Financial Planning

MONEY TIPS FOR YOUR FIRST JOB

As young people get their first full-time job with a substantial paycheck, their money management activities need to be reconsidered, which include: 

1. Automate your savings. For unexpected expenses and major purchases, set aside a specific percentage or amount of your income from every paycheck. These funds should be directed to one or more dedicated accounts.  

2. Make use of different accounts. This money management strategy can help you plan for different savings goals and can prevent spending money planned for a specific purpose. Consider using a checking account to pay regular expenses, along with one or more savings accounts.

3. Start retirement saving. Start with 3 to 5 percent of your gross income, increasing to 15 percent as soon as you get raises and bonuses. These funds may be in a company-sponsored 401(k) or a personal IRA or Roth IRA.

4. Pay off debt. If you have college debt, create a plan to pay it off, especially credit card debt. Set a goal to become debt free in your 20s.

5. Practice wise spending. Minimize your transportation, housing, and clothing expenses.

For additional information on money tips for your first job, click here.

Teaching Suggestions

  • Have students talk to others to obtain money management suggestions to implement when completing college and starting work.
  • Have students create a personal plan for improved money management.

Discussion Questions 

  1. Why do people start taking on more debt when starting work?
  2. Describe money management actions you might take as you complete college.
Categories: Career, Career_Appendix, Chapter 1, Chapter 2, Financial Planning | Tags: , , | Leave a comment

STUDENT MONEY SURVEY

Limited knowledge of personal finance and weak financial literacy skills are some of the concerns expressed by college students in a survey conducted by WalletHub. Findings in this study included:

  • Nearly all (93 percent) of the students surveyed expressed concern about the economy.
  • After graduation, the two major worries of students are not finding a job (36 percent) and educational loan debt (30 percent).
  • One-fifth of students expressed a belief that a college education is less important since the COVID-19 pandemic.
  • About half (52 percent) of the students responding voiced a concern that they were not learning enough about personal finance in school.
  • As a result of the pandemic, the three major financial lessons learned were: (1) having emergency savings (44 percent); (2) not going into debt (23 percent); and (3) having a steady job (22 percent).

Some suggestions to address these concerns include:

  • Financial anxiety can be reduced with simple personal finance actions: track your spending, cut back on unnecessary items, shop wisely, maintain a workable budget, pay off debts, and increase the amount in your emergency fund. Most importantly, emphasize the enjoyment of your connections and relationships with family and friends rather than on material items. 
  • Various career paths may not require a college degree; consider online courses, certification programs, trade schools, and other educational/training options.
  • Be creative in your savings efforts with: (1) saving $5 a day instead of $150 a month; (2) using “no buy” days to save money; (3) paying for your drinks (or snacks) at home by set­ting aside the “price” in savings; (4) visualizing a savings goal and budget categories with a photo or post-It notes as a reminder; (5) create, or locate onlinea poster that displays savings and debt categories to track your progress; (6) placing your credit card in a bag or container of water and place it in the freezer to avoid impulse purchases, then defrost it under warm water when you need to pay for an emergency.
  • When applying and interviewing, clearly communicate the connection between your skills and experiences with the current and future needs of the job position and company. This requires strong research of the company and industry trends but will allow a person to better connect with their prospective employer. Also, be ready to talk about research projects, team experiences, and creative problem-solving.
  • Although an increased number of personal finance classes are becoming available in schools, also seek out financial literacy education through community-based workshops, church outreach programs, and neighborhood organizations.

This research was the result of a nationally representative online survey of over 250 respondents. Responses were normalized so the sample would reflect U.S. demographics.

For additional information on the student money survey, click here.

Teaching Suggestions

  • Have students talk to others to determine if their opinions are similar to those presented in this article.
  • Have students create a role-playing drama that communicates actions to avoid various personal financial difficulties and career planning mistakes.

Discussion Questions 

  1. Which of the survey results are similar to your current attitudes and experiences?
  2. What additional money and career topics not covered in this survey do you believe are of current concern for students and others?

Categories: Career_Appendix, Chapter 1, Chapter 2, Financial Planning, _Appendix B | Tags: , , | Leave a comment

OVERCOMING INFLATION

With inflation, you will not be able to avoid higher prices. However, there is one action you can take that will not be affected by inflation. As advocated by legendary investor Warren Buffet, one of the strongest protections against inflation is investing in yourself. Obtaining additional career skills and improving existing ones will keep you in demand.

These added skills, unlike a lower value of the dollar, are inflation-proof. Various career abilities will be in demand no matter what the dollar is worth. These competencies can’t be taken away from you, and this investment in yourself is not taxed.

As a business owner or investor, the advice is similar. Offer a top-level product or service that will be in demand even in times of inflation. As noted by Buffet: when inflation is high the best thing you can do is be exceptionally good at something.

For additional information on an inflation strategy, click here.

Teaching Suggestions

  • Have students talk to others to learn about the actions they have taken in their lives to enhance and expand their career skills.
  • Have students research online sources available for free and low-cost classes and certification programs to enhance a person’s career skills.

Discussion Questions 

  1. What actions are you taking to enhance or expand your career skills?
  2. What are examples of exceptional products or services that might be in demand even in times of inflation?
Categories: Career, Chapter 1, Chapter 2, Financial Planning, _Appendix A, _Appendix B | Tags: , , | Leave a comment

THE 33-33-33 PORTFOLIO

For decades, a 60/40 (60 percent stock, 40 percent bond) investment portfolio has been encouraged by financial advisors. However, we live in a new world, so in recent years a 33/33/33 allocation has been suggested, with investments divided equally among stocks, bonds, and alternatives. This shift in portfolio strategy is the result of unsustainable stock prices, looming inflation, and expected higher interest rates.  

The alternative investments include assets such as venture capital, real estate, private equity, private debt, commodities, and cryptocurrencies. These asset categories offer investors enhanced diversification, and have a low correlation with stocks to provide an inflation hedge. 

Real estate offers an opportunity for an improved yield for investors with a lower risk tolerance. Venture capital and private equity are suggested for investors comfortable with more risk.

Recent J.P. Morgan research revealed that an allocation of 30 percent of these alternatives can substantially increase annual returns, while strengthening portfolio stability and decreasing risk. However, these illiquid assets can’t be quickly sold, or liquidated, so careful cash-flow planning is also necessary.

Remember, every portfolio must be personalized to the needs of the individual based on liquidity need, risk tolerance, and the time horizon of financial goals.

For additional information on the 33/33/33 portfolio, go to the following articles.

Article #1

Article #2

Teaching Suggestions

  • Have students research alternative investments (venture capital, real estate, private equity, private debt, commodities, cryptocurrencies) to determine recent returns, risk, and suitability for their personal portfolio.
  • Have students create a visual proposal or video with a suggested investment portfolio for their current or future situation.

Discussion Questions 

  1. What factors should a person consider when planning an investment portfolio?
  2. Describe actions a person might take to determine if alternative investments are appropriate for their financial situation. 
Categories: Chapter_11, Chapter_12, Chapter_13, Financial Planning, Investments | Tags: | Leave a comment

END-OF-YEAR MONEY CHECKLIST

As we approach the end of the year, consider these actions to help create the foundation for financial success in 2022:

  • Review spending for the year. Comparing your actual spending with budgeted amounts will help you plan spending for the coming year. For the upcoming year, track spending with an app, spreadsheet file, Google doc, or a written record.
  • Use flexible spending account funds.  Be sure to spend any money in a flexible spending account on qualified medical expenses before the end of the year, or those funds might be lost. However, due to COVID-19, you may be allowed to roll over the full balance into next year. Contact your benefits department to see if you qualify.  
  • Donate to charity. This will not only create a tax saving, but will also help people in your community and around the world.
  • Create a backup plan. Review the beneficiaries on your financial accounts. You should have a durable power of attorney to handle your financial activities if you are not able to do so.  A health-care proxy (power of attorney) is someone to speak on your behalf regarding medical care when you are not able to do so. A will sets how your assets will be distributed after you die.
  • Consider increased retirement contributions. With increased limits for 2022, plan to increase the amount set aside for long-term financial security while reducing current taxes.
  • Conduct a life audit.  Start with identifying your short-term and long-term goals with sticky notes or index cards.  Then, sort your goals by category, such as personal development, work/career, financial, travel, family, community service, and health. Next, organize within a category based on time of accomplishment, which might include: now/soon, always/everyday, later this year, the next year or two, and someday. Take photos of your notes, place them in a visible location, or use an app such as OneNote as a reminder of these targets. Finally, reflect on your goals by determining why you have certain goals and what actions you need to take. Be sure to set deadlines. Also consider how your goals relate to the type of life you desire for yourself.  Do your goals reflect your beliefs, values, work situation, and personal relationships?

For additional information on year-end financial planning, click here.

Teaching Suggestions

  • Have students talk to others about recommended financial actions to take before the end of the year.
  • Have students create an action plan and timeline for a specific goal.

Discussion Questions 

  1. What attitudes, behaviors, and circumstances might restrict a person from taking certain year-end actions?
  2. Describe information sources and personal contacts that might be used to obtain guidance for achieving a specific goal. 

Categories: Chapter 1, Chapter 2, Financial Planning | Tags: , , | Leave a comment

Money Habits of Women and Men

Based on recent research, findings comparing the financial habits of women and men include:

  • Overall, single men outspend women, which may be due to higher average earnings. Men spend more on food and transportation, while women have higher spending for clothing. Both groups have similar spending for entertainment.
  • Women are wiser shoppers, buying items on sale and using coupons more often than men.
  • For debt, including credit cards, student loans, auto loans, personal loans, home equity lines of credit, and mortgages, men have more debt than women.
  • For both groups, the main financial goals were saving for a vacation, paying off credit card debt, and improving their credit score.
  • As they near retirement, men had higher amounts in their retirement funds. However, women are more likely to participate in an employer retirement plan than men, and save a greater percentage from their paychecks.

For additional information on the money habits of women and men, go to:

Source #1

Source #2

Teaching Suggestions

  • Have students create a short survey to compare the spending, saving, and investing activities of women and men.
  • Have students create a visual proposal (poster or slide presentation) to suggest improved money management activities.

Discussion Questions 

  1. What factors might affect differences between the money management activities of women and men?
  2. Describe actions a person might take to improve money management activities. 
Categories: Chapter 1, Chapter 2, Chapter 5, Chapter_11, Credit Cards, Financial Planning, Investments, Savings | Leave a comment

STIMULUS CHECKS USE

As a result of the economic difficulties during the COVID pandemic, many Americans received government stimulus checks. These payments were designed to minimize or avoid financial difficulties.  

Recipients of the first two stimulus checks used the majority of funds for daily living expenses with food and utilities as the top items. Those who received the third check had some significant changes in their use of the money.  An increased portion was used to pay off debt and for savings, including money set aside for an emergency fund. This trend indicated that many households experienced improved financial stability. However, among lower-income groups the third stimulus check was still needed for monthly bills and day-to-day essentials.  

People continue to be in need of a cash cushion. Financial advisors recommend using money from stimulus checks or tax refunds to pay off high-interest debt and for an increased savings account.  While many households have are better off than they’ve ever been and improving further, millions of others face ongoing financial hardship.  

For additional information on stimulus check use, click here.

Teaching Suggestions

  • Have students talk to those who received stimulus checks to obtain information how the money was used.
  • Have students describe a research system that might be used to determine the spending, saving, investing, and credit use habits of various groups of consumers.

Discussion Questions 

  1. What are reasons people are unable or unwilling to practice wise money management?
  2. Describe actions that might be taken to prepare for unexpected financial difficulties.
Categories: Budget, Chapter 1, Chapter 3, Financial Planning, Uncategorized | Tags: , , | Leave a comment

CREATIVE BUDGETING METHODS

While keeping a close eye on spending is vital for financial security, few people enjoy doing so.  Several creative approaches for effective budgeting and money management are available.

  1. The 70% Rule ­­­­is percentage-based with 70 percent of income for necessary expenses. Followed by 20 percent going into savings by using automated direct deposit. The other 10 percent is for retirement and investing for future financial security. The 70% Rule is useful for those with saving as a priority, and want a simple budgeting method.
  2. The 50/30/20 Rule is a variation of the 70% Rule, with three categories. First, 50 percent of your income goes toward necessities. Then, 20 percent is for financial goals, such retirement or paying off debt. The remaining 30 percent can be spent as desired. This approach may not work for many people, but can be a good starting point for successful money management.
  3. Budget by Paycheck uses a calendar to track income and expenses. Color code your paycheck, expenses, and extra money to assign a bill payment to a paycheck on a calendar. Any “extra” money should be given a “job,” such as savings, debt repayment, or fun. This approach is useful if you desire structure and like having a visual tool.
  4. Envelope Budgeting is a traditional method with labeled envelopes to identify expense categories. Cash for the budgeted amount is put into each envelope. You only spend the amount in an envelope, which provides strong control of your spending. Instead of cash, you may use a card or envelope to record the amount spent for each category to stay within your limit. Several budgeting apps are also available with visual envelopes to monitor spending.
  5. Gift-card Budgeting manages your money by dividing your spending into categories and loading the amount onto a phone gift card. This system is similar to traditional envelope budgeting. Determine the amounts for various spending and saving categories. Then, buy gift cards for each category, such as a food store card for groceries, which will limit your spending for each budget item. With gift cards on your phone, you will always have them with you and will know the balances. Buying gift cards at moola.com can result in special deals and bonuses.
  6. You Need a Budget (YNAB) is a software system and app featuring partner budgeting, goal tracking, personal support, and secure data. YNAB emphasizes these principles: every dollar is assigned a category; large expense items are broken into manageable amounts; budget flexibility when situations change; and planning for the future, without scrambling for today. The personalized support and online YNAB community discussions, included in the cost of the software, prepare you for successful budgeting on your own.
  7. Kakeibo, pronounced “kah-keh-boh” and translates as “household financial ledger,” is used in Japan to manage personal finances. This method emphasizes recording financial activities with physical writing (no apps or computer), and uses four categories: (1) needs, (2) wants, (3) culture, such as books and museum visits, and (4) unexpected, for medical expenses or car repairs. Then, you reflect on these questions: How much do I have available? How much would I like to save? How much am I spending? How can I improve? Kakeibo may not control your spending but it can make you more mindful of how you spend money.
  8. Zero-based Budgeting gives every dollar a specific task for spending, saving, or investing. This method encourages you to create a revised budget each month based on changes in income or expenses, which provides financial flexibility. This system may not be useful for people with irregular incomes.
  9. Value-based Budgeting involves allocating income based on importance (value) to you rather than budget categories. While some items need to be paid (housing, food), how much you spend on these items depends on how much you value them. If eating out is a priority, your food budget will be higher than for someone who eats mainly at home. This approach can help you stay within your budget since you created the spending plan based on personal preferences. Beware that saving for a goal might be a low priority but should probably receive stronger recognition.
  10. Pay Yourself First Budget is simple and emphasizes your financial future. Based on the amount earned, determine how much you want to save. The remaining amount is divided among necessary expenses and other spending.  The process can be awkward when a conflict exists between income available and a desire to save a large amount. Many people combine this method with other budget systems to ensure coverage of needed living costs.

Other actions that can make budgeting fun include:

  • Money Nicknames. By naming your bank accounts and budget categories with creative names can create a fun attitude and personalized connection for money management activities. Also, use a Sharpie to label your debit and credit cards with a name or a specific use, such as “Hey, bills only!” or “Treat yourself today.”
  • Bae Day involves setting aside a specific time, usually on payday, to review your budget and plan your spending. Bae, which stands for “before anything else,” involves a self-appointment to take action before anything else happens to your money. You can make Bae Day fun by dressing up for this self-care occasion, going to a special location, or playing favorite music.
  • Money Mate Date helps achieve accountability related to finances. Your Money Mate will keep you in line for financial activities. The relation can involve a quick call to make sure that monthly bills are paid, or an emergency text to avoid impulse buying.
  • Arts and Crafts. Create, or locate online, a poster to visually view progress on savings or debt reduction. Color in the poster little by little as you save or pay down student loans. Also consider using photos to represent budget categories or financial goals for more motivating money management activities.

For additional information on creative budgeting ideas, here are some links to click on:

Link #1

Link #2

Link #3

Link #4

Teaching Suggestions

  • Have students talk to others for information about budgeting actions that have been successful.
  • Have students create a video, poster, or other visual with ideas for creative budgeting activities.

Discussion Questions 

  1. What are reasons people are unable or unwilling to practice successful budgeting?
  2. Describe the actions a person might take for effective budgeting.
Categories: Budget, Chapter 1, Chapter 2, Financial Planning | Tags: , | Leave a comment

SINGLE PARENT MONEY MANAGEMENT

A mother or father raising children without assistance from a partner can create financial difficulties.  To avoid fear, frustration, and anger, consider these actions:

  1. Assess your situation. Determine your monthly after-tax income, monthly bills, money in savings, and money saved for retirement. Knowing these amounts will provide a starting point and foundation of where you need to go.
  2. Cut unnecessary spending through wiser shopping, lower household expenses, and not buying certain items that you can do without.
  3. Plan for additional income. Consider your current work situation, a new job, a raise or promotion, overtime pay, a second, part-time job, freelance work, or items that you might sell.
  4. Seek extra income sources. Additional income can result from skills and interests you may overlook. Consider new job training, or starting your own business. More income will also mean additional savings for financial goals.
  5. Create an emergency fund. To be ready for financial struggles (job loss, home or car repairs, medical expenses), have a cash cushion to cover three to six months of expenses.
  6. Save for retirement. Additional amounts might be needed for long-term financial security if you had to split retirement funds with an ex-spouse or partner. Budget a monthly amount for your retirement fund.

You may feel overwhelmed at times, but don’t get discouraged. Start saving a small amount, such as one percent of your income for emergencies and one percent (or more) for retirement.  Then in a few months, increase the percent of income you are saving.

Continually track your spending, and review your budget and financial goals. This action is especially vital if you are self-employed with a fluctuating income. Save more in higher-income months to be ready for lower-income months.

Also, lower your expectations to match the reality of your income situation and household needs. Finally, make a commitment to work hard, not give up, and support your children, emotionally and physically.

 

For additional information on single parent money management, click here.

Teaching Suggestions

  • Have students talk to single parents for additional financial suggestions.
  • Have students create a plan for specific money management actions for single parents.

Discussion Questions 

  1. What are reasons that single parents might encounter financial difficulties?
  2. Describe shopping and income actions a single parent might take to reduce spending and increase income.
Categories: Chapter 1, Chapter 2, Financial Planning | Tags: , | Leave a comment

Should you Pay Off Your Mortgage Early?

Traditional wisdom encourages you to pay off your mortgage faster by taking a 15-year mortgage instead of 30 years, or by paying an additional principal amount each month. However, these actions have risks. If you encounter financial difficulties and don’t have an emergency (reserve) fund, you could face foreclosure. Be sure your emergency fund has enough to cover several months of mortgage payments to avoid losing your home.

Some financial advisors suggest that if your reserve fund earns a rate greater than your mortgage rate (also taking into account tax benefits), you may decide to invest rather than pay down your mortgage. This approach could give more flexibility when encountering an economic downturn, which might include refinancing your mortgage at a lower interest rate.

Also, beware of organizations promising to help you make additional mortgage payments. You can do this on your own, without the fee they will likely charge.

For additional information on paying off your mortgage early, click here.

Teaching Suggestions

  • Have students talk to others about the benefits and drawbacks of paying off a mortgage early.
  • Have students develop a visual to compare paying off a mortgage early with saving and investing additional funds instead.

Discussion Questions 

  1. What are the benefits and drawbacks of paying off a mortgage early?
  2. Describe actions to take when trying to decide if to pay off a mortgage early.
Categories: Chapter 1, Chapter 7, Financial Planning, Home Buying | Tags: , | Leave a comment

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