Knowing Your Why: Financial Freedom

Posted on October 19, 2021 by admin

WHY is the purpose, the cause, or the belief that drives every organization and every person’s individual career.

“Knowing Your Why” is the single most important thing you can do to energize your journey towards being a better you and to achieve a better financial future for you and your family. Why is all about your purpose. Why do you get out of bed in the morning? And why should anyone care?

Simon Sinek, author of the book Find Your Why: A Practical Guide for Finding Purpose for You and Your Team, writes that it is only when you understand your “why” (or your purpose) that you’ll be more capable of pursuing the things that give you fulfillment. It will serve as your point of reference for all your actions and decisions from this moment on, allowing you to measure your progress and know when you have met your life and financial goals.

When you’ve identified your life’s purpose, it’s easier to focus on what truly matters. To stay focused on your goals, they must be important to you. Your subconscious can try to trick you into believing that you want one thing, when in reality these things do very little to help you live out your purpose.

Understanding why you’re doing what you’re doing is the single most important question you can ask with respect to your life and financial well-being. Failure to ask and answer that question can be the single greatest oversight you can make when it comes to saving and investing. Those who do have a strong sense of why they are investing are more successful financially.

Understanding why you’re doing what you’re doing in the first place is critical. Your why serves as your compass to stay on course or your North Star in the often hectic day-to-day grind that can derail you from reaching your goals. It’s so easy to get caught up in the minutiae of chasing fads, hot stocks or following the investing herd that you forget what you’re trying to really accomplish in the first place.

Saving and investing with a purpose

Saving and investing without a purpose will leave you filling empty. Saving and investing should be a means to an end…financial freedom . If money is the end, it will likely create more problems than it solves. Thus, knowing your why for saving and investing is an essential first step.

But, what is financial freedom? Financial freedom is about much more than just having money, writes Robert Kiyosaki. It’s the freedom to be who you really are and do what you really want in life. It’s about following your passion, making choices that aren’t influenced by your bank account, and living life on your terms.

Beyond serving to tell you what financial goals you should be pursuing in the first place, knowing why you’re saving for the future, and investing to grow your money and to build wealth serves two important purposes:

It motivates you, and
It orients you.

To find your personal “Why” in life, you really have to dig deep down into your conscious mind. You must ask yourself several pertinent questions such as:

Why do I work every day?
What do I value most?
What do I want to do with my life?
What is my purpose and goals in life?
Why do I want to have a positive influence in my community and on the world?

“He who has a why can endure any how.” Frederick Nietzsche

Sinek and his team provide a simple format to use to draft your WHY Statement:

“TO ____ SO THAT ____.”

The first blank represents your contribution — the contribution you make to the lives others through your WHY. And the second blank represents the impact of your contribution.

“You can only become truly accomplished at something you love. Don’t make money your goal. Instead pursue the things you love doing, and then do them so well that people can’t take their eyes off of you.” Maya Angelou

The key to harnessing your passion and to live a life of contentment is understanding your “why.” Why are you passionate about saving for the future and investing to grow your money and building wealth? Is it because you desire financial freedom and have a new lease on life?

What if we awoke every single day knowing your why? For no better reason than to be better than yourself and to achieve financial freedom in order to leave our family and our community in a better condition than we found it?

References:

General Colin Powell’s 13 Rules

Posted on October 18, 2021 by admin

General Colin Luther Powell (April 5, 1937 – October 18, 2021), the first African American Secretary of State, died at the age of 84. General Powell was a retired four-star Army general who served as National Security Advisor, Chairman of the Joint Chiefs of Staff, before becoming Secretary of State.

General Powell’s 13 Rules are listed below. They are full of emotional intelligence and wisdom for any leader.

It Ain’t as Bad as You Think! It Will Look Better in the Morning. Leaving the office at night with a winning attitude affects more than you alone; it conveys that attitude to your followers.
Get Mad Then Get Over It. Instead of letting anger destroy you, use it to make constructive change.
Avoid Having Your Ego so Close to your Position that When Your Position Falls, Your Ego Goes With It. Keep your ego in check, and know that you can lead from wherever you are.
It Can be Done. Leaders make things happen. If one approach doesn’t work, find another.
Be Careful What You Choose. You May Get It. Your team will have to live with your choices, so don’t rush.
Don’t Let Adverse Facts Stand in the Way of a Good Decision. Superb leadership is often a matter of superb instinct. When faced with a tough decision, use the time available to gather information that will inform your instinct.
You Can’t Make Someone Else’s Choices. You Shouldn’t Let Someone Else Make Yours. While good leaders listen and consider all perspectives, they ultimately make their own decisions. Accept your good decisions. Learn from your mistakes.
Check Small Things. Followers live in the world of small things. Find ways to get visibility into that world.
Share Credit. People need recognition and a sense of worth as much as they need food and water.
Remain calm. Be kind. Few people make sound or sustainable decisions in an atmosphere of chaos. Establish a calm zone while maintaining a sense of urgency.
Have a Vision. Be Demanding. Followers need to know where their leaders are taking them and for what purpose. To achieve the purpose, set demanding standards and make sure they are met.
Don’t take counsel of your fears or naysayers. Successful organizations are not built by cowards or cynics.
Perpetual optimism is a force multiplier. If you believe and have prepared your followers, your followers will believe.

General Colin Powell’s rules are short but powerful. Use them as a reminder to manage your emotions, model the behavior you want from others, and lead your team through adversity.

References:

https://executiveexcellence.com/13-rules-leadership-colin-powell/

Tax Avoidance vs. Tax Evasion

Posted on October 18, 2021 by admin

“The avoidance of taxes is the only intellectual pursuit that carries any reward.” John Maynard Keynes

There’s nothing wrong with you wanting to pay less in federal, state and local taxes. Where you can run afoul of tax regulations is how you go about decreasing your tax obligation. There are legitimate tax avoidance steps you can take to maximize your after-tax income. But, failing to pay or deliberately underpaying your taxes is tax evasion and it’s illegal.

The U.S. federal income tax system is based on the idea of voluntary compliance. Under this system, it is the taxpayer’s legal responsibility to report all income.

Tax evasion is illegal and is punishable under law

Tax Evasion—The failure to pay or a deliberate underpayment of taxes. Internal Revenue Service

A taxpayer who intentionally hides income— by lying, concealing information, or committing fraud — has committed a willful act known as tax evasion, explained Jo Willetts, Director of Tax Resources at Jackson Hewitt. Tax evasion is illegal and carries serious criminal and civil consequences.

According to the Internal Revenue Service (IRS), one way that people try to evade paying taxes is by failing to report all or some of their income. Sometimes people do not report income gained through illegal activities such as gambling and selling stolen goods. Other times they do not report all the tips they collect or the money they earn through legal activities such as garage sales, baby-sitting, tutoring, or yard work.

Common examples of tax evasion include non-reporting or underreporting of:

Overseas income;
Cash-in-hand payments for jobs like babysitting, catering, cleaning, or manual labor;
Income from side gigs;
Income from illegal activities
Gains made on digital currencies like Bitcoins; and
Payments received from a cash business like tutoring, pet sitting, or childcare.

Tax evasion can also include things like overstating deductions or failing to file a tax return.

Tax avoidance or minimizing your tax obligation is legal and encouraged by IRS

Tax Avoidance—An action taken to lessen tax liability and maximize after-tax income. Internal Revenue Service

Minimizing your federal, state and local taxes is perfectly legal and encouraged. Minimizing your taxes is about managing and structuring your finances in a way that complies with the tax code, while at the same time, lowering your total income tax.

IRS regulations allow eligible taxpayers to claim certain deductions, credits, and adjustments to income. Essentially, these provisions have been built into the tax code to influence taxpayer behavior.

For instance, to encourage home ownership, an interest deduction is available for eligible homeowners with a mortgage. To make it easier for primary caregivers to get back to their job and career, working parents could potentially qualify for a credit for childcare expenses. To promote financial protection for families, death benefits from a life insurance policy is exempt from taxes.There are also deductions based on the number of family members.

These are only a few of the many ways people can legally limit the tax they pay. However, the taxpayer must be able to prove that he or she qualifies. Many people pay more federal income tax than necessary because they misunderstand tax laws and fail to keep good records.

In reality, most taxpayers are already engaging in some form of tax minimization. For example, if you contribute to an employer-sponsored retirement plan with pre-tax funds, that is a tax-minimization strategy because (1) you’re deferring a tax payment, and (2) you will likely pay less tax when the funds are withdrawn in retirement.

The most common and effective tax planning strategies include:

Contribute a 401(k) or IRA: The money people put into their 401(k) or IRA the IRS does not tax until it’s withdrawn. Many employers offer a 401(k) option with a matching contribution to help boost their employees’ retirement funds.
Revise W-4 withholdings: Most people have their income tax withholdings set to a standard amount for their tax bracket. Every financial situation is unique. Therefore, consider revising how much money is paid to the IRS to reduce tax liabilities later.
Use FSAs and HSAs: With flexible spending and health savings accounts, individuals can contribute to a dedicated account for their medical expenses. This money is specifically for medical care, so it is added to an account pre-tax.

Ultimately, investing money into financial tools that offset taxes can be a significant advantage for both long-term investment and tax planning strategies. The IRS offers a variety of opportunities for people and businesses to reduce their tax liabilities.

Additionally, the most practical IRS tax avoidance methods include:

Itemization: Depending on how much an individual or couple’s expenses are every year, it might be more lucrative to itemize tax deductions. It can be time-consuming and requires diligent recordkeeping, but it’s especially valuable for anyone with mortgages or expensive medical bills.
Tax credits: A tax credit, which is different from a deduction, gives money back to individuals and families. These credits generally come with stipulations. However, these credits can be worth the investment for people with big tax bills.
Tax deductions: Tax deductions are another way to reduce tax liabilities. With a deduction, someone’s taxable income gets reduced, which lowers the total amount owed to the IRS. Popular tax deductions include work-related expenses, property, and real estate taxes, and contributions to charity.

Tax avoidance or minimizing your federal taxes through the IRS can be one of the most critical tools for individuals, families and small businesses that don’t have access to tax-reducing investment strategies.

In summary, tax avoidance is the practice of using legal means to minimize your tax burden. Tax evasion, on the other hand, is using illegal means to hide or under report income from the IRS, or take deductions you aren’t actually allowed.

“Congress can raise taxes because it can persuade a sizable fraction of the populace that somebody else will pay.” Milton Friedman

References:

Mindfulness

Posted on October 17, 2021 by admin

“Mindfulness is awareness that arises through paying attention, on purpose, in the present moment, non-judgementally…in the service of self-understanding and wisdom.” Jon Kabat-Zinn, PhD. Professor of Medicine emeritus at the University of Massachusetts Medical School and Founder of the Center for Mindfulness in Medicine, Health Care, and Society

Mindfulness helps you live in the moment.

Mindfulness is the basic human ability to be fully present, aware of where we are and what we’re doing, and not overly reactive or overwhelmed by what’s going on in the environment around us. It means maintaining a moment-by-moment awareness of our thoughts, feelings, bodily sensations, and surrounding environment, through a gentle, nurturing lens.

Mindfulness is a quality that every human being already possesses. To live mindfully is to live in the moment and reawaken oneself to the present, rather than dwelling on the past or anticipating (anxiety) the future, according to Psychology Today.

To be mindful is to observe and label thoughts, feelings, sensations in the body in an objective manner. Mindfulness can therefore be a tool to avoid self-criticism and judgment while identifying and managing difficult emotions.

"Beware of destination addiction, a preoccupation with the idea that happiness is in the next place, the next job, and with the next partner. Until you give up the idea that happiness is somewhere else, it will never be where you are." ~ Robert Holden #mindfulness pic.twitter.com/HHMKxQ1SgX

— Everyday Mindfulness (@MindfulEveryday) October 9, 2021

The goal of mindfulness is to wake up to the inner workings of our mental, emotional, and physical processes and well-being.

Mindfulness helps us put some space between ourselves and our reactions, breaking down our conditioned responses. It is available to us in every moment, whether through meditations and body scans, or mindful moment practices like taking time to pause and breathe.

Mindfulness can be viewed as a type of meditation in which you focus on being intensely aware of what you’re sensing and feeling in the moment, without interpretation or judgment. Practicing mindfulness involves breathing methods, guided imagery, and other practices to relax the body and mind and help reduce stress.

Simple mindfulness exercises can be practiced anywhere and anytime. Here’s how to tune into mindfulness throughout the day, according to mindful.org:

Set aside some time and adjourn to a quiet space.
Observe the present moment as it is. The aim of mindfulness is not quieting the mind, or attempting to achieve a state of eternal calm. The goal is simple: we’re aiming to pay attention to the present moment, without judgment.
Let your judgments roll by. When we notice judgments arise during our practice, we can make a mental note of them, and let them pass.
Return to observing the present moment as it is. Our minds can get carried away in thought. That’s why mindfulness is the practice of returning, again and again, to the present moment.
Be kind to your wandering mind. Don’t judge yourself for whatever thoughts crop up, just practice recognizing when your mind has wandered off, and gently bring it back.

That’s the practice of mindfulness. It’s often been said that it’s very simple, but it’s not necessarily easy. The work is to just keep doing it. Results will accrue overtime.

Benefits of Mindfulness Practice:

When we’re mindful, we reduce stress, enhance performance, gain insight and awareness through observing our own mind, and increase our attention to others’ well-being.

Mindfulness meditation gives us a time in our lives when we can suspend judgment and unleash our natural curiosity about the workings of the mind, approaching our experience with warmth and kindness—to ourselves and others.

Yet no matter how far we drift away, mindfulness is right there to snap us back to where we are and what we’re doing and feeling.

“Mindfulness is a state of active, open attention to the present. This state is described as observing one’s thoughts and feelings without judging them as good or bad.” Psychology Today

Mindfulness can help you become more content, can help maximize your enjoyment of life and daily activities, and can allow a more relaxing and peaceful night’s sleep.

References:

Financial Technology (Fintech)

Posted on October 16, 2021 by admin

“There are more financial products for more consumers than you could ever imagine.” Fintech Startup Founder

Fintech, or financial technology, refers to the technological innovation in the design and delivery of financial services and products. The term can apply to any innovation in how companies and people transact business, from the invention of digital money to double-entry bookkeeping. The technology in finance continues to evolve; advancements include the use of Big Data, artificial intelligence (AI), and machine learning to evaluate investment opportunities, optimize portfolios, and mitigate risks.

Fintech refers to any business that uses technology to enhance or automate financial services and processes. The term encompasses a rapidly growing industry that serves the interests of both consumers and businesses in multiple ways. From mobile banking and insurance to cryptocurrency and investment apps, fintech has a seemingly endless array of applications.

Fueled by venture capital and changes brought by the pandemic, fintech is coming for your wallet like never before https://t.co/iFxVUzDEEL via @BW

— Bloomberg (@business) October 10, 2021

There are 326 Fintechs, according to one database, from one-stop shops such as PayPal Holdings Inc. and Revolut Ltd. to behind-the-scenes payment processors.

Fintech companies integrate technologies (like AI, blockchain and data science) into traditional financial sectors to make them safer, faster and more efficient. Fintech is one of the fastest-growing tech sectors, with companies innovating in almost every area of finance; from payments and loans to credit scoring and stock trading.

“Fintech’s disruptive potential was unleashed in mature markets such as the U.S. only recently, thanks to a confluence of factors: low interest rates, better technology, rising consumer demand, and a more permissive attitude toward nonbank finance”, according to Lionel Laurent, a Bloomberg Opinion Columnist. “Efficiency gains in software have kept products coming.”

Fintech technology examples include:

Crowdfunding Platforms – Crowdfunding platforms allow internet and app users to send or receive money from others on the platform and have allowed individuals or businesses to pool funding from a variety of sources all in the same place. Instead of having to go to a traditional bank for a loan, it is now possible to go straight to investors for support of a project or company.
Blockchain and Cryptocurrency – Cryptocurrency and blockchain are hallmark examples of fintech in action. Cryptocurrency exchanges connect users to buying or selling cryptocurrencies like bitcoin or litecoin. But in addition to crypto, blockchain help reduce fraud by keeping provenance data on the blockchain. And while cryptocurrency and even blockchain have certainly taken parts of the investment world by storm in recent years.
Mobile Payments – It seems as though everyone with a smartphone uses some form of mobile payments. In fact, according to Statista data, the global mobile payment market is on track to surpass $1 trillion in 2019. Using increasingly sophisticated technology, services have emerged that allow consumers to exchange money and payments online or on mobile devices – including popular payment app Venmo.
Insurance – Fintech has even disrupted the insurance industry. In fact, insurtech (as it’s been so-called) has come to include everything from car insurance to home insurance and data protection. Additionally, insurtech startups are increasingly attracting funding.
Robo-Advising and Stock-Trading Apps – Robo-advising has disrupted the asset management sector by providing algorithm-based asset recommendations and portfolio management that have increased efficiency and lowered costs. Since the rise of more advanced technology that can analyze various portfolio options 24/7, financial institutions have adapted to offer online robo-advising services. Perhaps one of the more popular and big innovations in the fintech space has been the development of stock-trading apps. When once investors had to go directly to a stock exchange like the NYSE or Nasdaq, now, investors can buy and sell stocks at the tap of a finger on their mobile device. And with inexpensive and low-minimum apps, investing from anywhere with any budget has never been easier.
Budgeting Apps – One of the most common uses of fintech is budgeting apps for consumers, which have grown exponentially in popularity over the years. Before, consumers had to create their own budgets, gather checks, or navigate excel spreadsheets to keep track of their finances. But after the fintech revolution prompted the development of financial services apps, consumers can easily and efficiently keep track of their income, expenses and other budgeting tools that have revolutionized the way consumers think about their money. Budgeting apps help consumers track their income, monthly payments, expenditures and more – all on their mobile device.

With fintech innovations, firms can better meet customer needs and expectations. With clear benefits, fintech is quickly changing the landscape of investment management. Advancements include the use of robo-advisers, Big Data, AI, and machine learning to evaluate investment opportunities, optimize portfolios, and mitigate risks. In the area of financial recordkeeping, blockchain and distributed ledger technology are creating new ways to record, track, and store transactions for financial assets.

Additionally, artificial intelligence (AI) is having a major impact on the finance industry as part of fintech. AI is being used to analyze investment opportunities, optimize portfolios, and mitigate risks, among many other functions, but the applications go well beyond the investment decision-making process. For example, automated wealth advisers (or “robo-advisers”) may assist investors without the need for a human adviser, or they may be used in combination with a human adviser. The desired outcome is the ability to provide tailored, actionable advice to investors with greater ease of access and at lower cost.

The annual Forbes Fintech 50 compiles some of the hottest fintech platforms on the market worth noting.

Fintech is changing the landscape of financial and investment management. At its core, Fintech exist to help companies, business owners and consumers better manage their finances, processes, and lives by utilizing specialized technology, software and algorithms.

References:

Psychology of Passwords

Posted on October 15, 2021 by admin

The Online Behavior That’s Putting You at Risk

As more and more people work and socialize exclusively online, protecting your digital identity is more important than ever. Most people believe they are knowledgeable about the risks of poor password security; however, they are not using that knowledge to protect themselves from cyber threats.

The Psychology of Passwords report examines online security behaviors of 3,250 global respondents, and it shows that people aren’t protecting themselves from cyber security risks even though they know they should.

Top 6 Risky Behaviors Making You a Target:

1. We use the same password over and over. If a hacker gets access to one account, they can wreak havoc on all of them!

53% haven’t changed their password in the last 12 months even after hearing about a breach in the news
42% say that having a password that’s easy to remember is more important than one that is very secure.

2. We want to be in control. We think that reusing passwords gives us more control, but it really puts us at risk. When asked why they reuse passwords, respondents said:

60% I am afraid of forgetting my login information
52% I want to be in control and know all of my passwords

3. We still memorize our passwords. Can you memorize unique, strong passwords for all your accounts? Only if you’re a superhero. If not, you shouldn’t be relying on your memory to protect you online.

54% keep track of passwords by memorizing them
Remembering isn’t working: 25% reset their passwords once a month or more because they forgot them

4. We ignore breaches. If a brand you use is breached, you should change your password.

52% haven’t changed their password in the last 12 months – even after hearing about a breach in the news

5. We underestimate our risk. I’m not a target, right? Wrong. While your credit card number might only get a hacker US $5 on the dark web2, if they steal hundreds of thousands of pieces of data in one fell swoop, it adds up.

41% think their accounts aren’t valuable enough to be worth a hacker’s time

6. We are predictable. Personal information can be easily found by hackers on your social media accounts or by doing a quick internet search.

22% could guess their significant other’s password
24% use sentimental information in their passwords

There is much we need to be doing to protect ourselves online.

References:

Cyber Security Awareness: Ransomware

Posted on October 14, 2021 by admin

“Organizations and consumers are frequently exposed to the clear and present danger of sophisticated phishing and ransomware cyber attacks.”

Over the last several years, ransomware has remained a “clear and present” cyber security threat for organizations and individuals around the world. As companies have gone increasingly digital, cyber criminals have sought to maximize their profits by exploiting the vulnerabilities that come with a rapidly expanding cyber ecosystem.

Global cyber threats include ransomware, common hacks such as phishing and malware, or complex state- sponsored spying efforts like with SolarWinds. And, the frequency of today’s cyber attacks is growing and compelling companies to secure their networks with the most modern threat detection technology.

Ransomware is a malware that infects computers (and mobile devices) and restricts their access to files, often threatening permanent data destruction unless a ransom is paid. It has reached epidemic proportions globally. According to the Cybersecurity and Infrastructure Assurance Agency (CISA): “Ransomware is an ever-evolving form of malware designed to encrypt files on a device, rendering any files and the systems that rely on them unusable. Malicious actors then demand ransom in exchange for decryption. Ransomware actors often target and threaten to sell or leak exfiltrated data or authentication information if the ransom is not paid.”

These cyber attacks against U.S. companies and organizations result in shutdown of critical infrastructure, which can create shortages, increased cost of goods/services, financial loss due to shutdown of operations, and loss of money due to having to pay the ransom to the hackers, and worse.

Ransomware costs include ransom payouts, damage and destruction (or loss) of data, downtime, lost productivity, post-attack disruption to the normal course of business, forensic investigation, restoration and deletion of hostage data and systems, reputational harm, and employee training in direct response to the ransomware attacks.

Source: Cybersecurity Ventures

For example, the DarkSide hacker gang is an organized group of hackers set up along the “ransomware as a service” business model, meaning they develop and market ransomware hacking tools, and sell them to other cyber criminals who then carry out cyber attacks. Additionally, DarkSide steals private data and threaten to make it public unless the victim pays a large sum of money — typically in the range of $200,000 to $2 million, according to CNBC. The FBI has determined that DarkSide was behind the devastating Colonial Pipeline ransomware cyber attack which targeted the company’s billing system and internal business network. Subsequently, the company reportedly paid out $4.4 million dollars in bitcoin. Fortunately, US law enforcement was able to recover much of the $4.4 million ransom payment.

Human element

“Ransomware is expected to attack a business every 11 seconds by the end of 2021.” Steve Morgan, Editor-in-Chief, Cybersecurity Ventures

Ransomware still uses social engineering as its main infection vector,” says KnowBe4’s Sjouwerman. “Some 91% of cyberattacks begin with a “spear phishing” email, according to research from security software firm Trend Micro.

Spear phishing is an increasingly common form of phishing that makes use of information about a target to make attacks more specific,sophisticated and “personal”. These attacks may, for instance, refer to their targets by their specific name or job position, instead of using generic titles like in broader phishing campaigns.

According to research firm Cybersecurity Ventures, ransomware damages will reach $20 billion this year, up more than 100% from 2018 and 57 times higher than in 2015.

As cyber attacks and ransomware continues to grow in frequency and severity, it’s essential that individuals receive security awareness training that specializes in making sure they understand the mechanisms of spam, phishing, spear phishing, malware, ransomware and social engineering and apply this knowledge in their day-to-day online activities.

Additionally, it’s imperative that organizations employ an endpoint detection and response (EDR) tool which can provide the visibility and cyber protection that organizations need.

References:

October is National Financial Planning Month

Posted on October 13, 2021 by admin

“Financial Planning Month is a great opportunity to get your finances and budgets in order before life gets too busy.”

See the source image

October is National Financial Planning Month—an ideal time to plan your financial health and future. Research from the Brookings Institution shows that just one-third of Americans are truly financially healthy. Half are just coping, while nearly one in five are financially vulnerable, acdording to The U.S. Financial Health Pulse 2020 Trends Report. Financial health at a minimum addresses the ability of individuals and families to meet their current obligations and needs, absorb and recover from financial shocks, secure their future, and improve their financial situation over time. And, financial planning can be an essential tool in improving an individual and family’s financial health.

As of August 2020, 33% of people in America were Financially Healthy, 50% were Financially Coping, and 17% were Financially Vulnerable U.S. Financial Health Pulse 2020 Trend Report, Financial Health Network

Many individuals think financial planning is only needed for wealthy investors with complex financial asset portfolios, but the reality is a financial plan is something that can help everyone — not just the wealthy. Financial planning simply means having a well-thought-out strategy that helps you achieve longer-term financial goals and build wealth while meeting near-term money needs.

You should have a financial plan in order to increase your likihood of reaching your financial goals and maintaining your lifestyle. Financial planning includes budgeting, emergency planning, investing, tax planning, retirement planning, and basically other ways to get your finances in order and create mindful budgets to ensure a safe and secure future.

Financial planning applies to everyone, whether you’re just starting out or are a wealthy investor.
A financial plan answers real questions to help you make better day-to-day decisions and reach your financial goals—and it doesn’t have to be expensive or complicated.

With a plan, you can set short-term and long-term financial goals and benchmarks. You can estimate the amount of money you will likely need to meet retirement, college, and health care expenses. You can also get a good look at your present financial situation—where you stand in terms of your net worth and cash flow, which will thehelp you understand the distance between where you are financially and where you would like to be in the future.

Growing and retaining wealth takes more than just investing. Along the way, you must plan to manage risk, manage and eliminate bad personal debt, and defer or reduce taxes. A good financial plan addresses those priorities while defining your investment approach. It changes over time, to reflect changes in your life and your financial objectives.

Having a savings account is a good start, but money in a savings account simply won’t produce the total returns and dividends that are needed for long-term financial success and very few Americans retire on savings alone. Rather, they invest some of their savings and retire mostly on the accumulated earnings those invested dollars generate over time.

Investing your money and capital in assets is essential to achieve financial freedom. In fact, most Americans retire with the money that they earned from investing, not the money they set aside in their savings account.

Last year, a Gallup poll found that just 38% of investors had a written financial plan. Gallup asked those with no written financial strategy why they lacked one. The top two reasons? They just hadn’t taken the time (29%), or they simply hadn’t thought about it (27%).

Paying down debt is also an integral part of a financial plan. Many people get overwhelmed when thinking about debt and developing a strategy to pay it down. Debt, not including your mortgage, should consume less than 20% of your income. With your mortgage, debt should equal 40% or less. Paying the debt with the highest interest first will reduce the amount of interest you pay and saves more money; however, paying the smallest balances first allows you to see progress quicker.

Financial planning is the key to getting on the road to financial success and freedom.

A financial plan simply means knowing where you want to go financially and figuring out how best to harness your resources to get you there. And it’s not just about money. It’s about your “why” (purpose, cause or belief that drives you), your aspirations, your priorities for you and your family, and how to protect yourself both now and in the future.

To get started mapping out your financial future, it’s essential that you understand why you’re doing what you’re doing. Knowing your why is the single most important question you can ask with respect to your financial future.

Failure to ask and answer the question “why” can be the single greatest oversight you can make when it comes to your quest for financial freedom. Those who do have a strong sense of why they are “saving and investing” are more likely to reach their financial goals.

After determining your why, here are 10 Steps you can follow to prepare a do it yourself (DIY) Financial Plan, according to Charles Schwab:

Write down your goals—The first thing you should ask yourself are what are your short-term needs? What do you want to accomplish in the next 5 to 10 years? What are you saving for long term? It’s easy to talk about goals in general, but get really specific and write them down. Which goals are most important to you? Identifying and prioritizing your goals will act as a motivator as you dig into your financial details.
Create a net worth statement—Achieving your goals requires understanding where you stand today. So start with what you have. First, make a list of all your assets—things like bank and investment accounts, real estate and valuable personal property. Now make a list of all your debts: mortgage, credit cards, student loans—everything. Subtract your liabilities from your assets and you have your net worth. But whatever it is, you can use this number as a benchmark against which you can measure your progress.
Review your cash flow—Cash flow simply means money in (your income) and money out (your expenses). How much money do you earn each month? Be sure to include all sources of income. Now look at what you spend each month, including any expenses that may only come up once or twice a year.
Zero in on your budget—Your cash-flow analysis will let you know what you’re spending. Zeroing in on your budget will let you know how you’re spending. Write down your essential expenses such as mortgage, insurance, food, transportation, utilities and loan payments. Don’t forget irregular and periodic big-ticket items such as vehicle repair or replacement costs, out of pocket health care costs and real estate taxes. Then write down nonessentials—restaurants, entertainment, even clothes. Examining your expenses helps you plan and budget when you’re building an emergency fund. It will also help you determine if what you’re spending money on lines up with what is most important to you.
Focus on debt management—Debt can derail you, but not all debt is bad. Some debt, like a mortgage, can work in your favor provided that you’re not overextended. It’s high-interest consumer debt like credit cards that you want to avoid. Try to follow the 28/36 guideline suggesting no more than 28 percent of pre-tax income goes toward home debt, no more than 36 percent toward all debt. Look at each specific debt to decide when and how you’ll systematically pay it down.
Get your retirement savings on track—Whatever your age, retirement saving needs to be part of your financial plan. The earlier you start, the less you’ll likely have to save each year. You might be surprised by just how much you’ll need—especially when you factor in healthcare costs. But if you begin saving early, you may be surprised to find that even a little bit over time can make a big difference. Calculate how much you will need and contribute to a 401(k) or other employer-sponsored plan (at least enough to capture an employer match) or an IRA.
Check in with your portfolio—If you’re an investor, when was the last time you took a close look at your portfolio? Market ups and downs can have a real effect on the relative percentage of stocks and bonds you own—even when you do nothing. And even an up market can throw your portfolio out of alignment with your feelings about risk. Don’t be complacent. Review and rebalance on at least an annual basis.
Make sure you have the right insurance—Having adequate insurance is an important part of protecting your finances. We all need health insurance, and most of us also need car and homeowner’s or renter’s insurance. While you’re working, disability insurance helps protect your future earnings and ability to save. You might also want a supplemental umbrella policy based on your occupation and net worth. Finally, you should consider life insurance, especially if you have dependents. Review your policies to make sure you have the right type and amount of coverage.
Know your income tax situation—The Tax Jobs and Cuts Act of 2017 changed a number of deductions, credits and tax rates beginning in 2018. And that caught a lot of people by surprise as they filed last year’s taxes. For instance, standard deductions were increased significantly, eliminating the need to itemize for a lot of people. To make sure you’re prepared for tax season, review your withholding, estimated taxes and any tax credits you may have qualified for in the past. The IRS has provided tips and information at https://www.irs.gov/tax-reform. Taking advantage of tax sheltered accounts like IRAs and 401(k)s can help you save money on taxes.
Create or update your estate plan—At the minimum, have a will—especially to name a guardian for minor children. Also check that beneficiaries on your retirement accounts and insurance policies are up-to-date. Complete an advance healthcare directive and assign powers of attorney for both finances and healthcare.

“Saving is a great start, but planning to reach your financial goals is even better.”

A financial plan can be especially important if you don’t have a lot of money because it can help you get on the path to greater financial strength and health. Think of it like a roadmap. Specifically, if you want to enjoy your senior years to the fullest, taking the time to financially plan for retirement is a smart bet to enhancing your financial health. Financial health at a minimum should address the ability of individuals and families to meet their current financial obligations and needs, absorb and recover from financial shocks, secure their future, and improve their financial situation and build wealth over the long term.

Successful investing starts with knowing your purpose why and with financial planning. Investors who stick to a financial plan have an average total net worth that’s 2.5 times greater than those who don’t follow one, according to Charles Schwab research. Financial planning helps you understand where you are today. It also creates a roadmap to get you where you want to be.

References:

U.S. Tax Policy Favors Savings

Posted on October 12, 2021 by admin

As prices rise, the existential risk in the market is related to inflation. As inflation goes up so will interest rates which has negative implications to future cash flows (this disproportionately negatively affects tech companies). Regarding rising interest rates and during a rising inflationary period, the surest way to survive is to keep growing faster than the rate of rising costs. Chamath Palihapitiya, Social Capital 2020 Annual Letter

While investors react nervously regarding factors like inflation, government gridlock in Washington, and geopolitical and macroeconomic issues around the world, the stock markets continue their broad selloff. While the $1.5 trillion bipartisan infrastructure bill has passed the Senate, the legislation has been stalled in the House of Representatives, and some pundits are questioning whether the legislation can be passed due to political wrangling among Democrats.

The U.S. tax code broadly incentivizes savings for two different reasons:

To ensure that people accumulate enough wealth to be able to support themselves during retirement.
The nation’s savings provides capital for businesses to borrow, invest, and expand, which is necessary to increase economic growth.

The tax code incentivizes savings in several different ways:

The U.S. does not tax investment returns until the person actually realizes it—an investor who owns a stock that doubles in price doesn’t pay the IRS until he sells it.
It taxes certain investment income—most notably capital gains—at a lower rate than ordinary income.
Investors can make investments via a variety of tax-preferred savings accounts, such as individual retirement accounts (IRAs) or their 401(k) retirement accounts set up by their employer.

An investor can either deduct the money he puts into the account from his ordinary income and then pay taxes on the money only when he takes it out upon retirement (traditional IRA and 401(k), or he can pay taxes up front on the income and then the money in the account goes untaxed upon withdrawal (Roth IRA).

A retiree with $1.5 million in his or her 401(k) will discover that taxes will consume 25 to 35 percent of every withdrawal which dramatically reduce the financial freedom of the retirement nest egg.

Proposals in Congres to pare back this tax break—such as by assessing a tax on unrealized capital gains each year or treating capital gains income the same as ordinary income—have fortunately foundered. The former would be unworkable for many people (the year after a robust stock market would a trigger a big tax bill for anyone with a stock portfolio and force millions to dispose of a portion of their investments) and the latter would also effectively reduce savings by greatly reducing the long-term real returns.

References:

5 Rules to Buy Low and Sell High in the Stock Market

Posted on October 11, 2021 by admin

“The reason people buy high, besides the fact that they are investing on emotion, is because they don’t know how to value a business.” Tom Vilord

The exact same events can be interpreted differently by investors.

Stock prices fluctuate based on many factors: world events, the Treasury bond interest rate, a company’s growth earnings, the perceived risk of a stock, inflation, the economic strength of the market, and so on. The price of a stock at any given time is based on the supply and demand driven by emotions at that specific moment in the market.

Most investors buy high and expect to sell higher. “I think the reason people buy high, besides the fact that they are investing on emotion, is because they don’t know how to value a business,” says Tom Vilord, president and CEO of Wall Street Value, an investor consulting and education company. “It’s as simple as that.”

In contrast, to buy low and sell high, here are five rules, according to Value Walk:

Buy Stocks That Are Out-of-Favor – One way to find a company trading at a terrific value is to select a stock that is out-of-favor – meaning that people are selling the stock for a reason. If a stock is low, it’s low because people don’t like it. Whether the stock is down due to macroeconomic events, industry specific downturns, or company disasters, the majority of investors will want to steer clear. The uglier a company’s future looks, the cheaper the stock will be.
Sell Stocks That Are In-Favor – Typically, in-favor stocks are expensive. If investors are excited about the prospects of a particular company, they will pay more to own it. This is precisely the time when a stock should be sold, not bought. The brighter a company’s future appears to be, the more someone will be willing to pay you for the stock.
Ignore Sell-Side Analysts – A sell-side analyst is a professional money manager who analyses a stock for the purpose of selling a report of his or her analysis. The problem with sell-side analysis is that there are some significant career risks which influence an analyst’s opinion. The first risk has to do with an analyst’s fear of being different. This results in most sell-side analysts playing it safe and making most sell recommendations when a stock is widely disliked and already low.
Overcome Your Emotional Instincts – Your biggest enemy as an individual investor is yourself. Investing does not come naturally to humans. Our emotional instincts make us panic at the first sign of danger and become euphoric as circumstances improve. Following these instincts causes people to make terrible investment decisions and ultimately to buy and sell at the wrong times. When stocks are at all-time highs, we become excited and buy because everything is great. When stocks are falling, we panic and sell because there’s no saying how far prices will go. Investors who can overcome these deep-rooted emotions will ultimately outperform everyone else who simply follows the herd.
Base Decisions on Fundamental Data – Using current and historical financial statements to calculate a company’s value prevents overly optimistic or pessimistic analysis. Actual data removes any sense of emotion and uncertainty when evaluating an investment.

When it comes to investing, emotions are best ignored. Fear, greed and other emotional signals from the amygdala part of your brain, can easily derail even the best-laid investing plans.

Emotional investing occurs when investors make reactionary decisions about their assets based on a feeling of how the market is performing rather than on the company’s fundamentals and how the market is likely to perform long term, says Zack Shepard, vice president of Matson Money in Scottsdale, Arizona.

Individual investors who buy low and sell high in the stock market often do well in the stock markets. Thus, it’s important to ignore past price levels. Failing to do so will cause anchoring bias. Investors often determine whether a stock is high or low based on what the price was in the past, instead of a company’s fundamental.

Having a plan, even if you don’t follow the plan, is better than having no plan at all. Peter Thiel

References:

Brownlee Global: Gratitude to Greatness

Gratitude is a Powerful Tool That Can Help People Live the Lives They Want

Knowing Your Why: Financial Freedom

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General Colin Powell’s 13 Rules

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Tax Avoidance vs. Tax Evasion

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Mindfulness

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Financial Technology (Fintech)

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Psychology of Passwords

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Cyber Security Awareness: Ransomware

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October is National Financial Planning Month

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U.S. Tax Policy Favors Savings

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5 Rules to Buy Low and Sell High in the Stock Market

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