The Free Financial Advisor

You are here: Home / Archives for Investing

A Systematic Approach to Goals

by Leave a Comment

With 2020 staring us in the face, it’s time to review goal setting and the systems you can put in place in order to reach those goals.

“A goal without a plan is just a wish.” – Antoine de Saint-Exupery

That said, let’s look at systematic ways to approach goal setting and actionable tools you can use to smash those goals.

How to begin

  1. Large/Lifetime goals – These are things you want to accomplish throughout your life. They can be philanthropic, health, financial, etc. Figure these out first.
  2. Short-term – Now that you have your long-term/lifetime goals determined, you can break them down into shorter-term goals. Consider these stepping stones, and a lot of these will change as you age. For example, your philanthropic goals. There may be causes you care deeply about now, but that can change.
  3. Actionable steps – Once you have your lifetime goals broken down into manageable targets, it’s time to create steps to get there and I’ll illustrate that using the three examples above.
    1. Philanthropic – Research causes and charities. Pick the ones you most identify with. Review your budget to find out how much you can give. Do a little more research to find out if your donations are tax-deductible (most, if not all, should be).
    2. Health – Establish the specific reason you want to be healthier (for yourself, your partner, your kids, grandkids, etc.). Research a diet that could work for you. Research an exercise regimen that could work for you. Consult experts (i.e. nutritionist and personal trainer).
    3. Financial – Create a budget/spending plan. Cut expenses. Save for emergencies. Insure you and your belongings. Save for retirement.

Here are a few articles I’ve written in the past about financial goals:

Worthy Goals For You To Set And Crush

How Do You Set Financial Goals?

Systems

We can think of systems as the sub-category of actionable steps. A routine is another word for it. When it comes to goals and habits, you can’t rely on will power. You have put a plan in place to do the work for you.

Take exercising for example. You need to create low barriers for yourself. Wear your gym clothes to bed or have your bag packed the night before.

If you go to the gym, put your bag and your keys in a place where you have to pass them to get to your car.

If you exercise at home, have your routine and your equipment laid out and ready for you.

Habits

When it comes to creating habits, James Clear, the author of Atomic Habits, likes to break down the habit into bite-sized pieces.

For example, if your saving for a down payment, go to your banking app and transfer $1 from checking to savings every morning (or whatever amount is realistic for you).

When that becomes second nature, bump it up a dollar a day.

Another thing that James says is, “People ask me all of the time, how many days does it take to create a habit? My answer, all of them because if you stop doing it for one day, it’s no longer a habit.”

External versus Internal

This section is speaking specifically to mental health versus other goals. You could also consider physical health as an internal goal, but for this article internal relates to mental health.

There are several things you can do to work on your mental health. See a therapist, exercise, and start a journal. Those three are low-barrier, easy things you can implement into your day to help.

Meditation, medication, and other forms of mindfulness training/practice can also help. There’s a podcast that I listen to regularly called “10% Happier” that will help you with establishing a meditation practice.

Do some research about this. Meditation can and will take many different forms, and not each modality will be right for you. Reading has also proven to have meditative benefits.

Financial Goals

It really is up to the individual as to what they consider, short, medium, and long-term, but my definitions are as follows: Short-term – less than 3 years. Medium-term – 3-15. Long-term – 15+.

My definitions are almost entirely based on the investability of those assets for that specific time period.

  • Short-term – Emergencies, a new car, what have you. This is money you will need soon, so risking it in the stock market is out of the question. High-yield savings accounts should be your go-to in this scenario.
  • Medium-term – Things like down payments for a house or sending your kid to college. What you’re saving for will dictate the vehicle that you use. If it’s saving for college, a 529 or a Coverdell ESA should do the trick. If it’s for a down payment, your best bet is usually a taxable brokerage account, as there are no fees for early withdrawal.
  • Long-term – This should be strictly focused on retirement. Assets should be in a retirement account(s) and invested (investment selection should be based on risk tolerance and time horizon).

Once you’ve established your short, medium, and long-term goals you can break them down into actionable steps as we talked about earlier.

Wrapping it up

Each New Year brings about resolutions that we hope to achieve. Whether it’s getting in shape or paying down debt, your barometer for success should be progress and consistency.

Are you in a better place than you were on January 1st? Do you have more saved? Are you still committed to the goals you set in the first place?

Yes. It feels great to set a target and hit it, but as far as I’m concerned, if you’re better than you were yesterday, that’s all that matters.

Take it one day at a time and keep your eyes on the prize. You got this!

Related Reading:

How to Set Long & Short-Term Goals (And Reach Them Too!)

Impeachment And The Stock Market

by Leave a Comment

The talk of impeachment is flooding the headlines, so we’re going to explore it, how impeachment proceedings took place in the past, what happened to the market with each instance, and what you should do with your money/investments while these events transpire.

What’s the process?

The first step in any impeachment proceeding begins with a formal inquiry. This is done by the House of Representatives, and that’s where we are at this point in time.

During the inquiry, the evidence is gathered by the house to help make their case. Once they’ve gathered everything they needed, they take a vote.

If that vote passes, it goes to the Senate. They, like the House, review the evidence and take a vote. If the Senate’s vote doesn’t pass, then the President may be acquitted, and things end there.

What history tells us

There have been three impeachment inquiries, with only one actual impeachment.

The first was Andrew Johnson in 1868. The second was Richard Nixon in 1973. The third was Bill Clinton in 1998.

Which one was impeached? Bill Clinton. However, the Senate acquitted him and he was not removed from office.

When Andrew Johnson went through the impeachment process, the stock market (yes there was a stock market back then) really didn’t do anything, finishing that year up 1.5%.

During the impeachment proceedings with Nixon, the United States was in the middle of a recession. From the initial inquiry to the day he resigned from office, the S&P 500 fell about 30%.

With Clinton, however, the economy and the stock market were in the middle of an expansion. From beginning to end, the S&P 500 gained about 28% during his impeachment process.

What history tells us is that the period surrounding the impeachment will lead to greater volatility, but the long-term direction of the market is determined by fundamentals.

Be mindful of the headlines

The current impeachment inquiry with President Trump is dramatically different from the other three.

  • The internet makes updating the public instantaneous
  • Algorithmic trading can be programmed to execute orders when publications mention Trump, impeachment, etc.
  • We’re in the middle of a trade war with China, so uncertainty at home (U.S.) puts Trump in a weaker position to negotiate. What’s more, if impeachment looks more and more likely, Trump may be inclined to make a deal to help his case…even if it’s a bad one.

What should you do?

That depends. If you have 15+ years until you need to access your investments, I would tell you to do nothing. If you’re in retirement or it’s right around the corner, however, I would think about being a little more conservative.

When you grow more reliant on your retirement savings, your primary objective must move from capital appreciation to capital preservation.

I’ll link to several resources that should give you more guidance about retirement planning by age, investing in volatility, and more information about what’s been discussed here.

Related Reading:

Why Asset Allocation Matters

How To Invest In A Volatile Market

How Does Trade Policy Affect Me?

The Questions You Need To Ask Yourself

Our New Low(er) Interest Rate Environment

by

With the talk of interest rates and recession in the headlines, I figured it was a good time to check-in, and give a little update on interest rates and how lowering them can impact the economy, issuers, and investors.

Why is the FED cutting?

Basically, the FED is cutting to extend the current economic expansion we are in.

The fundamental reason behind that is lower interest rates encourage corporations and consumers to spend more.

For two reasons.

One, they get paid very little, in interest, to put their money in the bank. And two, they are able to borrow money at lower rates.

Current income needs

People who need income, retirees, for example, invest their money in income-producing securities. Often times, those securities are fixed income instruments, like bonds.

Bonds pay interest on a semi-annual basis. The higher the credit quality of the issuer (company or government entity) the lower the payout. The inverse is true for a low credit quality issuer.

It’s the ever-present adage in investing, more risk equals more potential for reward.

When interest rates continue to creep lower, then those people start to make different choices.

What people are doing now

People are getting paid less, in interest, to invest in high-quality debt issuers, so they’re getting riskier. Meaning, they are investing that money with low credit quality companies and/or government entities.

Their risk of not receiving interest payments and getting their principal (the initial investment) back goes up.

The FEDs tool kit

I’ve touched on this point a few times in the past, but I’m going to hammer it home.

The Federal Reserve, essentially, has two tools. Lowering interest rates and buying Treasuries. Lowering interest rates promotes spending and buying Treasuries provides liquidity.

Because they are lowering interest rates during an expansion (whether we are still in one or not is debatable, but let’s say we are for the sake of argument), they are, effectively, removing the number of tools they have available.

When the next recession comes, my fear is they won’t be able to do enough to help us out of it.

Corporate debt

Currently, the amount of corporate debt in the market is the largest in history. Additionally, the amount of debt that’s rated BBB is also the highest in history.

BBB is the last rung on the investment-grade scale. Investment grade is anything BBB and above.

That’s a problem for basically one reason. When a BBB rated issuer gets downgraded (to BB) they are classified as junk (high-yield). When that happens, they need to tighten up their debt and improve their balance sheet. This means less borrowing and less spending.

It’s a dynamic that feeds itself. The issuer is downgraded, they spend less, GDP gets weaker, more corporations follow suit, and here comes the recession.

Investors

Once the corporate (high-yield) debt pops, issuers of debt will have trouble meeting their obligations. They’ll start to default, and their investors will be left high and dry.

Conclusion

This post is not intended to scare people, it’s to inform.

One last point. Because interest rates have been so low for so long, there are economists/academics that think the lowering of interest rates won’t actually help.

Related Reading:

Interest Rates And Trade

What Is A Bond?

Why Do Interest Rates Matter?

 

 

*The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.

Different Ways To Think About Money

by

Your money philosophy and how you think about your finances make a big difference in the decisions you make.

Whether you’re just starting your financial journey or you’re well into it, it’s a good idea to take a step back and define that philosophy.

Money is a tool

Sure, there are monetary goals you would like to achieve. For example, $1 million nest egg has long been touted as the number you need to hit for a comfortable retirement, but hitting, somewhat, arbitrary numbers aren’t everything.

Money is a tool. If used properly, you really can achieve financial success. Taking the money you’ve saved and putting it to work for you is a very simple, yet effective way to use it.

Another monetary tool is a credit card. Credit cards offer a variety of reward programs, like travel miles, cashback, among others. Additionally, it enables you to build and strengthen your credit report.

It is important, however, that if you are using a credit card, you must do so responsibly. Accumulating credit card debt can really set you back, financially.

Related reading: A Deep Dive Into Credit Cards

Focus on the solution, not the problem

Often times, we focus too much on the issues with our finances. I have too much debt, I have too little saved for retirement, or my expenses are killing my ability to save.

Instead of focusing on the problem, focus on what can be done to fix it.

If you have too much debt, develop a plan to pay it down. If your retirement savings are low, figure out how you can increase your savings rate. Expenses hurting your ability to save, cut your expenses.

“Whatever the problem, be part of the solution. Don’t just sit around raising questions and pointing out obstacles.” Tina Fey

Related reading: How To Cut Spending

Money using emotional bandwidth

It is true that money is relatively important. I say relatively to try and redirect to my first point when I mentioned that money is to be used as a tool.

It affords you food to eat, clothes to wear, and a place to live, among other things. If your basic needs are met and future goals are being worked towards, you have to try and stop worrying that you don’t have enough.

This is extremely challenging to do because we, as a society, are so fixated on money and material items that money can buy. It also doesn’t help that comparing ourselves to others is essentially baked into our DNA.

Believe me, I know that learning to stop worrying is incredibly difficult, but retraining your brain to view your finances differently can be extremely liberating.

Related reading: The Psychology Of Money

Think long-term

To be a successful investor or to be able to financially plan effectively, you have to think long term.

The market is going to have its ups and downs. As an investor, it’s important to ride out those down periods and continue to invest. If you have 15+ years until you need that money, you should be able to recoup your losses.

With regard to saving, I typically take the “bucket” approach. I have three buckets, short-term, medium-term, and long-term. Be advised: the following is how I define these time horizons.

  • The short-term bucket is for items under 5 years away. For example, when I want certain debts paid off or a down payment for a house.
  • Medium-term is anything 5-15 years away. The main one in this category is my son’s college savings.
  • Long-term is retirement savings, exclusively.

Related reading: How To Make Long-Term Investing Decisions

Buying experiences versus buying stuff

Money to a certain extent can buy happiness. As long as it’s being spent on experiences rather than stuff.

Memories with family and friends, visiting different destinations and attractions are the things we’ll cherish most.

Stuff breaks and toys are outgrown. What people won’t forget, however, is the time you spent with them.

Make that a priority. I know, as a fairly new parent (my son is almost 2), that I am constantly aware of how finite time is and that I need to make the most of those moments I spend with him.

The way you think about money pulls weight in how you use it. When creating a financial plan, I would prioritize figuring that out. How you think can lead to how you act.

The Questions You Need To Ask Yourself

by

Questions are a fantastic way to understand things better. They are vitally important in our everyday lives.

One area where I think they are underutilized is personal finance.

You NEED to ask yourself questions on the regular so you can discern if you are doing the right things and taking the correct steps for YOU.

In the following article, we’re going to explore the various questions you need to ask yourself in order to be financially effective.

What is my goal with money?

This is a fairly general question, so we’ll break it down into three buckets: short term, medium-term, and long term.

  • Short-term (Under 2 years) – If you are saving for a short-term goal, what is it? A vacation? Down payment on a house? No matter the goal, that money will be used soon so the best place for it is in a savings account.
  • Medium-term (2-10 years) – This could be anything from a down payment for a house to saving for your kids’ college education. What you do in the interim depends on when you’ll need it and the goal you are saving for. If it’s less than 5 years, I’d still recommend a savings account or short-term bonds. Something that can earn you a little interest, but is still relatively safe. That 5-10 year period depends on the goal. If there’s a particular dollar amount you need to it (down payment, for instance) I’d go no more than moderately aggressive. You want to earn a little, but you don’t want that saved amount to go under what you need.
  • Long-term (10+ years) – Most often, a goal that’s over 10 years away can be invested in the stock market, though the percentage of your assets that’s actually in the market depends on the risks you are willing to take and when you need to access those funds.

Related reading: Financial planning for all ages

How much am I willing to lose before I sell?

I almost always propose this question to new clients because it gives me a good understanding of their risk tolerance.

If they are only comfortable with losing 10 percent of their portfolio, they’ll be invested pretty conservatively.

On the other hand, if they can tolerate a 50 percent drawdown and not bat an eye, then we can “put the pedal to the floor”, excuse the expression.

Determine how much of a loss you can stomach and that will give you a good idea of how to allocate your assets.

Related reading: Are you taking on too much investment risk?

How long will it take to adjust my allocations?

Questions regarding asset allocation, typically, pertain to risk and time horizon. For example, if you start saving for retirement when you’re 25, the majority of your portfolio will be in equities (stocks).

This allocation, generally speaking, is suitable for you for a couple of decades. At which point, you’ll probably (again, speaking generally) want to shift a little more of your portfolio to bonds.

Your allocation will, and should, shift over time, and once you get within a few years of your goal, the primary objective of your portfolio becomes capital preservation.

Related reading: Why asset allocation matters

Are my actions suitable for my current financial situation?

Financial situation takes everything into consideration (income, debt, spending, savings, etc.) Actions can be anything related to those items.

Specifically what I’m talking about is how much you are saving, how much you are spending, and how much $ you’ve dedicated to paying down debt.

If you have a sizeable amount of debt and not a whole lot of savings, it’s time to cut your spending. Conversely, if you’ve paid down your debt and are ahead of the game with your savings, it would be alright if you loosened up a little and enjoy yourself.

Like everything in life, your personal finances are a delicate balancing act, and when you ask questions, you can figure out how to shift your priorities.

How is my money being spent?

Kind of related to the last point. Tracking your spending to find out exactly where all of your dollars are going is an important step.

Another recommendation I usually make is to create a financial playbook. Here’s a brief outline of how I create a financial playbook:

  1. Big picture – List all assets and liabilities. How much you have saved and how much debt you have.
  2. List your necessary expenses – These are things that you have to pay (rent, utilities, transportation, food, minimum debt payments, etc.)
  3. List your monthly income
  4. Total up your monthly necessary expenses and your monthly income and see how much you have leftover. What’s leftover will help you discern what to do with it.
  5. I would list another line item for “fun,” though I would keep it to a minimum.
  6. What’s left after fun should be saved and used on debt.

Related reading: How to cut your spending

Conclusion

As I said in the beginning, questions help us understand the world, and ourselves, better.

Having a better grasp on why and when we make certain changes or do certain things is a must if we are to be more effective in managing our finances.

Your Wealth: What You Shouldn’t Do

by

Establish an emergency fund, pay down debt, save for retirement, and grow your wealth! Much of your financial life is focused on the things you should do.

However, what I think to be more important are the things you shouldn’t do!

Educational Debt

There’s been a lot of literature/news over the last few years about how much of a problem student loan debt is. As of 2018, total student loan debt was $1.47 trillion. With a T! (Source)

That said, here are some things you should avoid.

  • Taking on too much – Some degrees/professions require a lot of schooling, which can lead to large amounts of student loan debt. And I don’t mean to speak ill of any degrees/professions, but if your desired career requires a “basic” 4-year degree, it’s probably best to find an in-state university to cut costs. Better yet, start at a local 2-year university or tech school until your Gen. Eds. are complete, then transfer.
  • Not having a plan for after – I think this is a common fear for Millennials and Gen Z, but you have so much time to figure things out. Don’t just go to college to get a degree. If you need time, take time. Once you figure out what you want, determine what you need to do to get there.
  • Not researching options – There are SO many student loan options. Depending on what type of loan you choose (private or public), you could have a wide range of payback methodologies. I wrote about student loan options and payback options in two previous posts. Check them out!

Credit cards

There are two BIG problems with credit cards. People who use them irresponsibly and people who don’t use them at all.

  • Using irresponsibly – This one pretty much speaks for itself. This pertains to people who spend way more than they ought to. A good rule of thumb is to only buy something using a credit card if you have the funds readily available to pay the balance off. Don’t have the money, don’t put it on the card. Doing so will cost you in interest and can really set you back.
  • Not using at all – Better than the first point, but still not great. Using a credit card can help your financial situation if you use it correctly. Most of them have rewards of some sort. It’s another credit account on your report. Charging and paying off right away establishes a good payment history. All good things for your credit score.

No emergency fund

Establishing an emergency fund is Step 1. If you don’t have money set aside for unexpected expenses, you’ll have to charge it. This leads to the point above about irresponsible use.

Save $1,000 for emergencies, turn your attention to high-interest debt (credit cards), and then shift your focus back to your emergency fund once that debt is paid off.

Spending

  • Paying bills late – Not paying your bills on time, especially ones shown on your credit report is a big mistake. The #1 factor in calculating your credit score is payment history. Paying ONE bill late will knock your score down. Just one. Don’t do it.
  • Spending too much – (See irresponsible credit card use) This is especially harmful if you frivolously spend BEFORE taking care of important “budget items”. Things like saving, debt payments, and bills.
  • Being too frugal – Though frugality is helpful in building wealth, it can also hurt you. There comes a point when you are too frugal. A vital life skill is doing things in moderation. If you pinch pennies and forego rewarding yourself, you run the risk of breaking the bank on a “bender”.

Investing

  • Waiting – I cannot stress enough the importance of investing early. What helps you make the most of your retirement savings is compound interest. The more time you have to invest, the more compound interest works in your favor.
  • Panic selling – This is a timely point since the market dropped almost 5 percent in the last week. Selling out of fear is always bad. More often than not, when you “panic sell,” you’ve already experienced the majority of the drawdown. Now, this depends on your particular situation, but it behooves you to stay invested during that period.
  • Using generalities when setting up an investment plan – Your investment plan needs to reflect your goals, risk tolerance, time horizon, and behavior. Using generalities is good for someone who writes about this stuff, but it’s not good for YOU. Your plan has to be tailored to YOU.

Life and Wealth

  • Sticking with a job you hate – Sometimes money and comfort makes us do things we don’t want to do. Being unhappy at your job is not worth it. It’s important, however, to thoroughly think through this decision. Quitting is tough, but if your family counts on you for income, you need to have a plan in place before you jump ship.
  • Comparing yourself to others – I’m going to encourage you to develop a new mindset because society taught us that wealth looks like fancy cars and big houses. I want you to think about stealth wealth. It’s probably my most favorite phrase/term. Someone with stealth wealth lives within their means. They live in a modest home, drive a car for transportation only, but saves more than the average person. They don’t “look” wealthy, but their retirement account says otherwise.

Further reading:

What it takes to be a successful investor

How to pay off credit card debt

Creating a financial plan you can stick to

What It Take To Be A Successful Investor

by

What makes a successful investor? Is it your ability to beat the market or to beat your competition?

In my opinion, being a successful investor doesn’t have to do with out-earning your peers or leaving the S&P in the dust. No, my definition is very simple.

Develop an investment plan using a variety of factors, and be able to execute and follow that plan indefinitely.

Suitability

This is step 1. You need to figure out what your “suitability” is. Your suitability will lay a very good foundation upon which you build your investment plan. Suitability involves three things:

  • Risk tolerance – This is your ability to handle drawdowns in your portfolio. If you crumble with fear every time you lose 5 percent, then you’ll probably want a fairly conservative portfolio*. On the other hand, if you have no problem seeing your portfolio drop 50 percent, then you’re ready for a more aggressive allocation.
  • Time horizon – Probably the most important factor of the three. Your time horizon is basically when you’ll need the money. A long time horizon allows an investor to take on more risk because there’s more time for them to recover from drawdowns. The inverse is true for short time horizons. You’ll want to be conservative because you have little time to earn back what’d you lost.
    • Long time horizon – 10+ years
    • Medium time horizon – 2-5 years
    • Short time horizon – Less than 2 years
  • Goals – What’s your plan? Is this savings going to be used as a down payment for a house? If so, there’s probably a minimum dollar amount you have in mind and you’ll want to tip the odds in your favor that you don’t go below that. Similarly, if this is for retirement and you have 30 years to invest, you have the green light for risk assets.

Keep in mind that all three of these things, plus one other, need to be used together when determining your asset allocation. If you are tolerant of risk, but need the money in 5 years, somewhere in the middle between aggressive and conservative is probably better. That one other thing is your behavior as an investor.

Investor behavior

The finance/investment world is coming around to this, but your psychology is a HUGE factor as an investor.

Obtaining a high return on assets is one of your goals, but it should not be the primary goal. When you create an investment plan you have to make sure it’s something you can actually stick with.

I wrote about it previously, here.

You could be tolerant to risk and you could have a long time horizon, but if you lay awake at night every time the market drops, then you need to rethink your approach.

That kind of fear and anxiety hinders your ability to follow your plan. What normally happens, is someone sets an unrealistic investment plan, one where they take on too much risk.

Thereafter, volatility picks up. They check their portfolio and it’s declined 15 percent. They wait a day and check the next.

Another 2 percent drop. Then the thought of 2008 creeps into their heads and the panic sell.

You can set up a great investment plan, but your behavior will ultimately make the decisions. Keep that in mind.

Asset allocation

Using your suitability and behavior, you can then determine your asset allocation. The types of assets you use in your allocation can vary. If you wanted to invest a small percentage of your portfolio in gold, for instance.

The three most common assets are stocks, bonds, and cash. With risks ranging from high risk to virtually (there’s always some risk) no risk.

Speaking very generally, people with long time horizons and are more tolerant of risk, have a more aggressive portfolio. The inverse is true for people with short time horizons and a low-risk tolerance.

That said, the ultimate goal is to develop a plan that meets your goals in the smoothest fashion possible.

Ignore the noise

Throughout your investment “career” you’ll run into people, friends, family, or even random people on the street that will tell you the sky is falling or that the newest IPO will go gang-busters and you need to get in now!

Put your blinders on. There are two things that hurt investors. Their own behavior and their ability, or lack thereof, to tune out what’s happening around them.

This is extremely difficult because we, as humans, have evolved to use our peers to compare or judge, our standing in society.

Stay in your lane and focus on your goals.

Never stop learning

Every single experience in your life is a learning opportunity, especially the bad one. I recommend journaling daily, recount your day, and dig little nuggets of knowledge from your experiences.

Additionally, take in some form of content every day that improves your understanding in your line of work, or in an industry that you’re interested in.

With regard to your finances, give our Toolkit page a look. There you’ll find a number of books and resources to enhance your financial know-how.

Please be advised: Everything written in this article is for informational purposes only and should not be taken as investment advice. Opinions are my own and do not reflect the opinions of this publisher or my employer.

Further reading:

The Psychology Of Money

 

My Thoughts On The Market

by

Let me start by saying that I have no clue what is going to happen in the stock market in the next 12 to 18 months, what I do know are several of the factors that have a say in what happens.

If you guessed that at least one of those factors has to do with President Trump, then you’re right.

Trade

The big elephant in the room. Honestly, I have no idea how this is going to pan out. Obviously, it behooves both parties to get this rectified as soon as possible, but it makes sense for China to hold out until the 2020 elections.

If they make a deal now, the US has more leverage at the moment and will probably be on the winning side of things.

If they wait until 2020, they have a chance of getting a Democratic president elected, and more than likely, they’ll reverse course on trade.

I think the odds increase that a Democratic president will win because if a trade deal isn’t reached, the market will negatively react and if the market tanks while Trump is president, he’ll be in trouble.

The US also decided to slap tariffs on European goods. This matters because if a deal is made with Europe, that gives the US that much more leverage. They won’t need China as much, and it’s clear that China needs us. We’ll see what happens.

Interest Rates

You may have caught wind of the most recent jobs report. We added over 200,000 jobs last month, which was much stronger than expected.

You’d think that kind of surprise would be good for the market, wouldn’t you? Unfortunately, the strong jobs report signaled a stronger economy than previously forecasted.

A stronger economy gives the FED less of a reason to cut rates this month. Where it stands now, I don’t know what they will do at the next meeting.

I was certain they would cut, but that was before the jobs number. I think it will benefit us down the road if they don’t. The reasons I think that have been explained before, but I’ll give you a synopsis real quick.

Typically, in the normal business cycle, rates will start [generally] low and consistently rise in tandem with economic expansion. Once the expansion peaks, the FED will cut rates to promote borrowing, which translates into spending.

Here’s the kicker. The prime rate (the rate the FED controls and the rate that affects all other rates) needs to be at a certain level when the FED cuts. If the prime rate isn’t high enough, then the FED won’t be able to cut enough to stimulate the economy.

What does this mean?

The current economic and political environment in the US is like nothing we’ve ever seen before. Our respective parties are at each other’s throats, which doesn’t make cooperation easy.

The unemployment rate is as low as it’s been in 50 years, inflation is crawling, rates are still ridiculously low, and the market is making new highs.

The FEDs impetus for raising or not raising rates is the level of inflation. It’s lower than their 2% target so they took their foot off the gas.

We are at the end of an expansion, which means a recession is most likely on its way, if not in the works already.

If you have less than 15 years until retirement and reallocate your accounts to be a little more conservative than usual. If you have over 15 years until retirement, I wouldn’t make any adjustments (allocate according to risk tolerance, time horizon, and goals).

Keep in mind that if you shift to more conservative and the market continues to rise, you’ll lose out on some gains, but if the market tanks, that conservative tilt should help minimize the damage.

How To Cut Your Spending

by

Do you know what could really help you reach your financial goals? Answer: If you had more money to work with! Cutting your spending is an integral part of your finances.

I’m not saying you need to cut out the things you love (insert Starbucks coffee, avocado toast, etc.). I’m saying you need to splurge on those things wisely, either by reducing their frequency or cutting out something else.

Let’s figure out ways we can cut our spending.

Track spending

How are you supposed to know what to cut spending on if you don’t know where your money is going?

Go back a few months and look for a “pattern.” Where is all of your money going? Bills, housing, transportation, debt payments, etc. are in their own category. Everything else that’s not considered necessary spending (minus groceries) goes in the discretionary spending category. Everything else that’s not considered necessary spending (minus groceries) goes in the discretionary spending category. Keep in mind, things will change if you’re living in an affordable city like Columbus, Ohio, rather than an expensive place like New York City.

This discretionary spending is what you need to pay attention to.

Grocery spending is necessary, but the amount can vary. Figure out what you typically spend, each month, on groceries and determine if that amount can be lowered. More often than not, it can. Just don’t go hungry.

Budget (and budget alternative)

The classic budget lists the necessary expenses (housing, groceries, debt, utilities, savings, and other bills). You then assign dollar amounts for other “unnecessary” expenses (take-out, clothes, etc.).

The dollar amount is what you’d like to spend on that item/category, and not go over. The purpose of a budget is to come to a total expenditure that’s less than your monthly income.

My approach is similar. I list the necessary expenses (excluding debt payments and savings). Just the things I need to pay (housing, streaming, utilities, insurance, and transportation).

Next is my grocery budget. This is a necessary expense, but I try to keep it relatively low. Between my son and I, the limit is $300 per month. Then I list debt payments and savings.

I calculated how much I needed to pay per month to pay off my debt by a certain date. My savings is automated and partitioned.

I have one savings account for emergencies, one for car repairs, one for holiday spending, and one for vacations. Once a week, money is automatically transferred from my checking to each savings account.

The amount of each transfer is less mathematical and is more about comfort. My retirement savings is done right away at the beginning of the month so I don’t have the chance to spend it away.

Whatever remains is mine to do with as I please.

No spend days

Have one day per week or a few days per month where you don’t spend any money.

I’ve seen some people go as far as having a no spend week! Implement these days at your discretion because obviously, you’ll still want to pay your bills and such.

Another cool idea is to restrict paying for certain items during particular times of the year. For example, you don’t buy any clothes during the month of September, or you don’t have any take-out/restaurant food in April.

Coupons/rewards/etc.

With smartphones, applying coupons to your purchases has never been easier. I use coupons.com. You can save which coupons apply to you and they can be scanned at checkout. From your smartphone!

Also, wherever you do your shopping, make sure you are a member/rewards member. There’s usually a sale for members. Excluding paid memberships (like Costco), being a rewards member is free and can save you money.

By the way, it costs money to shop at Costco, but their goods are very reasonably priced. They make their money on the memberships, and they sell all of their goods at cost. That means they sell a product at whatever price they paid to get it in the store.

Use price per unit/item

When you are making a decision about how much of something you need to buy, always use price per unit as your factor. The overall price of something may look less expensive than the bulk item, and it is at the time of purchase, but more often than not, the price per unit is lower for the bulk item.

It’ll cost you more when you check out, but through time, you’ll spend less money.

Quick hacks to cut expenses

  • Negotiate a lower interest rate on your credit cards
  • Balance transfer to 0% introductory APR
  • Personal loan to lower average credit card APR
  • Unplug unused electrical devices
  • Cancel unused subscriptions
  • Reduce entertainment expenses
  • Carpool to work
  • Keep tires properly inflated (better gas mileage)
  • Use LED light bulbs
  • Use a programmable thermostat
  • Lower the temperature on your hot water heater
  • Eat at home more/eat out less
  • Buy generic

Conclusion

Achieving financial success doesn’t have to be difficult and boring, though it does take some discipline. Small rewards are important. Without them, you’ll go crazy!

Cut the fat off of your budget, and you’ll see how much better it feels to make significant progress in your financial life.

Financial Planning For All Ages

by

Don’t you hate it when you Google financial planning tips, and it spits out articles that don’t apply to you? This could be because you’re a different age than the article is directed towards or you’re in a different position.

Well, look no further. I’ve created a rough outline of how you can plan, regardless of your age or situation.

But I’ll be honest with you, a lot of this article will link to resources or previous articles that explain these topics in more detail, but I wanted to create a rough outline of how people in different age groups can plan.

Twenties

Ideally, you want to get a budget started, but nobody likes doing that. Instead, give your money a job. Figure out when you would like to have your debt paid off, then do the math to determine how much per month you need to pay.

List that payment plus housing, transportation, food, and other bills. That total tells you how much MUST go out, everything else is extra to do what you please.

In terms of saving for retirement, you have a lot of time to put money away, but if you start sooner, you’ll have to save less later. 10% of your salary is a good goal. If you can’t get there just yet, save what you can, but try to incrementally increase it over time.

Investment allocation here, as well as in your thirties and forties, should primarily be stocks. Not 100%, but definitely the majority of what you own.

Thirties

The financial plan in your thirties is similar to the one in your twenties. Pay down debt and save for retirement. However, at this point, you probably have more assets and you may have some children as well.

With the cost of tuition constantly rising, saving for their future education costs is important. The 529 is the most popular, and probably the best vehicle available to do just that. (Be advised: 529 plans do involve risk so please talk to your financial advisor prior to investing)

With more assets and children, comes more insurance. Make sure your property and belongings are adequately protected. Additionally, if your children depend on your income for support, life insurance and disability insurance are a must!

Fourties

Same story, different decade. Pay down (off) debt, save for retirement, and make sure you have adequate insurance. (Honestly, the save more, pay down debt, and have insurance is a great catch-all financial plan).

At this point, however, your retirement plans should become more detailed and concrete. Through your twenties and thirties, retirement planning essentially was just saving for retirement.

Now you should think about where you live and what you’ll do. You should also calculate if you’re on track and increase your savings if you’re behind.

Fifties

Hopefully, by the end of this decade, your debt will be mostly paid off, you have a good idea of what retirement will look like, and you’ve determined what needs to be done (if anything) for you to hit your target number.

As you age through your fifties, you should start thinking about adjusting your investment allocation. You don’t have as much time to gain back what you lose during a down market.

Reallocating to a 60/40 or 50/50 (stocks/bonds), depending upon your risk appetite, is a good way to reduce your risk and still participate in a bull market.

Sixties

Where you are at this stage in life depends on a few factors. Have you saved enough to live comfortably in retirement? Do you enjoy what you do? Are you healthy? Plans for Social Security?

If you haven’t saved enough, then you’ll probably have to work a little longer so you can save more. If you like what you do, then why not continue if you are able? If you don’t, consider a career change or (if you’ve saved enough) volunteering for a cause that’s meaningful to you.

If you are healthy, I recommend staying active and social as long as you can. Activity and a healthy social life are two of the three important variables for a fulfilling retirement.

Social Security and when to receive it is a huge decision. Obviously, I’m going to recommend waiting as long as you can so you receive a higher monthly benefit, but there are other things to consider.

Are you healthy? What’s your family history like? Do you have adequate savings/retirement income from other sources?

Health and family history help determine longevity. Poor health and/or poor family history may give you a reason to start receiving earlier.

There are calculators out the web (like this one here) that can help you discern what’s the best strategy for you. That’s to say, how do you optimize your Social Security and other retirement income so you receive the most possible?

Seventies

We’re living longer, healthier lives now, and down the road, the retirement age will probably make its way into the seventies.

If you have to work for the income, you’re not alone. As of 2017, the percentage of the population that are 70 or older and still working was 19%. Up from 11% in 1994. (Source)

My recommendation. Develop an income strategy that will a) afford you to live a somewhat comfortable lifestyle (obviously, cutbacks are necessary if money is tight) and b) help your savings last as long as possible.

There are a variety of calculators out there to help figure this out.

Conclusion

Financial planning is tough. As I said in the beginning, not many like to budget, so it’s important to give your money a job. $100 goes towards emergency savings, $1,000 to retirement, and $250 for debt repayment.

Do this, along with several of the other items I listed (as well as the ones linked below) and you’ll do just fine.

Helpful articles and resources: