Living paycheck to paycheck is stressful.
The concept brings to mind a tightrope walker wobbling on the high wire. Unfortunately, it’s a reality for many Americans. A USAA study last year revealed a third of our members are walking that tightrope. If this is you, we can help.
Whether you’re making $30,000 or $300,000, it’s easy to fall into the trap of living paycheck to paycheck. And the scary thing is you may not even realize it.
— Read on communities.usaa.com/t5/Family-Life/7-Signs-You-re-Walking-a-Financial-Tightrope/ba-p/201662
Author Archives: admin
Becoming a Better Investor
- The secret to great investing is patience. Take the time to study, to learn and to practice. There is no rush. Make a Wish List of liked companies and wait for them to go on sale.
- Best investors often do best during market panics, when investors dump shares in fear, or when there’s unusual volatility, such when stocks soar to unrealistic levels.
- Take advantage of the greed and fear of other investors. Investors can profit by avoiding panics, picking up stocks for cheap in sudden selloffs and keeping emotions in check, even during volatile markets.
- Human emotion inevitably causes the prices of assets — even worthwhile assets — to be transported to levels that are extreme and unsustainable: either vertiginous highs or overly pessimistic lows.
- Focus on a company’s actual earnings, revenues and cash flow, and do not succumb to rosy projections and predictions about the distant future. Ignore the sometimes-enticing stories spun by bankers, analysts and others, the kinds that have led to huge losses for even sophisticated investors in recent years on high-profile companies.
- Security prices should generally fluctuate not much more than earnings and revenues. The reasons they fluctuate more are largely psychological, emotional and non-fundamental. The truth is that financial facts and figures are only a starting point for market behavior; investor rationality is the exception, not the rule; and the market spends little of its time calmly weighing financial data and setting prices free of emotion.
- Pick your spots, and only invest in areas you have a competitive advantage, perhaps due to a unique industry expertise. For all their skill, the firm only profits on barely more than 50% of its trades, a sign of how challenging it is to try to beat the market.
- “It’s different this time” are four of the most dangerous words in the business world — especially when applied, as is often the case, to something that has reached what in prior times would have been called an extreme. People’s decisions have great influence on economic, business and market cycles. And people don’t make their decisions based on science, facts or fundamentals.
- There are more factors and variables influencing financial markets and individual investments than most realize or can deduce. Investors tend to focus on the most basic forces, such as earnings, interest rates or short-ratios, but there are dozens of factors, perhaps whole dimensions of them, that are missed.
- Cycle positioning is the process of deciding on the risk posture of your portfolio in response to your judgments regarding the principal cycles. It primarily consists of choosing between aggressiveness and defensiveness: increasing and decreasing exposure to market movements. The recipe for success consists of (a) thoughtful analysis of where the market stands in its cycle, (b) a resulting increase in aggressiveness or defensiveness, and (c) being proved right. These things can be summed up as “skill” or “alpha” at cycle positioning.
- Detecting and exploiting the extremes of market cycles is really the best anyone can hope for. Between the extremes of “rich” and “cheap” — when the cycle is in the middle ground of “fair” — the state of the relationship between price and value is, by definition, nowhere as clear-cut as at the extremes. If you frequently try to discern where we are in the cycle in the sense of “what’s going to happen tomorrow?” or “what’s in store for us next month?” you’re unlikely to find success. I describe such an effort as “trying to be cute.
- A backcast is an exercise where you imagine having reached a goal and then you work backward to figure out what happened to get you there. Backcasting is a more instinctive exercise. After all, we generally plan for success.
- A premortem imagines the opposite — failing to reach your goal — and asks “how did that happen?” Imaging failure, on the other hand, doesn’t feel good. But failing to do a premortem can ruin even well-thought-out strategies for long-term success. If we anticipate later actions that can undermine our plans, we can improve the likelihood of staying on course.
Failure is Important
“I’ve failed over and over and over again in my life and that is why I succeed.” Michael Jordan
The simple truth is – no great success was ever achieved without failure.
Thomas Watson Jr. said, “If you want to increase your success rate, double your failure rate.”
“Failure is so important. We speak about success all the time. It is the ability to resist failure or use failure that often leads to greater success. I’ve met people who don’t want to try for fear of failing.” J.K. Rowling
Choices: It’s the little choices in life that will bite you and could kill your potential and ability to succeed. Small, seemingly insignificant, choices…made all over a long period of time is the path to success.
- Make positive choices today and have faith that in the long term (10 to 15 years) it will have significant positive impact and lead to success.
- Know your destination and get back on track. Avoid drifting off course.
- Short term pleasure creates long term pain. Short term pain creates long term pleasure. Ignore immediate gratification. Often making the poor choice, you’re rewarded immediate. If you make the positive choice, you often get nothing.
- In life, you will suffer one of two things…either the pain of discipline or the pain of regret. The pain of discipline weighs ounces. The pain of regret weighs tons.
- What do successful people and unsuccessful people have in common, they both hate to do what it takes to be successful.
“The first thing to do about an obstacle is simply to stand up to it and not complain about it or whine under it but forthrightly attack it. Stand up to your obstacles and do something about them. You will find that they haven’t half the strength you think they have. Just stand up to it, that’s all, and don’t give way under it, and it will finally break. You will break it. Something has to break and it won’t be you, it will be the obstacle.” Andrew Carnegie
One Hundred Percent (100%) Responsible: Must be willing to take 100% responsibilities for our lives and relationships. And, we should expect zero percent (0%) in return. We’re responsible for:
- What We Do
- What We Don’t do
- How we Respond to What Happens to Us
When you change how you look at a situation, the situation changes. You are the lightning rod for change. You contribute to it and respond to it.
Behavior: Brain automate many processes. Must become aware of our behaviors. Dig your financial grave with your wallet. Write down every single penny that comes out of your pocket for thirty days. “Earn a lot of money and become worth a lot of money”.
- “If you want to have more, you have to become more. Success is a becoming process.” Brian Tracy
- Becoming Process: Become the person who is attractive and worthy.
- Why would you want to…know the Why.
- Start small and allow the accumulative compound effect of this new behavior to grow. Behavior repeated becomes habits.
Habits: Habits are repeated behaviors.
- Good habits are hard to develop and easy to lose. Bad habits are easy to create and hard to change.
- Changing a habit is like swimming against a strong current. Diet industry is the largest in history and we’re the most obese ever. Because, it takes will power.
- We need to have “Why” Power. Have a big enough reason why.
Massive Transformation Formula –
- What are your three big goals ( to make this the best year of your life yet)
- There are one or two key behaviors required to achieve the big three goals. Only one to three things that really matter.
- Keep Track of those key behaviors. Crucial to keep awareness to where you are. Avoid drift…the Great curse of human behavior.
Time: Give the Compound Effect time to show a difference. It is not how fast you start; it’s is how long you last. Consistency is the key. The tortoise will always defeat the hare.
Go Fail. Go fail big. Go fail often. Go fail fast. “The key to success is massive failure.” Thomas Watson. Jr.
- Life is Like a Pendulum. People want more joy, love, happiness and pleasure, and want to avoid pain, rejection, sadness and failure. But, the only side we can control is pain, rejection, sadness and failure. The pendulum will swing back in equilibrium to joy, love, happiness and pleasure.
- Must get outside my current boundaries and
- Have a love affair with failures and aggressively pursue failures.
- Only one thing holding you back…it’s fear. Must turn fear into fun. The biggest failures are always the biggest successes. You can accomplish any goal by out working and out lasting everyone else.
- Unyielding sense of resolve. I will do it or I will die. This is my mountain and I am not stopping.
The American Dream and Retirement Nightmare
Being able to build sufficient savings and income for retirement comes down to the lifestyle choices Americans make – or don’t make – today.
Americans attachment to pursuing the American Dream might be the primary reason why so many Americans have found planning and saving for retirement has become such a difficult challenge.
The American Dream includes things such as buying a big houses in the suburbs, sending kids to a prestigious college, owning multiple leased luxury vehicles in the garage, taking multiple week long destination vacations, and pursuing many other accoutrements of the prevailing American lifestyle.
This is the American Dream in a nutshell.
Popular advice espoused by financial pundits and retirement experts often worsen the problem of not being able to save what’s necessary for an emergency fund or retirement. Their recommendations to make more money, find a side gig, eliminate crushing credit card debt, save more of what you already make or, heaven forbid, cut expenditures, have not been effective.
Spending is the issue. Spending absolutely is the issue. However, small tweaks to spending don’t amount to much. Forging a mocha latte from Starbuck’s or packing one’s lunch do little to significantly alter the retirement calculation. Instead, you may need to completely rethink the spending habits, lifestyle and big-ticket material things that define what you’re doing in the big picture. Big sacrifices could have a much bigger impact on improving your retirement situation than giving up your daily latte.
It all comes down to an old adage. You can’t do the same things you’ve been doing (or only make smallish tweaks to them) and expect different results. If you’re worried about falling dangerously short in retirement, a significant lifestyle change might be what you need to get there.
Perceived short-term pain like foregoing the American Dream for long-term gain of a lifestyle of dignity in retirement.
Learn the Rules of Retirement and Then Play Better
“You have to learn the rules of the game. And then you have to play better than anyone else.”
To put it all in simple terms, there are two things that you must do. The first thing you must do is to learn the rules of the retirement. It doesn’t sound exciting, but it’s vital. Secondly, you must commit to plan, save and invest better than anyone else. If you can do these two things, success will be yours!
Source: How The American Dream Can Crush Your Retirement
https://seekingalpha.com/article/4308423-american-dream-can-crush-retirement?ifp=0
Why 30 Stocks Are Better Than 100 Or 500: How The Dow Beat The Nasdaq 1999-2019 – SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) | Seeking Alpha
Since its ETF’s launch in early 1999, the Nasdaq-100 actually underperformed the Dow Jones Industrial Average on a total return basis for most of 20 years, until last week.
Both the Dow and Nasdaq have outperformed the S&P 500 on a total return basis, leaving the Dow as the clear winner on a risk-adjusted basis.
Fundamentals point to the Nasdaq’s recent catch-up as a repeat of the late 1990s run-up, meaning the Dow is likely to outperform again over the next 20 years.
The Dow’s greatest advantage is its simplicity, and this should make it a leader in the trend towards direct indexing.
If I were to ask 80 investors under the age of 80 to describe the Dow Jones Industrial Average in one word, chances are the answers would include words like “narrow”, “outdated”, or even “irrelevant”.
I’m also sure a vast majority of that same sample of “young” investors would never have guessed that this old Dow index has actually outperformed the much more modern and sexy Nasdaq-100 Index on a total return basis over most of the past 20 years. In this article, I explain: the surprising past outperformance of the Dow over the Nasdaq, and advantages I believe will make the Dow a better starting point than Nasdaq or S&P for outperformance over the next 20 years.
— Read on seekingalpha.com/article/4310588-why-30-stocks-are-better-100-500-how-dow-beat-nasdaq-1999minus-2019
Medicare-for-All Plan
Public support for a single-payer system has grown, according to a survey from the Kaiser Family Foundation (KFF).
Currently, a slight majority of Americans say they favor a national health plan in which all citizens would get insurance from a single government plan, though the level of support has narrowed in recent months.
Overall, a majority of Democrats and about half of independent voters favor a national Medicare-for-all plan while most Republicans oppose. Overall, a majority of Americans support the general ideal of Medicare-for-all. Two-thirds (65%) of Americans say they support a government-run health plan that would compete with private insurance, often called a public option.
Medicare is the federal health insurance program created in 1965 for people ages 65 and over, regardless of income, medical history, or health status. The program was expanded in 1972 to cover certain people under age 65 who have a long-term disability. Today, Medicare plays a key role in providing health and financial security to 60 million older people and younger people with disabilities.
Medicare-for-all plan will require many employers and some individuals to pay more in taxes while eliminating both out-of-pocket costs and premiums for all Americans. And, the plan will increase taxes individuals will personally pay, but decrease their overall costs for health care.
KFF polling finds that Americans know little about how Medicare-for-all proposals would reshape the way all Americans get and pay for health care, and public support for Medicare-for-all shifts significantly when people hear arguments about potential tax increases or delays in medical tests and treatment.
Additionally, KFF polling shows many Americans falsely assume they would be able to keep their current employer provided private health insurance under a single-payer plan, suggesting another potential area for decreased support.
Medicare, in its current form, faces a number of critical issues and challenges, perhaps none greater than providing affordable, quality care to an aging population while keeping the program financially secure for future generations. Medicare is financed by general revenues (41% in 2017), payroll tax contributions (37%), beneficiary premiums (14%), and other sources.
Two-thirds (65%) say they support a government-run health plan that would compete with private insurance, often called a public option.
U.S. – China Deal is Imminent
China’s annual Economic Work Conference is likely to convene within the next two weeks, meaning a trade deal with the U.S. is “imminent,” according to ICBC Standard Bank Chief China Economist Jinny Yan.
www.cnbc.com/2019/11/27/icbc-us-china-deal-is-imminent-due-to-beijings-upcoming-policy-meeting.html
Cash Flow is King
Happiness is Cash Flow
Cash flow is about understanding where money originates, according to Brian Skrobonja, founder of wealth management firm Skrobonja Financial Group LLC. and originator of the Common Sense podcast . Further, Mr. Skrobonja states that cash flow is about strategically using money to not only live your life but to create more income sources for yourself. Essentially, when you put your focus on cash flow, it solves hundreds of other personal financial challenges, according to Mr. Skrobonja.
The confusing part about cash flow is that too few people understand what this really is. They believe that a monthly budget represents cash flow. It doesn’t. A budget is used to track expenses. It focuses on limiting expenses to stay within your means (income) in order to save money.
Cash flow is essentially the money that is moving in and out. Additionally, cash flow focuses on where your money needs to go to fulfill the long term goals that you have for your future. It allows you to direct money toward creating wealth and ultimately more income. It is a financial growth mindset. Thus, the cash flow between your current lifestyle desires and your future lifestyle requirements is the most important financial decision you can make.
The purpose of cash flow awareness is not simply to make ends meet, but rather to properly organize the flow of money, which allows you to create wealth and avoid debt.
When you think of your cash flow, break down your annual expenses into five groupings:
- Debt payments
- Tax payments
- Regular monthly expenses
- Savings and insurance transactions
- Irregular expenses throughout the year
Then list in chronological order the big-ticket items you plan to spend money on in chunks over the next five to 10 years. (This would include education, transportation, home improvements, etc.)
It is important to include the assets you plan to purchase or invest in to create more income on this list. Use debt to leverage investments by acquiring assets and grow cash flows. Do not use debt to buy things that make other people richer. These leveraged investments may be assets such as a business, rental property or some other income-producing asset you plan to acquire.
Don’t think about how you will pay for these big-ticket items, just list what they are, and then circle back later to work out the details.
Stable, reliable cash flow is the only true measure of personal financial success. Individuals cannot thrive financially, let alone feel financially secure, without positive cash flow. Cash flow is king in personal finance; cash flow should rule everything around your personal finances. Keep an eye on your cash coming in and your money going out. Keep in the forefront, cash flow provides an unvarnished glimpse into a person’s overall financial health.
Financial Literacy – A Critical Skill
What is financial literacy?
Financial literacy is about teaching Americans how to manage their personal finances and helping them understand money issues they’re likely to face in their lifetimes.
It is an important skillset missing in most Americans financial tool boxes and often become lessons that are improperly or painfully learned by trial and error.
Basically, financial literacy is about effectively managing one’s money. It is an essential personal skill that will benefit individuals throughout their lives – and it is not skill that everybody learns.
With money, such as wages, coming in and expenses going out, with due dates, finance charges and fees attached to invoices and bills, and with the overall responsibility of making the right decisions about major purchases and investments consistently, managing money can be challenging for most Americans.
Americans would think that because the financial stakes are so high and the skills of managing money are so essential that this would be a skill that gets taught in high school or even college. Unfortunately, personal finance is not taught in educational institutions at any level in the United States. It is not taught in K-12 education, undergraduate or even post graduate levels unless an individual is majoring in finance.
Financial literacy and managing money require a fundamental understanding of personal cash flow, net worth, debt, inflation, the purchasing power of money, and a willingness to embrace personal responsibility. That means paying bills in a timely manner, saving for emergencies and retirement, and avoiding excessive debt. It is important that individuals accept the fact that sometimes they have to sacrifice immediate demands and desires for long-term gain.
Countless stories exist regarding Americans being taken advantage of by bad actors, criminals and financial professionals pushing ill-suited products to unsuspecting individuals. Recently, a story was told how an unscrupulous stock broker convinced an unsuspecting individual, when he was younger, to invest their nest egg in a sure thing stock tip. Unfortunately, the only sure thing regarding the tip was that the unsuspecting victim would watch their nest egg shrink and ultimately disappear.
Personally, the author, as a young Naval Officer, fail victim to a well-meaning financial adviser selling high front loaded fee mutual funds to military officers. After a week of mulling over the thought of ten cents of every dollar invested would go to the adviser and the financial firm he represented, I overturned the decision to invest and pulled my capital from the company, minus the ten percent. Subsequently, I invested my hard earned capital in a no-load fund mutual fund. Fortunately, the financial lesson learned came at a reasonably small cost.
Thus, a key take away is that financial literacy is an essential skill for Americans; a skill that is not thought in our schools, but should be. And, financial literacy is critical for individuals if they desire to get their personal finances on track.
What follows are a few financial literacy tips that can help a person get started.
- Create a budget. The first step toward taking control of one’s financial life is to find out how much money one takes in and how much one spends.
- Pay yourself first. Consider automatically depositing a certain amount of wages into ones savings account each payday.
- Build an emergency fund. Set aside three to six months of savings in a bank account or money market account to cover unplanned expenses such as automobile repairs or medical bills. Avoid using credit cards.
- Eliminate credit card debt. Incidental purchases on credit add up. Paying only the minimum amount due each month on credit cards can result in finance charges that quickly make small purchases become very costly. If possible, pay the full balance every month or cut up your credit cards.
- Protect personal information. Take steps to reduce the risk of identity theft. Be skeptical and know whom your sharing your personal information; store personal information securely or dispose of by shredding. Maintain appropriate security on computers and other electronic devices. Check out the warning signs that someone might be using your personal information.
- Order credit report. Make sure the information is accurate, complete, and up-to-date. If errors are found, dispute them.
- Comparison shop for home mortgages. A mortgage is a product, just like a car, so the price and terms are negotiable. Compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating can save thousands of dollars.
Bottom line, to be financially literate means having the ability to not let money – or the lack of it – get in the way of one’s happiness as one works hard to build an American dream complete with financial security and a fulfilling retirement.
Net Worth and Measures of Financial Health
Source: MyMoney.gov
For many households, financial health is measured by income. While income is an important component of financial health, it is only part of the equation.
Some experts and academics believe that an individual’s net worth is a better measure of financial health than income. Net worth or wealth can determine if a family has the wherewithal to deal with a financial crisis, such as the loss of employment or long-term sickness. And it also allows for investments in a home, small business and higher education. In other words, a household with no wealth or negative net worth may not be financially healthy despite a high salary.
Photo by Pixabay on Pexels.com
The type of assets held by a household also affects its financial health, with illiquid assets and short-term liabilities a greater potential risk than liquid assets and long-term debt.
For many financial educators and households, assessing a household’s net worth is the start of the conversation. It allows financial advisers or households to create a financial plan that considers assets and liabilities which can lead to better financial health and outcome.
Net worth considerations would also provide policymakers with a more accurate picture of financial health to assess middle class economic security across different demographic populations.
There are other reasonable approaches to considering overall financial health or well-being. For example, the Center for Financial Services Innovation (CFSI) looks at four components (spending, saving, borrowing, and planning) and eight indicators of financial health as well as data that can be collected to make the financial health assessment. The data collected to measure the financial health for each component range from the difference between income and expenses (for spending) to the debt-to-income ratio (for borrowing) to the type and extent of insurance coverage (for planning).
The type of assets also matters for financial health. For example, CFSI distinguishes between liquid and illiquid assets by pointing out that liquid assets are “important for coping with an unexpected expense,” while [illiquid] long-term savings promote financial security.27
Financial well-being has been identified as a common outcome goal of financial education efforts.28 CFPB has developed a robust and validated scale to measure a person’s sense of financial well-being, which CFPB defines as the “state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life.”29 While this measure is subjective, a number of trackable and objective factors are strongly associated with a person’s level of financial well-being, most notably having liquid savings.
27. Parker, Sarah, Castillo, Nancy, Garon, Thea, and Levy, Rob,“Eight Ways to Measure Financial Health”,Center for Financial Services Innovation, May 2016, available at: https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2016/05/09212818/Consumer-FinHealth-Metrics-FINAL_May.pdf.
28. For example, see Financial Literacy and Education Commission, “Promoting Financial Success in the United States: National Strategy for Financial Literacy 2011”, available at: https://www.treasury.gov/resource-center/financial-education/Documents/NationalStrategyBook_12310%20(2).
29. “Financial Well-being: What it means and how to help”, Consumer Financial Protection Bureau, 2015, available at: https://www.consumerfinance.gov/ data-research/research-reports/financial-well-being/.