money management Archives - The Free Financial Advisor

The Importance of Being Handy

July 1, 2020 by Jacob Sensiba Leave a Comment

Perhaps it is just within my circle, but it seems that the character trait or the skill of being handy has lost its value.

People seem unable to fix simple things. Around their house, their car, what have you.

I’m curious if the majority of people know the difference between a Phillips head screwdriver and a flathead screwdriver.

At no time was the importance of being handy more clear than during the last few months, when the entire country went into lockdown. You never know when that service you rely on will be unable to help you.

My Experience

My dad taught me from an early age the importance of being able to fix things yourself and the value of a strong work ethic. Those may seem unrelated, but I believe they are directly correlated.

I watched him and helped him with all of his projects. Plumbing, changing the oil on his car, renovations, replacing his brakes, you name it.

Not only did it save him and us, as a family, money, but it was quality time I got to spend with him. There were valuable lessons taught in those experiences.

Now, I can fix almost anything. It gives me a sense of pride, it saves me money, and now, it’s making me money.

At my last apartment, I was the go-to handyman for our complex. They took a small chunk off my rent and paid me by the hour when I was on a job. Saving and earning at the same time.

Now that I’ve moved, I no longer am the go-to for that complex. Instead, I’m the go-to for all rental units owned by that investor in my city. That’s an incredible opportunity for me to make money outside of my normal 9-5.

Growing up, did I think this kind of circumstance would come upon me? Of course not. But that’s the thing. No matter how you think your life will turn out, it hardly goes that way.

You have to vary your knowledge and competencies across a range of industries. You truly never know what will fall into your lap.

From there, we’re going to take a hard right turn into a different topic

Consumer Math

This is something that should have been on my radar, but it wasn’t. Until this morning. My cousin is taking a consumer math course, and after learning about what it was, I have to promote it.

You can find a consumer math course anywhere, and they all teach the same thing.

Math for real-world situations.

It’s basically a personal finance course. It teaches things like budgeting, taxes, loans, buying a car, wages, deductions, spending, and transportation.

These are topics that everyone should be knowledgeable about, as they lay the foundation for your financial life. Ace these, and you’re steadfastly in the driver’s seat of your finances.

Quick Wrap-Up

Above, we covered two things. Being handy and having a wide range of knowledge can help you later in life, and how having a foundational understanding of consumer math puts you in control of your finances.

Both of these are vitally important but dramatically undervalued by the masses.

How to Answer a Civil Summons for Credit Card Debt

June 24, 2020 by Jacob Sensiba Leave a Comment

You do what you can, but sometimes debt gets out of control. If you get far enough behind on your credit card payments, eventually, the lender or a debt collector will file a suit against you to get what they’re owed. In this article, we’ll explore what a civil summons is and what to do when you’re faced with one.

What is a civil summons?

Generally speaking, a civil summons is when a governing body, individual, or organization files a lawsuit or judgment against another individual or organization.

The document indicates the reason for the suit or administrative action. It also listed pertinent information, such as time and date of the first hearing, details about the plaintiff and defendant, and the amount of time the defendant has to respond.

A civil summons with regard to credit card debt usually occurs when the account reaches “charge off” status. Charge off status usually happens between 120 and 180 days.

With that said, here are the steps you need to take.

Don’t ignore it

This is the worst thing you can do. The suit will continue, whether or not you respond. If you don’t respond, the court will issue a ruling in favor of the lender.

That means you will be forced to pay what’s owed. They may also tack on attorney fees, court fees, and interest to your balance.

Negotiate

Get in touch with the lender/collector that filed the suit, and see if they will accept a lower amount.

The filer may ask for a lump sum or a series of payments. The negotiated amount can range from 40% to 80% of the original balance.

Who filed the suit also makes a difference in negotiation. If the lender is after you, they will be less willing to negotiate a lower amount than a debt collector that bought the debt at a discount.

Research

If negotiation doesn’t work, it’s time to build your defense. Get a hold of the lender or collector again and gather information.

Check through your records to confirm if the debt owed belongs to you – does the amount and the original lender match up? Is it yours?
Get chain of custody records – does the filer have the legal right to do so?
How long have you owed the debt – the statute of limitations could forbid the suit based on how long you’ve owed it
Get proof from the filer – are their records accurate? Is the information listed correctly? If the filer has missing or incorrect information, this can work in your favor.
Get copies of everything – accurate and complete documentation is very important

Talk with a professional

Get a consultation. Often, these are free. At the very least, it’ll help get a better understanding of what you’re up against and what you should do.

If money is tight, there are organizations, like lawhelp.org, that will provide an attorney that volunteers their time.

If money isn’t as tight, vet and hire an attorney to help your cause.

Go to court

If negotiation and settling outside of court don’t work, then it’s time to go to court. Here’s what you have to do.

Formally answer the summons with the court. This has to be in writing and generally, you have to answer within 20 to 30 days of receiving the summons.
In your reply, you have three answer options: admit, deny, or lack of knowledge. Admit it’s your debt, deny it’s your debt (only if you’re 100% sure), or attest that you don’t have enough information to say otherwise.

Options after court

If the ruling goes your way, there’s not much else to do. However, there may be terms you need to settle on, depending on what the judgment was, so you may not be completely out of the woods yet.

If the ruling doesn’t go your way, you have a few options.

Try negotiating with the lender/collector again.
Pay the amount mandated by the court
Argue the ruling by filing an appeal
File for bankruptcy
1. This is the last resort and should only be used if there’s no way to pay back what you owe.

Credit score

Your credit score will take a big hit throughout this process.

Prior to 30 days late, it won’t affect your credit score, but you will be charged late fees (most likely).
After 30 days, a late payment will show on your report. On-time payment is the number 1 factor when calculating your score, so expect a significant drop.
The impact late payment has on your credit gets worse as you pass 60 and 90 days.
As stated, a suit normally isn’t brought against you until 180 days late. At that point, the account is listed in “charge off” status and that will really hurt your score.

Obviously, you want to do everything possible to prevent being served a summons for your being behind on your credit card bills, but if you get there, these are the steps you need to take.

Down Payment or Investment Opportunities?

June 17, 2020 by Jacob Sensiba Leave a Comment

The current dilemma I am having is whether to stash my savings for a down payment on a house or contribute to my Roth so I have cash available for buying opportunities.

I’m pinching pennies, and I’m saving money wherever I can so that cash is accessible when I need it. I just don’t know what to do with it.

Do I put it towards a down payment or set it aside for investment opportunities. Like most things in life, the answer will lie somewhere in the middle.

Down payment

I’ve mentioned in prior reflections that I’m renting right now.

I’m renting because I got divorced and exhausted all of my savings on the down payment for my house. That house is currently being rented by another family, and my ex-wife and I still own it.

That’ll help build equity into the house so we receive more if/when we decide to sell, which is good.

I’m happy with my current living arrangements. I like the place. I like the neighborhood. My commute to work is 2 minutes, and I’m close to all of my family and friends. All good things.

The only bad part is I have no outdoor space to call my own. I have no yard.

I’m trying to frame it positively by saying that I’m not spending my time on yard work, and instead, have more time to spend with my son/work on myself when he’s not here. These are both very good things.

However, I want to give my son a space to play. A place to put a jungle gym and a sandbox. A place where he can just run around and have fun.

I want to give him that because he deserves it. I want to use my savings for a down payment on a house so we can have a place to call our own.

Investment opportunities

Here’s the second part of my dilemma. I see a lot of chances to put my money to work in the market.

I’m able to play the long game because of my investment philosophy and my training. The best investors I have long term time horizons.

What I mean to say is I can see past the present and I have an idea of what my investments can do over the long term, and the [possible] reward for investing now can’t be ignored.

That’s why I’m having a difficult time deciding what to do.

What will I do?

As a parent, you want to give your kids everything. I want to have a place we can call our own.

At the same time, I know how valuable it is to start saving and investing early so I can take advantage of compounding returns.

So here’s what I’m thinking. I’m going to develop a “savings plan”. I’ll take the dollar amount for an ideal down payment and how far in the future (in terms of years) when I’ll want to use it.

I’m thinking of $25,000 for a down payment and four years until I’ll use it. I’ll, then, divide $25k by 48 to get my monthly savings goal. Anything over that number I’ll put in my Roth.

That’ll take care of saving for a house and for retirement.

My Last Reflection:

My Experience with Life Insurance

Mistakes to Avoid in Retirement

May 27, 2020 by Jacob Sensiba Leave a Comment

In many finance websites, blogs, and articles, a lot has been said about how to prepare for retirement, but I believe there hasn’t been enough written about what to do when you get there. More specifically, there’s a lack of content about mistake, or mistakes, to avoid.

In this article, we’ll explore several mistakes to avoid when you reach this milestone.

Spend beyond your means

This seems obvious, but once the psychological barrier of spending versus savings is breached, people (not everyone) develop this mentality of “I saved for 40 years for this moment, why shouldn’t I enjoy it?”

You should enjoy it. You worked your butt off for it, right? There are strategic ways to do this, however. The mistake is going gangbusters right away.

Create a budget/spending plan – Your budget in retirement will be different than your budget before retirement. Create line items for everything, and get real granular with your discretionary spending (i.e. sub line items to breakdown where the discretionary spending is actually going).
Plan for healthcare – Healthcare costs, generally speaking, will be your largest expense in retirement. Plan accordingly.
Income strategy – More than likely, you’ll have a few different income sources (social security, pension, retirement distributions, etc.). Create a line item for each source.
Senior discounts – Take advantage of every single one. There might be a psychological hesitation with this, as it forces you to come to terms with your age/where you are in life
Spoil grandkids – Every grandparent wants to spoil their grandkids to death, but it must be done within reason. Get creative and be strategic about when and how much.

Make Quick Decisions

Another mistake is making quick decisions. Don’t do it. Any decision you classify as BIG needs to be well thought out. This could be anything like moving, downsizing, vacations, or eliminating a vehicle.

I would argue that any decision about an expense that’s not in your budget/spending plan, should be thought about for several days. My rule of thumb is a week. By then, the euphoria of such a purchase has gone away, then you think more logically about it.

Investing Aggressively

Over the years, a big mistake clients make is the desire to invest more aggressively than they should. Oftentimes, this is to compensate for an inadequate savings rate during their working years or a significant market pullback that hurt their portfolio.

While capital appreciation is still an investment objective in retirement, it’s no longer the primary goal.

This primary goal should be capital preservation. Limiting losses on what you have. This has less to do with time and more to do with your decreasing ability to go out and make more money. Allocate your portfolios accordingly.

Ignoring Estate Planning

Estate planning is a key ingredient to your financial planning recipe. It mustn’t be ignored. Every debt and asset you have needs to be accounted for, listed, and given a task for when you pass.

Estate attorneys can be expensive, but I believe it’s 100% necessary to find one you trust, so your estate is well taken care of.

Isolating Yourself

Your social life is more important than ever. Countless studies show that people with strong relationships outlive those that don’t. So the mistake here is not making your social life a priority.

Join a community, volunteer, retain, and nourish friendships. Whatever flavor of social life sounds desirable, make it a priority.

Letting Yourself Go

Taking care of your mind and body is always important, but especially now. It will keep you healthy, therefore, lowering your healthcare expenditures, but it’s also another way for you to meet people.

Go for walks with neighbors and/or friends. Join a gym. Many of which have reduced rates for seniors. Additionally, many health insurance companies have “silver sneaker” programs that offer inexpensive services and programs for seniors.

Expecting it to be easy

This is a BIG life change and the transition will not be easy.

Not only will you shift from saving to spending, but those social connections you developed over your working years can reduce in frequency and strength.

Go easy on yourself and be patient.

Taking Social Security too early

Unfortunately, there are situations and scenarios where taking Social Security Income (SSI) distributions early is necessary. However, for those of you where this does not apply, speak with a trusted advisor about optimizing your SSI strategy.

Getting Swindled

Scammers adapted. They’re smart and they know how to target susceptible people. Unfortunately, elderly individuals are inherently more at risk than the general population.

Any email, phone call, or text that you receive (unsolicited, of course) should be greeted with a fair amount of skepticism. Don’t willingly give out any pertinent information (name, DOB, social security number, etc.).

Doing it alone

A BIG mistake people make is thinking they can plan by themselves. It would behoove you tremendously to consult with several experts. Estate attorneys and financial advisors should be at the top of this list.

Do your research, check online reviews, and get testimonials from trusted contacts. Having capable professionals in your corner could set you up for success and put your mind at ease.

How My Finances Have Changed with Covid

May 20, 2020 by Jacob Sensiba Leave a Comment

Aside from the death and illness, it has caused, Covid-19 has done a number on the financial system and the economy.

I’m writing this on May 19th, and up to this point, over 30 million people have filed for unemployment benefits.

In my previous post, which can be found here, I detailed how you can plan in the event of job loss.

Even if you haven’t lost your job, more than likely, your finances have changed. In this article, I want to pull back the curtain on how my finances have changed during this environment.

My Job

Thankfully, I’m still working. I work for my family’s business. Technically speaking, we have four family businesses and I work three out of the four in various capacities.

Two out of those three businesses are very resilient during recessions, so I’m not terribly worried about my income from those two sources.

The last, however, will be influenced by movements in the market. If I do my job well, it shouldn’t vary a ton, but if I don’t, my clients will feel the pain, as will I.

The reason being is I, typically, charge a percentage of the assets under management (AUM). If account values go down, so does the fee I receive. The two go hand in hand, as they should. If I do a poor job, I should make less. It just makes sense.

With that said, my income hasn’t moved too much from the financial advising gig. It dropped a little bit last month, but I imagine it’ll come back up by the end of May, as the market has recovered.

Opinion: The Economy

I don’t know if I’ve mentioned it yet here, but my opinion of the economy is darker than some. I think there will be a cascade of bankruptcies in the public and private sectors.

With regard to the public sector, the companies that are rated BBB are already at record highs. When revenues stop coming in or significantly reduce, it’s hard for companies to make interest payments to lenders (holders of debt).

Companies will start defaulting on their debts, and the ability to pay, as well as other factors, help determine the credit rating. This will cause a slew of BBB rated companies to get downgraded.

Funds

With regard to fixed income mutual funds and ETFs, the vast majority of them have rules they need to abide by. One of those rules could be only investing in investment-grade companies.

Investment grade is anything from AAA to BBB. My fear is that when companies get downgraded from BBB to BB, it’ll cause funds to dump those companies; exasperating the sell-off.

My Finances

With that said, here’s how I’ve adapted.

My finances really haven’t changed much. I’m spending more on groceries, especially right now as I am stocking up on certain goods. The added benefit of that is I’m spending less on food from restaurants, which saves me money and I’m eating healthier too.

So you’re spending more on groceries and less on take-out…what else? Well, given the nature of Covid and the uncertainty that surrounds it, my priorities have shifted a little.

More Cash

I’ve planned my clients’ portfolios with the above scenario in mind. The majority of clients aged 60 and up are positioned more conservatively than normal. With that in mind, all of the portfolios I manage will take a little hit, and my income will drop as a result.

I’ve suspended my retirement contributions, via payroll deduction, until I feel comfortable again. This may seem counterintuitive because of the stress I put on leaving things alone and dollar-cost-averaging as prices go lower.

Due to the fact that my income has some variability, not to mention my rental property and the uncertainty of my renters’ making rent payments (because of talks about forgiving rent payments for those affected by Covid), I have to keep more cash available than normal.

Retirement Contributions

As I mentioned, I stopped my automatic retirement contributions, but I am making voluntary contributions to my Roth IRA when I feel my cash available is adequate.

Other than that, nothing else has changed. Debt payments will continue as planned and saving for a down payment on a house will also continue.

Be advised: Any opinion expressed about the market/economy is strictly an opinion and should not be viewed as a certainty. Additionally, my preparations for said opinions are specific to me. Consult your financial professional about your particular situation.

Investment Tips: How much should I have in my 401(k)?

May 14, 2020 by Susan Paige Leave a Comment

Part of planning for financial freedom is making sure that you are financially protected when you hit retirement. However, only a few know how to maximize their 401(k) in a retirement investment account as part of their overall portfolio.

If you want to explore the basics of investing your 401(k) to increase your retirement benefits, no worries. This article provides you with a summary of the five (5) most useful tips on how your 401(k) can help you retire with more financial security.

What are 401(k) Investments?

Before going into the details, you should know that a 401(k) investment is basically a retirement savings tool sponsored by your employer. This tool allows you to invest a portion of your paycheck into a retirement investment account. Your money will grow tax-free until you are retired, and that’s when you can use it.

The question that many ask is about the portion: how much of one’s paycheck should go into this retirement investment? In addition to that, here are some tips about putting a part of your paycheck to your 401(k) investments.

Invest Early

It is true that you can begin your retirement investment later when you are older. However, the earlier you start investing, the better. In fact, it is best to start contributing to your 401(k) as soon as possible. In doing this, you earn more. That’s just how compound interest works: you gain more interest when you start earlier. If you are a young worker, you have the advantage of the time that older folks will never ever have. Invest early.

See How Much You Can Set Aside

As a rule of thumb, you need to invest a percentage of your earnings that is equivalent to the difference between 100 and your age. For instance, if you are 20 years old, you need to invest 80% of your earnings as savings or into your retirement fund. This is based on the assumption that, at an early age, you still don’t have many responsibilities and can afford to invest more money.

If that amount or percentage is too high, you can decide on a fixed annual amount. For example, you can contribute a max of $19,500 to your 401(k) in 2020 if you are under 50. All you have to do is calculate a fixed amount below the threshold of $19,500.

Hire a Portfolio Manager

Still unsure or want to maximize your investments? You can explore other options such as using a robo-advisor such as Wealthfront or Betterment. This is one of the best options for someone who is unsure or does not know how much they should invest.

The robo-advisor will run the numbers for you to determine the best combination of investments in your 401(k) fund. You can set the target amount you need for retirement and the algorithms will compute how much you need to set aside every month or year so that you can have that amount when you retire.

Match Your Employer

Another way to determine how much you should contribute in your 401(k) is to look at how much your employer is contributing. For instance, if your employer only offers a maximum of 10% of your salary, then you should match your employer and contribute at least 10% as well to get the most out of your 401(k) investments.

Check Investment Types

When you contribute funds to your 401(k), you have to choose which investments it goes to. With each kind of investment, there is a specific percentage of return based on the risk profile. Since the percentage of return is different for each investment, your choice will affect how much you need to contribute in the 401(k) so that you can reach your target retirement funds.

If you have enough in your 401(k), before you start computing, consider the types of investments that you will choose. For instance, if you choose to invest in the stock market, you will earn more and faster but the risk is higher. If you want to do this, you might want to invest a lower amount.

On the other hand, you will have more stable returns if you invest in mutual funds. However, interest will be less so you want to contribute a higher amount to achieve the retirement fund levels that you want.

Takeaways

For dignity and independence, you want to retire with enough funds so that you won’t need to depend on help from your children or other people. With the investment tips summarized in this article, you can think about your best options to save and invest money in your 401(k) for your retirement. The five (5) points summarized in this article should help you begin to find the answers to all your basic questions and concerns.

For more great articles from The Free Financial Advisor, consider these:

Financial Planning Basics – The Financial Pyramid

How Long Should You Keep Financial Records After A Death

What Advantages Are There To Saving Money In The Bank?

How To Recover Paystubs From Your Old Job

Dealing with Market Fluctuations

May 6, 2020 by Jacob Sensiba Leave a Comment

Over the past couple of months, we’ve seen increased volatility. Put simply, volatility is periodic market fluctuations.

In a month, from the end of February to the end of March, we saw the S&P 500 drop nearly 35%. Obviously, it wasn’t a straight drop. There were several up days and a few relief rallies.

Since then, we have seen the S&P come back to the tune of 22%.

In this article, I want to give a little information about how I deal with market fluctuations, where I look for opportunities, and how retirement savers navigate these difficult times.

What I Learned

At the beginning of my career, I always dreaded experiencing a bear market. What do I do? Do I sell out of everything to avoid the decline? What do I tell my clients? How will they react?

As I gained more experience and read more, I learned what to do.

Keep in mind that I started my career in 2014, still in the middle of a long bull market, and since then I’ve read everything I could get my hands on about finances, markets, and economics. I’ve listened to podcasts and watched YouTube videos.

A lot of the people that I learned from attributed their success to when they got started. Two gentlemen really stick out.

One began his career in 1987 and lost his shirt on Black Monday (20% decline in one day, October 1987). This taught him about diversification and the importance of a long-term strategy.

The other got started in the early 80s but had a much different experience. He did some research and analysis and found a lot of risk in the credit market. He stuck his neck out on this trade and what he predicted came to fruition.

However, the markets didn’t react how he thought. What he learned was that fundamentals are important, yes, but what [almost] matters more is investor behavior.

Market Fluctuations

In periods of heightened market volatility, I pretty much hold my ground. I help my clients plan accordingly and coach them about what to do when stocks fall.

We put together the parachute before we jump out of the plane, not on the way down. That’s where people get into trouble. That’s why asset allocation is so important.

When building a portfolio, it’s vital to take your age (time horizon) and risk tolerance into account.

What may even be more important is the investor’s behavior. They might have a long time horizon and be fairly tolerant of risk, but if they’re going to lose sleep over a 10% correction, you need to position their portfolio accordingly.

Because my clients and I plan ahead, generally, I don’t do anything and I advise them to sit tight. What you don’t want to do is sell out of fear. At that point, you have probably experienced enough of the decline that it doesn’t make sense.

Exceptions

That said, I did some broad selling during the month of March. There were two positions that I used specifically to serve as a shock absorber during declines, and those did not perform as I’d hoped. So I sold them.

I realized they weren’t doing what I wanted them to and I cut my losses. Good traders and investors have an incredibly short leash when it comes to limiting their losses.

Opportunities

Generally speaking, I’m not a stock picker. I’m an asset allocator. Stock picking is not an efficient use of my time. However, sometimes it’s necessary and market fluctuations often create opportunities.

There are two positions, in particular, that I’ve been buying over the last month or two. I found enough of a disconnect between the price and what I thought the value would be over the long term, that I slowly invested into these two positions.

By the way, this slow investing is called averaging in, or dollar-cost averaging. Ideally, you invest at lower and lower prices, reducing your overall cost basis. My method is to take advantage of that disconnect I mentioned, but also leave enough on the side in case it goes lower so I can buy more.

How to Plan

Planning for market fluctuations isn’t something you do when you think it’s coming, it should be part of your plan all along.

Age is a big factor when determining the time horizon. The other items to consider, as I mentioned, are goals, risk tolerance, and investor behavior.

As an advisor, you have to be acutely aware and familiar with your clients, their risk appetite, and their personality. Only then are you able to plan with them, then guide them during trying times.

That’s probably one of the biggest things I’ve taken away from these market fluctuations. I’ve received two phone calls. That tells me that I’ve trained them well. That I’ve done a good job planning with them and that they are comfortable with how their portfolios are positioned.

Audit Your Digital and Financial Life

April 22, 2020 by Jacob Sensiba Leave a Comment

There’s no better time to audit your financial and digital life than tax time.

Having these two things orderly and up to date not only helps you stay organized but also gives you an opportunity to review your progress.

Review your budget

First things first. Review your budget.

Have any line items changed? Have there been additions? Maybe you paid off a debt and that line item can be dropped off?

If that’s the case, you can adjust your debt repayment plan. Whatever money was going to that paid off debt, funnel it a different one. You can do that by using one of two strategies.

One, the debt avalanche, where your dollars go to the debt with the next highest interest rate. Two, the debt snowball, where you focus that money on the debt with the next lowest balance.

Increase savings rate

If it’s been a while since you adjusted your savings rate, now is the time to see if you can tolerate an increase. Bump up your salary reduction plan an additional 1%. If you’re saving $50 per month for emergencies or your kid’s college fund, can you do another $10?

Review investment portfolio allocation

Is your current portfolio allocation still suitable? Whether or not you rebalance can hinge on two things. One, did your risk tolerance or time horizon change enough to warrant an adjustment? Or two, did your investments perform so that you’re no longer where you started?

Asset allocation tends to get out of whack when stocks perform well. 2018 is a good example, where the S&P 500 index finished up over 20%. More than likely, some rebalancing took place at the beginning of 2019.

Related: Why Asset Allocation Matters

Tighten up your expenses

Sell items you no longer have use for. You get rid of some clutter and can make a little money in the process.

Review your subscription list and get rid of things you don’t need. With so many subscription-based offerings, it’s easy to keep saying yes until you’re shelling out too much money each month. Audit these subscriptions and get rid of the ones you don’t need.

Call your internet provider. It’s more costly to acquire a customer than it is to retain a new one so they should work with you a little.

Do the same thing with your credit card company. They want to collect on the debt you owe them, so if that means lowering your APR by a percentage point or two, they’re more willing to help you out.

Related Reading: Quick and Easy Ways To Save Money

Digital

As our devices become more and more embedded in our way of life, we accumulate various types of accounts. Email, social media, and the like; this leads to endless different amounts of information that can be used against you. Time to purge (not like the movie).

Destroy or recycle old devices – This will clear up space that can be better used by something else. Make sure you wipe the device before recycling it.
Change passwords – Complex passwords are vital in our data-driven society. Long passwords with numbers and special characters must be used to protect your data.
Remove old accounts. Social media, email, and apps that you no longer use can be deleted and removed. Make sure that you delete the data from those accounts before you remove them, however. Just in case the owners of the site/app/program use the data from those apps for their personal gain.
Make sure your devices are up to date – This is elementary data protection. Up to date devices have patches for bugs and possible holes in their system. Your operating system is your first line of defense.

Keeping your life organized and performing a regular review/audit is imperative, whether we’re talking about your digital or financial life.

Financial Stability and Marriage

March 18, 2020 by Jacob Sensiba Leave a Comment

Marriage and finances. A match made in hell. Why do these so often go together like oil and water? Why is money such a contentious topic in most households?

It’s because people go through life differently. Depending on how you were raised, what you learned, and what you personally experienced, your money philosophy will be different from that of your spouse.

Before we talk about that, however, I’d like to touch on financial stability and why the growing trend is being financially stable before committing to someone.

Financial Stability

It makes sense from a psychological perspective. Having financial stability makes you appear more mature and that you have your priorities straight. People who see that, probably see someone that’s ready for a commitment.

Additionally, getting married, and marriage in general, can be an expensive endeavor.

Obviously, it depends on the wedding you want, but the average price tag on a wedding nowadays is around $25,000 (source). Add onto that a honeymoon that could take you to another state, if not another country, and you’re spending a lot of money within the first month of being married.

What, historically, follows is a house and kids. Both, though worth every penny and minute, are expensive.

Because everyone has a different experience, and there are so many of them out there, I can’t go into detail about every one of them. Instead, I’ll speak generally about what they are trying to do.

Debt

People are trying to get out of or get a firm grasp on their debt. Whether it’s student loans, credit card debt, or medical bills, nobody wants to go into a committed relationship, let alone marriage, with a significant amount of debt.

Not only does debt hinder you from putting it towards future wants and needs, but when you get married, your debt becomes your spouse’s debt as well. You don’t want to burden them with that.

People want to be financially stable going into a marriage so they can afford the wants that often come with marriage, and they don’t want to be sacked with debt that brings down the family balance sheet.

Credit

Another piece of the financial puzzle that people try improving is their credit score. Your credit score plays a factor in almost every important life event. Where you live, where you work, and what you drive, your score could play a role.

Your financial philosophy is how you view money and how you use it.

Philosophy

Are you a saver or a spender? Do you view credit cards as a tool or a money sucker? When you do spend, do you prefer to buy stuff or experiences? Would you rather invest with the chance to earn more or put those dollars in a savings account for safekeeping?

As I mentioned before, your upbringing, what you’ve learned, and your personal experiences shaped the answers to these questions.

When you commit to a relationship, you’re going to have different answers. The key with any part of marriage, and money is no exception, are compromise and communication. You have to find some middle ground so each individual is getting their needs met, to an extent.

What you have to do is sit down with your significant other, dive deep into each other’s life experiences with regard to money, and what’s important to you, both now and in the future.

Once you have a good understanding of where you’re both coming from and what you want, you can work together to develop a plan, and once you have that plan, you can start executing

Financial Planning Basics: The Financial Pyramid

March 9, 2020 by Jacob Sensiba 1 Comment

The first time I heard about the financial pyramid, I was instantly intrigued. I had never thought about it in this concept before, but I unintentionally had been practicing this in my own life.

In finances you have to build the base before you can reach the top or it will all fall apart, hence the allegory of a pyramid.

The Base

The base of your financial pyramid should be a solid financial plan. This includes your written budget, short-term and long term goals, and how you will make your income as well as an investment plan to be implemented in the future.

You should have a positive cash flow, meaning, no longer using debt to fund your lifestyle.

Once you have implemented the base, you can move onto the first building block: protection.

Protection

You must protect yourself from the unimaginable, so I recommend everyone have a will and power of attorney, insurances such as life, health, auto, homeowner’s/renter’s, and disability, and a basic emergency fund of at least $1,000-$2,500.

I was thankful to have my mini-emergency fund when I had some car issues because I was able to pay cash to repair them instead of having to go into debt. The overall pyramid looks something like this:

The second building block is low-risk wealth accumulation. This would include saving for a home, retirement, and children’s college education, in addition to reducing consumer debt.

Debt Reduction

Financial guru Dave Ramsey teaches that you should get completely rid of any debt before beginning savings, although, in my opinion, you should still invest in retirement while reducing debt only if your employer offers a match.

I, myself, am in the debt reduction stage but still contribute to my retirement account since my employer offers up to a 4% match into my 401(k).

Additionally in this step, you should create your emergency savings fund. Many people believe an emergency fund of 3-6 months’ worth of expenses is adequate.

Investing

The third building block is high-risk wealth accumulation. This includes investing. Expanding on the second block, in this stage, you will max out your retirement accounts and then build a non-registered investment portfolio.

Once you have built your net worth to an amount sufficient to fund your lifestyle and retirement, you can move to the next stage of investing– speculation (also known as speculative investing.) In this stage, you invest money into investments such as start-up companies.

This is very risky, so you don’t want any debt by this stage. Also, you should only invest a small portion of your total investments into speculation. Also in this stage, you’ll want to begin tax planning, especially as your retirement investments increase.

Estate and Charity

The final building block is wealth distribution. You’ll gift and spend the money you have earned. As well as plan your estate for future generations or charity upon your death. Since your net worth increased quite a bit since you first started the financial planning pyramid, you should update your will and/or trust.

Finally, once you’ve got these basics nailed down, it’s time to hire some help. One approach a lot of millennials use is robo-advisors. A robo-advisor is a machine that uses various theories about portfolio allocation to make investing decisions. If you’re interested in a critical review of this, consider checking out Roboadvisorpros.com, they have a good article on the topic.

If you aren’t into trusting your cash to a computer, consider signing up with Personal Captial. They’ve pretty much become an industry leader among the newer financial planning firms.

If you’re’ going to use them, please use this link or click on the banner below. It will help keep the lights on here at The Free Financial Advisor.

For help getting your financial pyramid in order, check out these great articles.

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