up your credit cards (carry only one for true emergencies).  Choose to go to the park or beach instead of the mall.  Unsubscribe from magazines and emails with advertising and offers.  Keep pictures to remind yourself of the end-goal and track your progress so you have a visual representation of your success.

Treat your savings like an iron-clad fixed expense and take it off the top of each paycheck no matter when or how often it comes in.  YES, YOU CAN!  Remember, it’s about making choices.  Latte or $1M?  Eat out or $1M?  New car or $1M?  Every single indulgence is a choice you make that adds up and pushes your goal back a little further.  It’s not about doing without; it’s about priorities.  If you want to get to the Million Dollar Destination you have to make it a priority.  How quickly you get there depends on how high a priority you want (or need) to make it.

McMahon shares the math about the effects of Time and Consistency, along with an interesting thought:  “Even if you don’t have a (lump sum) nest egg you can retire a millionaire. Simply by saving $10 per day and investing it at 15% per year you will still reach Millionaire status in 25 years.  Is 25 years too long to save become a Millionaire? The average mortgage is 30 years!  So why are people willing to go in debt for 30 years but not save for 25 years?”

Willingness to Learn

People will often tell themselves that others have more opportunities, more cash, more luck or more whatever so that they can absolve themselves of any and all responsibility for their own success (or failure!) The truth is that we are each in charge of how we handle the people, things and events in our lives.

We are in the Digital Information Age.  There is information readily available on just about every possible topic you can think of, including money, finance and investing.  There are many paths to get to the Million Dollar Destination but not all of them will be right for you.  Taking time to read about different options and benefits will help you make informed decisions and more likely to avoid costly mistakes and setbacks.

Knowledge is power.  Even a child can understand the value of knowledge.  I asked my 13 year old son which he’d rather have:  A million dollars or the ability to make a million dollars.  He explained that, of course, knowing how to make a million would let him do it over and over again.  (But as we all know, knowing and doing are two completely different things – cue self-discipline!)

Are you familiar with the phrase, The rich get richer and the poor get poorer?  Knowledge and discipline really do make all the difference in the world.  McMahon shares this insight:

The Wealthy buy Assets; the Poor buy Liabilities; The Middle Class buy Liabilities believing they are Assets.

Knowing the difference between an asset and a liability is fundamental to building wealth.  Assets earn money and can appreciate in value; liabilities cost you and depreciate.  A rental home has the capacity to provide income and tax benefits AFTER covering its operating expenses, as well as the potential to appreciate in value.  Conversely, that boat you’re eyeing might provide hours of enjoyment and entertainment but it depreciates the minute you purchase and costs you every month for storage, gas, licensing, registration, maintenance and repairs.

As your funds grow, so will the temptation to spend and/or move them around.  It’s important to understand the pros and cons and the ins and outs of what you are invested in so that you can make informed decisions, regardless of whether it’s the stock market, real estate or any other asset class.   Rates of return vary greatly from product to product and every investment carries its own risk and parameters.  Again, there are many possible paths to get to the Million Dollar Destination so you need a basic understanding how they work to decide which is right for you.

Million Dollar Formula

So here it is again, the not-so-secret formula for anyone to make a million dollars:

Time + Consistency + Rate of Return = $1Million

Whether it’s the magic of compound interest or the brilliance of principal reduction, the sooner you start, the longer your funds have to work for you.

You have the Million Dollar Formula ~ The big question now is what are you going to do with it?

BTW, did you know that one of the best graduation or birthday gifts that you can give your kids is a ROTH IRA?  They may not fully appreciate it now but when it helps to pay for their college education or a down payment on a house, rest assured your kids will profusely thank and consider you a financial genius! 

Pennies & Pounds ~ Making a Big Difference in a Small Way

My Grandad always used to say, “Take care of the pennies and the pounds will take care of themselves.”

He was obviously English and referring to the British monetary system but the concept is clear no matter which currency it’s applied to:   Little amounts saved can add up to a lot.  And that can make a big difference when it comes to meeting not just your financial goals but personal goals as well.

The inspiration for this post actually came in the form of a credit card statement ~ when I realized my interest rate had just TRIPLED for no apparent reason.

I never used to really understand or pay much attention to how the credit industry worked.  I never really felt I needed to because I almost always paid the entire balance during the grace period so I didn’t have to pay interest or late fees or over-limit penalties.  I also never used to ask questions.  I just assumed there was a good reason for the changes, that it was my fault, and that I, a lowly borrower, was powerless to do anything about it.  Remember The Golden Rule?

Well, not anymore.  I’ve taken a keen interest in everything credit-related over the last few years, especially with the Great Recession and as the new federal regulations started coming out.  I began tracking cards and rates, watching every statement like a hawk.  I now review and verify new charges, avoid pre-authorized bank or card charges wherever possible or set email alerts to follow up free trial periods so that I cancel on time if needed.  And I always, always, ALWAYS check the interest rates.  

Twice in the last two months I have noticed rate hikes and successfully called the credit card companies in an effort to get them to lower the interest rate.  Through this process I have learned that most credit accounts are set up on various automated systems.  One involves a periodic, random check that is based on an inquiry into your credit report.  Any kind of change to your credit (new card, job, even an error) can trigger a hike to a predetermined default interest rate, regardless of your past history with that card or company.  The new rate is applied immediately and without notice.

Another automated system involves the payment due date.  In the past, many companies would forgive a payment that posted a day or two after the due date.  Not so anymore.  Additional fees are typically set to apply immediately and are often accompanied by an automatic interest rate hike.  I realized this after making a payment through my bank website instead of the company website.  Because of the weekend, it delayed my payment beyond the due date and triggered an automatic rate hike.

As expected, the first response to both of my calls to request a rate reduction were negative.  It pays to be calm and persistent, though.  Fortunately, I have excellent payment history and was able to use that to my advantage.  After asking for manager review and assistance, I was able to successfully get both rates adjusted back down to their original levels (along with my blood pressure!)

The interest rate reduction was extremely important because I was carrying a balance on both of the cards at the time.  The tripling of the rate meant that my minimum monthly payment would more than DOUBLE from the original amount  and would have resulted in TRIPLE the amount of total interest paid for the year.

Remember, this is happening immediately and without notice.  More importantly, it is happening regardless of actual payment history.  It might have gone unnoticed and unchallenged had I not been in the habit of reviewing and tracking the charges and rates.

Obviously, these hikes would have affected my own overall cash flow.  But, in this global, interconnected world, that isn’t the end of the story.  It could also impact the financial situation and daily lives of several women in developing countries who have benefited from the micro-loans that I’ve been able to contribute to since I was introduced to Kiva, an incredible micro-finance organization.  The few extra dollars that I am able to save in interest can literally mean the difference between a child somewhere being able to attend school or not, or a family’s ability to put food on the table each week.

A few dollars saved here and there may not always seem like much or worth the trouble.  To some, it might even be looked at as penny-pinching or cheap or just plain anal-retentive.  To me, it’s about meeting financial and personal goals, without having to compromise one for the other.  Who knows?  Maybe Grandad was right about the pennies and pounds after all.  In the grand scheme of things, that little bit just might make all the difference in someone’s world.

‘Make Money’ is not a SMART Goal

‎”It is more important to know where you are going than to get there quickly.” ~ Mabel Newcomer

If you don’t have a clear, defined financial goal how are you going to know if you ever reach it?

‘Make Money’ is not a SMART goal (Specific Measurable Attainable Realistic Timely).  How much money?  In what time frame?  With what amount initially invested?  You need to clearly state exactly what it is you want to accomplish.  Then, you can measure and evaluate, and make adjustments as needed to stay on course.

When you want to go somewhere you’ve never been before do you just get in the car, start driving and hope you get there?  Of course not.  You get out a map, look at where you are and where you want to go, and then plan a route that suits you best based on your personal preferences and needs – like taking or avoiding toll roads or highways, visiting certain cities or sites along the way, taking 3 hours to get there versus 6 hours, etc.  If you run into a roadblock or detour or something unexpected comes up then you pull the map back out, make the necessary adjustments and get back on the road.  A plan to meet your financial goals can and should be crafted and maintained in much the same manner.

So what is it that you want your investments to accomplish?  Think both short and long-term.  Do you want to generate income to pay for college tuition?  A wedding?  To replace a spouse’s income so they can stay home with kids or retire early?  To help you retire to a warmer climate or closer to children and grandchildren?

It’s okay to think big; you just have to be prepared to plan and break it down into manageable chunks to make it happen.  You also need to be patient and give the plan time to work.  You can’t make a great chili without letting the spices simmer!  It’s also okay to change your mind and make changes along the way.  You never know what life’s going to throw at you.

One of my biggest pet peeves is that most so-called ‘financial advisors’ don’t seem to actually advise people at all.  They just babble on about risk and safety and then suggest putting money into a company-managed fund (for which they get compensated) and eventually you should ‘make money’, because it’s a ‘balanced’ fund where losers are off-set by winners.

Really?!  I should spend the next 30 years investing my life savings in something I don’t fully understand that might eventually make me some amount of money?  How is that a good plan?  Please don’t tell me that it’s to protect my principal.  If that were the case, it’d be easier and safer to just stick to FDIC-insured CD’s.

Every asset should have a POSITIVE effect:  Generating income, off-setting paper gains/losses, creating tax benefits, preserving or enhancing net worth or otherwise helping me reach my overall personal and financial goals in some way, shape or form.  Personally, I want my assets working as hard as possible!  Every investment should have a specific purpose for being in your portfolio and role to play in working towards your overall goals.  

If you don’t understand why you are invested in a particular product or vehicle, you need to ask questions and do some research.  At the very least you should be able to read and understand your investment account statements.  If your advisor can’t or won’t help, it might be time to find a new advisor.  Remember, no one will care as much about your money as you.

Bottom line, if I’m paying for advice, I want an opinion.  I’m not asking for a guarantee, just an opinion from a knowledgeable professional in that particular field.  I want a summary of information and data used to form that opinion.  I want to know exactly what this particular investment is designed to do for my portfolio and how and when it will help achieve my overall investment goals.

Then I can make an informed decision and make sure I stay on track to accomplish my goal.

To Dare Mighty Things means to Take Risks

Theodore Roosevelt, circa 1902

Image via Wikipedia

‎”Far better it is to dare mighty things, to win glorious triumphs even though checkered by failure, than to rank with those poor spirits who neither enjoy nor suffer much because they live in the gray twilight that knows neither victory nor defeat.” ~ Theodore Roosevelt

When it comes to investing, there are no guarantees and nothing is ever completely risk-free.  Really.  There are investments with projected lower volatility and there are ways to help mitigate risk but there is no way to completely eliminate risk all together.

If you choose to invest, you will have to expose yourself to some kind of risk at some point.  The good news is that you get to choose.  And it is your choice.  Own it.  Own it when you prosper and own it when you don’t.  When you authorize funds to be sent, you make the choice to invest.  It might be good, it might be great, it might be not-so-good, and on occasion it just might be a spectacular disaster!

No one has a crystal ball.  The best any of us can do is to research and learn and grow.  The only way to grow is to learn from our mistakes and missteps.  Sometimes we want something so badly (like a guarantee) that we ignore many of the warning signs that, on hindsight, were right there staring us in the face from the start.  Sometimes unforeseen variables come into play.  Sometimes things just don’t pan out as projected.

Don’t beat yourself up for a bad call (and certainly don’t beat up your broker!)  It’s impossible to completely eliminate your mistakes just like it’s impossible to completely eliminate risk.  But there are a few things you can do to help you mitigate and manage the fallout:

  • READ, READ, READ…and then read some more!  Read every word on every page of every document about every investment or project or private placement.  Make sure you understand all of it (including the risks) before opting in.
  • Beware the Guarantee.  Immediately red flag anything ‘guaranteed’ for intense scrutiny and further research.  Seriously.
  • Check out the people involved.  People can make or break a project no matter how great the idea.  Follow the leadership and follow the money (salary, distribution and profit structures).  Good people put their investors first.
  • Document everything.  Keep copies of all signed paperwork, documents, information and communications.  Following up phone calls with a summary email is a great way to help keep track of conversation details.  Dated docs make it easier to reference back to details (especially at tax time).
  • Learn.  Review the investment or project to pinpoint what went right and/or what went wrong.  Being able to objectively identify the elements or activities of a success or failure will help you to apply that knowledge to future projects.  If you let yourself get emotional, too busy pointing fingers and blaming everyone (including yourself) then you’re not going to be able to learn and grow from the experience.

Next time you get the chance, read or listen to a biography of someone you admire.  Chances are they’ve experienced just as many failures as successes.  Everyone gets it wrong some of the time, even the professionals, especially the professionals if you consider the number and volume of transactions handled.  You can travel once a year and never run into any problems but if you fly once or twice a month, chances are you might get delayed or lose your bags every now and then.  

If you want to keep going places, you have to put it all into perspective and then get back on the plane!


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