Category Archives: Building Wealth

Living with Purpose

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To live a life with purpose means to live with intent, direction and destiny.

“Living with purpose” means doing what truly matters to you in strict alignment with your values, beliefs and goals. Anthony L. Burrow, associate professor of Human Development at Cornell University says, “Purpose is a forward-looking directionality, an intention to do something in the world.”

When you’re in alignment with your purpose, life feels right. Things seem easy and right, and everything just seem work. You feel alive, passionate, and lit up from within. You aren’t concerned with how to get where you’re going; you’re sure of yourself, even if you’re uncertain at the same time.

The unknown is scary. We feel safe and comfortable with how things have always been. Uncertainty and fear are part of us and will always be there, but they can’t rule you unless you let them; so take action toward your purpose and goals anyway.

A purposeful and happy life consists of moving towards goals that synchronize with your values

To live with purpose, you must awake every morning with gratitude and focus intently on your overall goals, dreams and desires. It’s the ultimate key to success and personal achievement.

Do you have amazing, audacious goals and dreams for your life?

Finding purpose is about being be authentic. It is about finding what motivates you. And pushing and planning to be successful in that endeavor. And then follow that.

Maybe you live with the sole purpose of finding your one true passion, or to help others to learn and grow, or to seek out new adventures and travel the world. Whatever you’re looking for in life or what you’re passionate about is usually your purpose.

“The person who’s willing to give the most wins. The person who’s the most extreme wins. The person who refuses to lose wins.” Andre Norman

Determine the three to five things you live by now, for example:

  • I am a NYTimes best selling author,
  • I am a civic and community leader
  • I became a billionaire, and
  • I traveled and experienced the world.

Always remember, important keys to success and personal achievement are a definite of purpose and a burning desire.

Additionally, confidence and belief in yourself are key. Consciously decide that you know what’s best for you. Put your hand on your heart and tell yourself, “I trust my ability to make the best decisions for me.” Do this for every area of life that’s important to you.

It means that you become the golden eagle that soars and it means that you’re allowed to fly and spread your wings. Being a golden eagle means soaring and not settling.

Bottomline, “There is nothing that can’t be done if God is with you.”

A purposeful and happy life consist of moving towards goals that align with your values, beliefs and purpose.

“Every person has a longing to be significant; to make a contribution; to be a part of something noble and purposeful.” ~ John Maxwell

References:

  1. https://chopra.com/articles/first-steps-to-creating-a-life-of-purposehttps://chopra.com/articles/first-steps-to-creating-a-life-of-purpose
  2. https://www.entrepreneur.com/article/336600
  3. https://www.lifeadvancer.com/purpose-driven-life/
  4. https://crisp.co/podcast/episode-98-andre-norman/
  5. https://www.desire-and-belief.com/napoleon-hills-“six-ways-to-turn-desires-into-gold”/

Seven Common Characteristics of the Wealthy

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Accumulating wealth has little to do with an individual’s level of income.

Most of the truly wealthy in America don’t live in Beverly Hills or on New York City’s Park Avenue, instead, they live next door to you and the typical American.

In the bestselling book, The Millionaire Next Door, the authors, Dr. Thomas Stanley and Dr. William Danko, identified seven common characteristics that show up repeatedly among those who have accumulated wealth over the long-term.

If you want to build wealth and achieve financial freedom, it’s essential to study and embrace these seven common characteristics of the wealthy:

Characteristic #1: They live well below their means.

Frugality is the foundation of wealth building. Habits of frugality that are void of luxury-car purchases may not impress the neighbors, but they’re important traits to embrace to build wealth. The goal is financial independence and financial freedom, not the appearance of wealth.

Characteristic #2: They allocate their time, energy, and money efficiently, in ways conducive to building wealth.

The wealthy know how to budget their money, and they know how to budget their time. They anticipate and plan their incomes and expenses. They spend significant time researching their investments. They spend time examining ways to increase their unrealized income; i.e., tax-advantaged investment accounts.

Characteristic #3: They believe that financial independence is more important than displaying high social status.

It’s easier to appear wealthy than it is to be wealthy.

The wealthy understand that conspicuous consumption and high levels of “domestic overhead” carry a highly negative correlation with one’s true net worth. The wealthy aren’t interested in status vehicles or other showy products. After all, it is much easier to appear wealthy than it is to be wealthy.

Characteristic #4: Their parents did not provide economic outpatient care.

Statistics demonstrate that the more financial assistance an adult child of affluent parents receives, the less likely it is that that adult child will become wealthy.

Generally speaking, the more dollars adult children receive, the fewer they will accumulate.

These gifts — whether for down payments or for a grandchild’s private-school education − will, more often than not, simply generate higher levels of consumption. After all, it’s much easier to spend someone else’s money than your own.

Characteristic #5: Their adult children are economically self-sufficient.

Cash gifts from parents to their adult children result in dual outcomes:   They increase the children’s dependence upon the parents for continuing financial support, and they deplete the parents’ financial position.

The authors of Millionaire Next Door found that cash gifts from affluent parents to their adult children serve dual negative outcomes:

  • They increase the children’s dependence upon the parents for continuing financial support, and
  • They continuously deplete the parents’ financial position.

Characteristic #6: They are proficient in targeting market opportunities.

Finding specific niches and exploiting them is often the key to generating an above-average income. In a nation geared toward turbocharged levels of consumption, market opportunities are created constantly for those willing to supply new products or ideas.

Characteristic #7: They chose the right occupation.

The successful man or woman is a person who likes their work and who can’t wait to get up in the morning to get down to the workplace.

Wealth is generated through talent, desire, and discipline. There are four times as many millionaire entrepreneurs as there are millionaire employees.

There are too many people [employees] today working at jobs that they don’t like.

The successful man or woman is a person who works at a job, who likes their work and who can’t wait to get up in the morning to get down to the workplace. They can’t wait to rise up from bed and get down to their workplace and get the job underway.

Each “characteristic” played an integral part in the means by which these people achieved their enviable financial positions and became The Millionaire Next Door”.

References:

  1. https://themillionairenextdoor.com/publications/the-millionaire-next-door/
  2. https://themillionairenextdoor.com/2011/08/factor-7-a-key-characteristic-of-the-millionaire-next-door/
  3. https://www.mdmproofing.com/iym/7factors.php

Price to Earnings (P/E) Ratio

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Price is what you pay. Value is what you get.

The price-to-earnings ratio, or P/E ratio, helps investors compare the price of a company’s stock to the earnings the company generates. The P/E ratio helps investors determine whether a stock is overvalued or undervalued.

By comparing the P/E ratios companies in the same industry, investors can determine which companies are relatively under or over valued in comparison to their industrial peers.

The P/E ratio is derived by dividing the market price of a stock by the stock’s earnings.

The market price of a stock tells you how much people are willing to pay to own the shares, but the P/E ratio tells you whether the price accurately reflects the company’s earnings potential, or it’s value over time.

If the P/E ratio is much higher than comparable companies, investors may end up paying more for every dollar of earnings.

The typical value investor search for companies with lower than average P/E ratios with the expectation that either the earnings will increase or the valuation will increase, which will cause the stock price to rise.

On occasion, a high P/E ratio can indicate the market is pricing in greater growth that’s expected in the future years.

A negative P/E ratio shows that a company has not reported profits, something that is not uncommon for new, early stage companies or companies undergoing financial perturbations.

Current stock price may be important in choosing a stock, but it shouldn’t be the only factor. A low market stock price does not necessarily correlate to a undervalued or cheap stock.

The P/E ratio is a key tool to help you compare the valuations of individual stocks or entire stock indexes, such as the S&P 500.

References:

  1. Rajcevic, Eddie, Greenbacks & Green Energy, Luckbox, May 2022, pg. 58.
  2. https://www.forbes.com/advisor/investing/what-is-pe-price-earnings-ratio/

Home Buyers Cancelling Contracts

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Home buyers are increasingly canceling home purchase contracts citing a slowing housing market, and rising mortgage rates as biggest factors

Approximately 60,000 home purchase agreements were canceled last month by homebuyers, about 14.9 percent of homes that went under contract that month, according to a report from Redfin.

The cancellation rate is the highest percentage since Redfin began collecting the data in 2017, excluding March and April 2020, the first two months of the pandemic.

The percentage of canceled contracts compared to homes put under contract is up from 12.7 percent in May and up from 11.2 percent year-over-year.

Prospective homebuyers are canceling contracts for two primary reasons:

  • Some are exercising contingency clauses, which were waived by many buyers to increase their offer’s chances of being accepted when the market was hotter.
  • Others are backing out because of rising mortgage rate. In mid-June, the average 30-year fixed-rate loan flew past 6 percent, significantly higher than it was at the beginning of the year, when it was at an average of 3.22 percent.

Housing prices are still rising but less than they were, and signed contracts indicate the number of sales will drop in the coming months.

The housing market has cooled in recent weeks as the Federal Reserve has boosted interest rates in an effort to quell four decade high consumer price index (CPI) inflation. That has given house hunters more freedom to seek concessions from home sellers, but higher rates also make housing less affordable for average Americans.

References:

  1. https://therealdeal.com/2022/07/11/deal-or-no-deal-home-buyers-increasingly-canceling-contracts/amp/
  2. https://www.redfin.com/news/home-purchases-fall-through-2022/

Simple Smart Wealth Building Moves

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By Brett Arends, Wall Street Journal, Feb. 7, 2015

Smart wealth building moves aren’t complicated or complex. They’re simple.

Cut through all the financial noise, jargon and pontificating and technical stuff, and everything you really need to know about wealth building and personal finance fits into less than 1,000 words—no more than three to four minutes of reading.

Ignore economic and financial forecasts. Their purpose is to keep forecasters employed and enriched. Most professional economists were blindsided in 2008 by the biggest financial collapse in 70 years and by the 2022 market collapse—and by the stock market’s recovered in 2009 and will recover after the 2022 collapse.

Ignore “expert” stock picks. The stocks that Wall Street experts like most generally fare no better than those they like least—or stocks picked at random.

Keep it simple. Complicated financial strategies and investments are mostly designed to enrich managers and salesmen. A simple, diversified portfolio of low-cost index funds, rebalanced yearly, will do just fine—if not better.

Buy individual stocks only as a gamble. Never buy fashionable investments.

Put most of your long-term portfolio into equities. While equities are volatile, they generally produce the best long-term returns—typically about 4% to 5% a year above inflation. But remember to hang on when they plummet.

Invest globally, not just in the U.S. Foreign stock markets, in the aggregate, are no riskier than U.S. markets and offer terrific diversification.

Buy Treasurys, too: In addition to stocks, own some long-term Treasury bonds and some Treasury inflation-protected securities. These are likely to hold their value, or even go up, when stocks crash.

Never buy a lottery ticket. The lottery runs a profit, which means the players run a loss. And a study once found that the people who won ended up no happier than those who lost.

Know thyself. Don’t pursue complex financial or tax strategies if you’re not a details person. Cut up your credit cards if you’re a shopaholic. Invest more conservatively if you’re apt to panic in a crisis.

Buy high-deductible home and car insurance. It’ll save you money. Insurance is necessary, but is generally expensive.

Protect yourself from disaster. Have disability insurance, either through work or directly. Buy term life insurance to cover dependents if you fall under a bus.

Save early, save often. Time and patience are the investor’s best friends. Invest a dollar for 10 years at 4% and you’ll have $1.50. Invest it for 40 years and you’ll have nearly $5.

Use those free tax shelters. Contribute as much as possible to your company’s 401(k) plan or equivalent (such as 403(b) or 457), and at least enough to get the company match. If you can, contribute to individual retirement accounts for yourself, and a nonworking spouse, as well.

Make the most of what you have. Don’t pin too much hope on the next pay raise or stock windfall. The more we have, the more we want. Psychologists call this the “hedonic treadmill.” The only way to have enough is to master the art of being satisfied…to have an attitude of gratitude.

Plan for a long life. A third of your adult life could come after you’re 65. Try to pay off your mortgage, and save at least 10 times your annual salary, by the time you retire. Delay taking Social Security for as long as you can up to the age of 70, to maximize each monthly check.

Don’t carry a balance from month to month unless you are planning to default and file for bankruptcy. Card interest rates are extremely high—partially to account for the borrowers who will default. Make paying off that debt your overriding priority.

Cut the waste. There’s fat in every middle-class budget. Most cellular bills are too high. Most cable bills are too high. Most people waste too much money on their cars. Few habits bust the budget more than eating out regularly.

Beware of buying your employer’s stock. Your job there is probably financial exposure enough.

Tune out advertising and other noise. If you consider it all to be a pack of cynical lies designed to steal your money, that’s about right.

Don’t spend money showing off. Designer brands and “luxury” labels are created to overcharge the desperately insecure. They’ll mark you out as nouveau riche. Old-money families keep it down low.

Protect your nest egg. Don’t drain your retirement savings to pay for your child’s college education. Likewise, don’t empty your 401(k) or IRAs to start a business. You will be taxed and penalized on the withdrawals even if you lose the money. And so long as the money remains in those shelters, it’s protected from creditors.

Teach your children about money. Teach them early and often. No one else will, and they will have to make their own way.

Value your money. Work out how much you take home, after-tax, for each hour you work. And remember that number—especially when you shop.

Share and give a portion of your blessings back. Finally, if you think giving to charities and good causes is the lowest-priority item in your entire budget each year, re-examine the budget.

Source: Brett Arends, Wall Street Journal

Social Security Payment Increase

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Social Security Administration warned that Americans will stop receiving their full Social Security benefits in roughly 13 years without actions to shore up the program.

Seniors and other Social Security recipients, as all Americans, are being clobbered by four decades high inflation, which has outpaced increases in Social Security benefits this year.

Historically, Social Security recipients receive one cost-of-living adjustment, or COLA, each year, which is based on inflation and is supposed to keep their benefits in line with rising prices.

But this year, beneficiaries are seeing their purchasing power erode as inflation overtakes their latest COLA increase of 5.9%. Inflation in May rose 8.6% from a year ago, a four-decade high that pushed up the cost of food, shelter, transportation and energy.

Congressional lawmakers have proposed a new bill, The Social Security Expansion Act, which will boost Social Security payments by $2,400 per recipient annually, while also shoring up the program financially. 

The new bill would seek to lessen the strain on people collecting Social Security by boosting each recipient’s monthly check by $200 — an annual increase of $2,400. 

“With half of older Americans having no retirement savings, and millions living in poverty, it’s far past time to address the future of Social Security,” Rep. Steve Cohen, D.-Tennessee.

Anyone who is a current Social Security recipient or who will turn 62 in 2023 — the earliest age at which an individual can claim Social Security — would receive an extra $200 per monthly check. 

Anyone who is a current Social Security recipient or who will turn 62 in 2023 — the earliest age at which an individual can claim Social Security — would receive an extra $200 per monthly check. 

The bill would increase the Social Security payroll tax on higher-income workers.

Currently, workers pay the Social Security tax on their first $147,000 of earnings. Higher-income workers who make more than $147,000 annually don’t pay the Social Security tax on any earnings above that level. 

Under the bill, the payroll tax would kick in again for people earning above $250,000. Only the top 7% of earners would see their taxes go up as a result.

References:

  1. Aimee Picchi, “Social Security bill would give seniors an extra $2,400 a year. Here’s how it would work”, MoneyWatch, June 16, 2022, https://www.cbsnews.com/news/social-security-benefits-inflation-extra-2400-a-year-social-security-expansion-act-retirement/

Grant Sabatier: The 7 Levels of Financial Freedom

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“It’s important to view money not as something that allows you to buy things, but view it as a means of giving you more choices in how you want to live.”

Grant Sabatier, the author of “Financial Freedom”, views money not as something that allows you to buy things, but as a means of giving you more choices in how you want to live. “With every dollar you save, you give yourself more freedom and options in life,” he said. “Based on how much you have saved and invested, ask yourself, ‘How many months of freedom have you acquired?’”

Sabatier’s 7 levels of financial freedom

Level 1: Clarity

The first step is taking stock of your financial situation — how much money you have, how much you owe, and what your goals are. “You can’t get to where you want to go without knowing where you’re starting from,” Sabatier says.

Level 2: Self-Sufficiency

Next, you’ll want to be standing on your own two feet, financially speaking. This means earning enough to cover your expenses without any outside help, such as contributions from Mom and Dad.

At this level, Sabatier notes, you may be living paycheck-to-paycheck or taking on loans to make ends meet.

Level 3: Breathing room

People at Level 3 have money left over after living expenses that they can put toward goals such as building an emergency fund and investing for retirement.

Escaping Level 2 means giving yourself some financial leeway, which Sabatier notes doesn’t necessarily mean making a much bigger salary. Indeed, 31% of working Americans making over $100,000 live paycheck-to-paycheck, according to MagnifyMoney.

“Just because you make a lot of money doesn’t mean you’re actually saving that money,” Sabatier says. “Most people in this country live through debt.”

Level 4: Stability

Those who reach Level 4 have paid down high interest rate debt, such as credit card debt, and have stashed away six months’ worth of living expenses in an emergency fund. Building up emergency savings helps ensure that your finances won’t be thrown off track by unexpected circumstances.

“At this level, you’re not worried if you lose your job or if you have to move to a different city,” Sabatier says.

When calculating how much you’d need to have saved, thinking about what your financial picture might look like understand exigent circumstances, rather then your regular, everyday expenses, financial experts say.

“If you have a job loss, you’d make some changes. You’d probably cut your gym membership and get rid of your subscriptions, for instance,” Christine Benz, director of personal finance and retirement planning at Morningstar, told Grow. “Think about the bare minimum you’d need to get by.”

Level 5: Flexibility

People at Level 5 have at least two years’ worth of living expenses saved. With those kinds of savings, Sabatier suggests, you have the ability to think about your money terms of the time it can buy you: “You could take a year off from your job if you wanted to.”

You needn’t carry all of this money in cash, Sabatier notes: It could be a sum total from your savings and investment accounts. As long as you’re able to access that money somehow, if you need it, you have the flexibility to untether yourself, at least temporarily, from the workforce.

Level 6: Financial Independence

People who have achieved financial independence can live solely off the income generated from their investments, according to Sabatier’s framework.

“You generally have one of two things,” says Sabatier. “You either have a large pile of money in an investment portfolio that’s generating interest, or you have rental properties, and cashflow from the rent covers your living expenses, or a hybrid of the two.”

To get here, you’ll have to invest a high percentage of your income, which could require you to shift to a more modest lifestyle to drastically lower your cost of living. Pursuing this lifestyle requires a change in thinking away from the traditional paradigms of personal finance, Sabatier says.

“People are being taught to save 5%, 10%, 15% of their income, and maybe you’ll be able to retire when you’re 65,” he says. “Thankfully, more young people are starting to understand that if I aggressively save and invest, I can work less and have more control over my future and my destiny.”

Level 7: Abundant Wealth

Financially independent folks who live off their portfolio income rely on the “4% rule” — a retirement rule of thumb that posits that an investor can safely withdraw 4%, adjusted for inflation, from a balanced portfolio of stocks and bonds each year, and be relatively certain that the money will continue to grow and won’t run out.

Although economists debate whether 4% is the optimal number (some more conservative observers think the right figure might be closer to 3.3%), the calculation behind it serves as the basis for establishing a FIRE number — the amount of money you’d need to retire and earn an annual income you could comfortably live on.

While those in Level 6 need to monitor swings in their portfolio to make sure their retirement is still going according to plan, those in Level 7 have no such worries. “Level 7 is abundant wealth — having more money than you’ll ever need,” Sabatier says. “You don’t have to worry about money, and it’s not essential to your day-to-day existence.”

References:

  1. https://grow.acorns.com/self-made-millionaire-grant-sabatier-levels-of-financial-freedom/
  2. https://www.cnbc.com/2022/05/10/the-7-levels-of-financial-freedom-according-to-a-millionaire-50percent-of-us-workers-are-at-level-2.html

Ten Critical Investing Lessons

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Investing in assets is a great way to grow your money or to put your capital to work.

If there’s any lessons investors relearned in 2022, when investing in stocks, bonds, derivatives and real estate, it’s that the markets will be unpredictable, defy logic and offer unexpected surprises.

Sometimes investors can correctly anticipate what’s coming based on our past investing experience and macro economic information. Other times, investors are reminded no matter what they thought they knew, the market always knows better.

For these reasons, it’s important to remember you can always become a better, more patient and disciplined investor, whether you’re learning lessons the hard way, reminded of lessons you previously learned, but forgot, or learning from the good or bad experiences of others.

Here are 10 Critical investing lessons you wish you could teach your younger, novice self:

1) Personal finances first – Master and manage your personal finances first and foremost. Dealing with volatility is never easy, but it’s so much easier when your personal finances are rock-solid (no bad or debilitating debt, positive cash flow and net worth, emergency fund established). Know and strengthen your personal balance and cash flow statements. And, always have some cash on hand to take advantage of market dips and pullbacks.

2) Expect to be wrong often when investing – You’re going to be wrong when investing. You’re going to be wrong a lot. Your goal isn’t to bat 1.000 (that’s impossible). Your goal is to increase your odds of success. Even the best investors are wrong approximately 2 out of 5 times.

3) Sell slow – Don’t be in a rush to sell – It’s tempting to book a profit quickly or sell when you get scared. One investor sold MSFT at $24. Current price: $268. Selling a mega-winner early is the most expensive investing mistake you can or will make. And, don’t forget about taxes when you earn income or sell assets. Any income (or profit) you earn from selling assets is taxable. Before you sell any appreciated asset or take any income, make sure you have enough money for the taxes so that your gains will not be wiped out by taxes alone.

4) Watch the business – Watch the business, not the stock. The two are not linked at all in the short-term. But are 100% linked in the long-term. Always remember, you’re buying a piece of a business, do understand the business and how that business generates cash flow.

5) Buy quality – Capital is precious. Making money and putting money to work for you are hard. Saving it and growing it are harder. Buy the highest-quality investments you can find. Avoid everything else. When you focus on buying quality, opportunities can be found in any market whether it be up (bull) or down (bear). Thus, stick to your long-term plan of buying quality companies every month and forget about how everybody else is performing.

6) Add to winners, not losers – Add more capital to your winners, not your losers. “Winners” means the business is executing. “Losers” means the business isn’t. Add to the best companies you can find at better and better value points.

7) Patience above all – Your biggest edge and investing super power is patience. Don’t waste it. Compounding over the long term is the greatest power of investing. Your holding period for an investment asset should be measured is in decades, not days.

8) Do nothing is usually correct – “Do nothing” (being a long term investor) sounds easy, until you start investing your capital. Investing should be more like watching paint dry than a Las Vegas casino. More often than not, it’s the correct thing to do. Ninety-nine percent of good investing is doing nothing. It’s essential to ignore the noise and the hysteria of Mr. Market. Never Let Short-Term Volatility Dictate Your Long-Term Investment Decisions.

9) Learn valuation – Know what valuation metrics matter and when they matter. P/E Ratio is great, but it’s not universally applicable, and it only works when a company is in mature (stage 4). Consider ROIC, P/FCF, and P/Sales. Remember: Every investment is the present value of all future cash flow.

10) Network with others – Connect with other trusted long-term investors and experts. A good community is worth its weight in gold. Especially when bear markets appear.

Final thought: Have a plan – A financial plan is paramount to your financial success. During periods of volatility, you often hear that investors should “stay the course”, but there is not a course to stay without having a comprehensive financial plan.

The plan should be based upon your goals, values, purpose and dreams for the future, short and long term. It is a roadmap for your financial future and it should provide a guide for how you invest. The plan should also address other areas such as retirement planning, estate planning, risk management, asset allocation review, and cash flow planning.

In all things, be grateful! Appreciate and be grateful for all aspects for your current life and the abundance of opportunities. Gratitude influences your state of mind, your behavior, your relationships and your perspective on the world.

Roman philosopher Cicero said that, “Gratitude is not only the greatest of the virtues but the parent of all the others.”

Source: Brian Feroldi, 10 Critical Investing Lessons, Twitter, June 25, 2022.

Older Americans Have Not Saved for Retirement

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Nearly one-third of older Americans have less than $10,000 saved for retirement.

Almost three in 10 older Americans between 55 and 67 years old have less than $10,000 saved for retirement, according to a new survey from Sagewell Financial, a banking and financial technology company focused on seniors’ money management.

Whereas, four in 10 older Americans had less than $50,000 saved for retirement. 

Paying for retirement by older Americans

The Sagewell Senior Certainty Survey of older Americans revealed:

  • 27% have less than $10K saved for retirement, and 40% have less than $50K
  • 57% are concerned that they will run out of money
  • 82% do not feel confident about their access to cash or liquidity in retirement
  • 73% said they welcome some income smoothing (receiving consistent income in the form of 1 or 2 consolidated monthly checks.)

“It is disheartening to learn that more than a quarter of Baby Boomers have less than $10K saved for retirement – that number jumps to 32% among women,” said Sam Zimmerman, co-founder and CEO of Sagewell. “Nearly 60% of seniors expect to live on less than $3K a month in retirement. We are at a crisis point now, and it will worsen unless we take drastic steps to improve the way our seniors plan for and live in retirement.”

Inflation and Recession

Older Americans are being hit hard by soaring inflation, painfully high gas prices, and fear of a looming recession which has outpaced increases in their benefits this year. These challenges have many older Americans worrying about their financial security and future. 

“If you have inflation and a recession combined together, it’s a whole different beast,” said Zimmerman. “This is a time for action. The quicker you move, the more agency you have in reducing the impact of a recession.”

Given the darkening forecast, it’s not too soon to plan ahead and prepare for a possible recession.

First, don’t do this

While there are money moves you can take to help ride out a downturn, that generally shouldn’t include bailing out of the stock market.  

“The worst thing people can do is they get nervous and pull money out the market,” said Jordan Rippy, a personal finance expert and accounting professor at Johns Hopkins Carey Business School. “Most people should be invested in the market for the long term.” 

Cut your budget

Instead, look for ways to trim your monthly budget. That can mean culling things like subscriptions and streaming services, while also negotiating discounts on your cable, cell phone and other bills. 

Pay off your debt 

It’s expensive to carry debt in an inflationary environment. In particular, you want to pay off credit card debt — or any kind of debt with a variable interest rate — right away. That’s because those interest rates will rise and add more debt. 

Keep contributing to your 401(k)

Do not press pause on saving for retirement. Indeed, if possible keep stashing the same fixed percentage of your income in your 401(k) or other retirement savings plan. Even if the market is volatile your assets will grow over time if you don’t try to time the market. 

This approach, known as dollar-cost averaging, ensures that people look past the usual dizzying swings in the stock market and keep building their nest egg.

Create new revenue streams

Try to diversify your income sources so that if your company downsizes and you lose your job, you’ll still have money coming in.

The Sagewell Senior Certainty Index is an online, random sample survey of 1,004 Americans between 55 – 67 who are approaching retirement or recently retired. The survey was conducted to gauge how seniors, particularly those who are online, view the certainty of their retirement planning. 

References:

  1. Jeff H, (June 21, 2022), Sagewell Senior Certainty Index, https://www.msn.com/en-us/money/retirement/nearly-one-third-of-older-americans-have-less-than-2410000-saved-for-retirement/ar-AAYHJVK
  2. https://www.sagewellfinancial.com/sagewell-senior-certainty-index-june-2022/
  3. https://www.cbsnews.com/news/inflation-recession-saving-money-tips-gas-how-to-prepare-financially/

Start Early to Build Wealth

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The single most important thing you can do to build wealth is to start early. Getting started is more important than becoming a financial expert and the easiest way to manage your money is to take one small step at a time.

You, like most people, do not need a financial adviser to help you build wealth. Instead, you need to set up accounts at financial institutions, such as Fideltiy or Vanguard, automate the day-to-day money management (including bills, savings, investing and paying off debt). And, you need to know a few things to invest in, and then be patient and wait thirty years for your money to grow.

But, that’s not cool or exciting. Instead of listening to the noise of the financial entertainment media, instead you want your money to go where you want it to go in accordance with your goals and values. You want your money to grow automatically, in accounts that don’t nickel-and-dime you with excessive expenses and fees.

It’s essential to start today to learn about building wealth and take small steps to save, invest and manage your money. You don’t have to be a genius or financial expert to build wealth. Successful wealth building takes time, discipline and patience.

What do I want to do with my life–and how can I use my wealth to do it!

Investing early is the best thing you can do; ‘doing nothing’ ranks right up there with trying to drive a car without tires; it’s a bad idea and it won’t get you anywhere.

The single most important thing you can do to build wealth is to start early.

Here’s a great example of why investing early matters, that puts it in numbers:

  • If you invest $5,000 every year (which is $417/month) for 10 years, from age 25 to age 35 and then never invest again, you’d still have more money at retirement, than someone who starts at age 35 and invests $5,000 every year until they retire.
  • The 25 year old starter invests $55,000 and ends up with $615,000 (given an 8% annual return, which is close to the average return of the stock market per year). The 35 year old invests $130,000 and ends up with $431,000.

So, remember the adage “The best time to start building wealth is twenty years ago. The second best time is today.” You can save and invest modest amounts, like $20 a monty, and over time realize thousands of dollars in gains.

There are a lot of societal problems, but it’s important to focus on what you can control. Don’t be a passenger in life. It’s a lot more fun to be a captain of your own ship, even if you go off course a few dozen times. Building wealth does require some work. But, the benefits and rewards will surpass the effort.

Take a long term view. The economy grows and contracts in cycles ( business cycle). Fear is no excuse to do nothing with your money. You cam automate your saving and investing, thus you can continue to save and invest whiles others respond to emotions of fear.

Investing for average stock market returns (8% to 9%) is great since most retail and so call smart money fail to beat the average returns of the stock market. Moreover, theses investors tend to do the things that guarantee their failure: trade frequently, make outlandish investments, incur high taxes and pay unnecessary fees. The single most important factor to building wealth is getting started.

The challenges and opportunities with building wealth, and the corresponding solution, are you. Your mindset, behaviors and actions are the number one problem.

  1. You’re the only one responsible for your financial problems.
  2. Know how much money you have coming in and then automatically direct it where you want it to end up.
  3. It’s essential to start early and to start investing today, even if it’s just $1.

References:

  1. https://fourminutebooks.com/i-will-teach-you-to-be-rich-summary/