Written Financial Plan

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“Establish a financial plan based on your goals.” 

Research continue to show that creating a written financial plan is more effective and beneficial than simply thinking or talking about your goals. The research finds that more than two-thirds of people who have a written financial plan say they feel financially stable, whereas just 28% of those without a plan feel the same way, according to Schwab’s 2019 Modern Wealth Survey. Planners generally know what they’re saving for, how much they need to put away, and how long it will take them to reach their goals.

“Long term thinking and planning enhances short term decision making. Make sure you have a plan of your life in your hand, and that includes the financial plan and your mission.” Manoj Arora, From the Rat Race to Financial Freedom

Multiple surveys show that less than a third of Americans have a financial plan in writing. And among those without one, 2 in 5 Americans say it’s because they don’t think they have enough money or assets to merit a form and many say simply that it’s too complicated or they don’t have enough time to develop one.

But in reality, financial planning is not inaccessible, too expensive or too complicated. A written financial plan is simply formalizing a person’s short-term goals and long-term goals and determining a path with saving and investing to achieve them. 

Planning in small steps doesn’t take large sums of money to start.  In fact, financial planning can have a profound impact on lower-income households, by helping people improve their saving and budgeting habits. A written plan helps savers prioritize their goals and provides a way to measure success.

Elements of a financial plan:

  • Create short, intermediate and long term goals
  • An emergency fund
  • A budget to determine cash flow and calculating net worth
  • Paying down and avoiding debt
  • Health and disability insurance
  • Start saving and investing early, pay yourself first and put it on automatic
  • Pay yourself first
  • Saving and investing for retirement and/or college
  • Saving and investing for shorter term goals like vacations or a home purchase
  • Trusts, wills and estate planning

After creating your financial plan, you are bound to have times when you don’t reach your goals or you diverge from your plan. But, just like with a diet, if you make a bad food choice, it doesn’t mean you throw out your new way of healthy eating or exercising. Same thing with financial plan.

Planners demonstrate better money and investing habits

For those looking for a way to stay the course, Schwab’s survey shows that more than 60 percent of Americans who have a written financial plan feel financially stable, while only a third of those without a plan feel that same level of comfort. Essentially, those with a financial plan maintain healthier money habits when it comes to saving.

A financial plan leads to better habits since financial planning isn’t just about investing. Many sound money management habits and financial decisions are more easily explained in quality-of-life terms—such as controlling consumer spending, the security that life insurance offers, or the peace of mind that having an emergency fund can provide. There are healthy money habits and there are good investing habits; a written financial plan can lead to both.

“Spending is not the enemy, but it’s important to balance saving and spending so we can both enjoy life’s experiences along the way and achieve long-term financial security.”

Creating financial goals and a financial plan isn’t going to help unless you stick to your plan over time. One good way to do that is to create a detailed quarterly schedule of money-related tasks.

Successful planning can help propel financial security and net worth for those who stick with their plans.  Research shows that those sticking with their financial plans achieved an average total net worth three times higher than those who didn’t plan.

References:

  1. https://www.aboutschwab.com/modernwealth2019
  2. https://content.schwab.com/web/retail/public/about-schwab/schwab-modern-wealth-survey-2019-atlanta.pdf
  3. https://www.schwab.com/resource-center/insights/content/does-financial-planning-help
  4. https://www.schwab.com/public/schwab/investing/why_choose_schwab/investing_principles
  5. https://www.schwab.com/resource-center/insights/content/10-steps-to-diy-financial-plan

10 Steps to a DIY Financial Plan | Charles Schwab

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  • Key Points
      • A financial plan isn’t only for the wealthy and it doesn’t have to cost a penny.
      No matter how much money you have, you can start with a DIY financial plan that will set you up for future success.
      With a good foundation in place, you can feel more confident about your finances and, when the time comes that you might need the help of a professional, you’ll be that much farther ahead.

    Did you know that 78 percent of people with a financial plan pay their bills on time and save each month vs. only 38 percent of people who don’t have a plan? That’s a pretty powerful statistic if you ask me. Or would it surprise you to learn that 68 percent of planners have an emergency fund while only 26 percent of non-planners are financially prepared to cover an unexpected cost?

    When I hear stats like these that were recently reported in a Schwab survey, it just reinforces my belief that everyone—no matter their financial situation—can benefit from a financial plan. So why aren’t more people planners? Usually it’s because either they don’t think they have enough money or they think a financial plan costs too much. But, as I’ve said many times, neither is the case.

    In fact, you can map out your own financial plan. That way, not only won’t it cost you a penny, but you stand to reap the long-term benefits. Here’s how to get started mapping out your financial future with a DIY plan.
    — Read on www.schwab.com/resource-center/insights/content/10-steps-to-diy-financial-plan

    Panic and Fear are Terrible Investing Strategy

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    Fear of the pandemic spread of the novel coronavirus in the U.S. and across the globe, and the panic selling of stocks has assumed a vice like grip on the U.S. equity markets over the past several trading days.  This is evident by the massive selloff of the markets over the past several trading days.

    Take the S&P 500  benchmark, it has entered correction territory when measured by a ten percent decline from market high. Minutes prior to Friday’s market close, the S&P is down 14.3% from its all time high that it reached less than two weeks ago.

    And the advice from financial advisors and pundits to remain calm and not sell–selling will only lock-in your paper losses into real losses–is apparently being ignored many retail investors. Basically, it appears that a majority of investors have succumbed to financial entertainment media’s hyper reporting of the news.

    No one knows how long the panic selling will continue or when the downward trend will reverse. And, no one can safely predict the impact the novel Coronavirus will have on corporations’ quarterly earnings.

    Couple this with Socialist Bernie Sanders recent success in the first three Democratic caucuses and primaries, this market correct may persist for awhile and may dip its toe into bear market territory before we see the current trend come to an end.

    Needless to say, investors must remain calm and adhere to their long term investment plan. Fear and panic selling has never been a successful investing strategy. And, it should not be embraced today.

    Instead remain calm and if you have cash available, take the opportunity to buy great companies while they’re on sale.

    https://on.mktw.net/2PzwfGR

    Financially Ill-Prepared and Ill-Literate| Financial Literacy

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    Financial literacy represents a significant area of financial wellness. Thus, the teaching of financial literacy must go beyond the basics of creating a budget and avoiding credit card debt. It must deliver real-world skills and knowledge about the challenges of debt and taxes, investing in the stock market, taking advantage of an employer’s 401(k) plans, managing credit and mortgages, accumulating wealth and many other financial topics.

    Definition of Financial Literacy

    The National Financial Educators Councils (NFEC) states, “A lot of people know what they should do; however a good majority freeze up when it comes time to make a financial decision. Most have the knowledge but lack the confidence to make the right decision and take action in a decisive manner. Since money is directly tied to peoples emotional state we feel including this component in our financial literacy definition is critical.”

    Thus, we must take action now to combat this real world threat resulting the lack of financial literacy to Americans financial security. The National Financial Educators Council’s defines financial literacy definition as:

    “Possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family and global community goals.”

    Successful Investors are disciplined and patient, have developed good financial and investing habits, demonstrate positive financial Mindset and exhibit a belief in themselves.

    Conversely, the principals of basic financial literacy and money management are not that complicated. The basic money management concepts are simple and once you have it down, you can apply the concepts for the rest of your life. Considering, the world that high school and college graduates will enter revolves around inherently money.

    “The single biggest difference between financial success and financial failure is how well you manage your money. It’s simple: to master money, you must manage money.” T. Harv Eker, author Millionaire Mind

    A 2009 Sports Illustrated report found that almost eight out of 10 former NFL football players suffer from financial stress within two years of their retirement. What’s more, the National Bureau of Economic Research estimates that one in six will file bankruptcy.

    What is Financial Literacy

    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 gratification for long-term financial security.

    Americans Falling Behind

    According to Money magazine, nearly half of American workers have saved less than fifty grand ($50K) for retirement, and fifteen percent (15%) had not saved a single cent. This means that for many Americans, their senior years will not be so golden and a majority of those will struggle financially due to their lack of financial literacy.

    In the 2018 National Financial Capability Study (NFCS), almost half (46%) of survey respondents have not set aside in an emergency or ‘rainy day’ fund sufficient to cover expenses for three months in case of sickness, job loss, economic downturn, or other emergency according to FINRA Investor Education Foundation

    More than half of millennials (about 54 percent) say debt is their “biggest financial concern.” according to a recent Wells Fargo Study.

    “A compelling body of evidence demonstrates a strong association between financial literacy and household well-being. Survey after survey shows that households that demonstrate low levels of financial literacy are those that tend not to plan for retirement, borrow at high interest rates, and acquire fewer assets.” Shawn Cole

    Taking Responsibility

    A majority of Americans appear to have not taken responsibility for their financial security during their working lifetimes, after retirement or have done much retirement planning before retirement.

    Forty-one percent of respondents have tried to figure out how much they need, their number, to save for retirement, while 54% have not. The act of planning for retirement remains a ‘strong positive indicator’ of retirement wealth, according to FINRA.

    According to Dave Ramsey, the goal behind teaching financial literacy is to help people develop a stronger understanding of basic financial concepts—that way, they can handle their money better.

    Ramsey considers financial literacy a worthy goal, especially when you consider a few stats about how the typical American handles money:

    • Nearly four out of every five U.S. workers live paycheck to paycheck.
    • Over a quarter never save any money from month to month.
    • Almost 75% are in some form of debt, and most assume they always will be.(1)

    Additionally, there’s a $6.6 trillion gap between the pensions and retirement savings of U.S. households and what they should have to maintain their living standards in retirement – and the gap is growing. Retirement Income Deficit report by Retirement USA tells us that:

    • 41% of baby boomers expect their standard of living to decrease in retirement. Transamerica Center for Retirement Studies.
    • Only 14% of baby boomers have a written retirement strategy. Transamerica Center for Retirement Studies.
    • 83% said that personal financial challenges had a large impact or some impact on overall employee performance. Society for Human Resource Management
    • 46% of Americans have less than $10,000 saved for retirement. Employment Benefit Research Institute
    • Student load debt exceeds $1.1 Trillion. Fastweb and FinAid

    “The number one problem in today’s generation and economy is the lack of financial literacy.” Alan Greenspan, Former Chairman, Federal Reserve

    Financial Literacy must become a priority in our high school classrooms and college campuses across our great country. Too many Americans are being left behind financially due their inability to effectively manage their money and control their personal finances.

    Over the past decade, the U.S. economy has witness the longest period of economic expansion in it history. Yet, a majority of Americans failed to participate in the expansion as measured by the widening income, wealth and retirement gaps evident in the country.

    And, you can conclude that the lack of financial literacy is a major reason behind the gap.

    Sources:

    1. https://www.usfinancialcapability.org/downloads/NFCS_2018_Report_Natl_Findings.pdf
    2. http://www.retirement-usa.org
    3. https://www.daveramsey.com/blog/what-is-financial-literacy

    Accumulating Wealth

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    The wealthy accumulate wealth by being frugal

    Frugality – a commitment to saving, spending less, and sticking to a budget – is a key factor in accumulating wealth, according to DataPoints’ founder, Dr. Sarah Stanley Fallaw.  Dr. Fallaw is also the co-authored “The Next Millionaire Next Door: Enduring Strategies for Building Wealth“.

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    In an University of Georgia’s financial planning performance lab research paper examining the topic of “what does it take to build wealth over time”, the key findings were that those who were successful at accumulating wealth frequently exhibited the following behaviors:

    • Spending less than they earned
    • Having a long-term outlook on their financial future
    • Maintaining sound financial records
    • Keeping up with financial markets
    • Saving regardless of income level

    Essentially, her research shows that anyone can accumulate wealth if they know the right steps to take. And, if individuals possess a certain set of characteristics, they may be more likely to become wealthy, according to Dr. Fallaw, who is also director of research for the Affluent Market Institute.

    In her research, she found that six behaviours, which she called “wealth factors,” are related to net worth potential, regardless of age or income:

    • Frugality, or a commitment to saving, spending less, and sticking to a budget
    • Confidence in financial management, investing, and household leadership
    • Responsibility, which involves accepting your role in financial outcomes and believing that luck plays little role
    • Planning, or setting goals for your financial future
    • Focus on seeing tasks through to their completion without being distracted
    • Social indifference, or not succumbing to social pressure to buy the latest thing

    In order to accumulate wealth, it is imperative for investors to understand that their underlying financial behavior and habits matter significantly. DataPoints research supports the notion that, “…individuals who successfully accumulate wealth often engage in basic and identifiable productive financial management behaviors.” And, they are often “socially indifferent” to the latest “must haves” and they resist the “lifestyle creep,” which is the tendency to spend more whenever they earn more.

    To properly build wealth, financial experts recommend saving 20% of your income and living off the remaining 80%. Many wealthy individuals, who religiously follow this principle, espoused the freedom that comes with spending and living below their means.

    Reference

    1. Grable, J. E., Kruger, M., & Fallaw, S. S. (2017). An Assessment of Wealth Accumulation Tasks and Behaviors. Journal of Financial Service Professionals, 71(1), 55-70.
    2. https://www.datapoints.com/2017/04/06/tasks-of-wealth-accumulators/
    3. https://apple.news/A4YIQ2ahsSKqzUG3rh1PmTQ

    Seniors Are Stressed About Income in Retirement. What To Do. – Barron’s

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    A large number of American workers closing in on retirement are showing anxiety not just over how much they’ve saved but also over how to manage their different income sources during their post-career lives.

    A new study by Charles Schwab found that most pre-retirees—defined as those within five years of retirement—have at least one fear about their income in retirement. The findings were gleaned from a survey last summer of 1,000 Americans aged 55 and older with $100,000 or more in investable assets, half of whom fell into the pre-retiree cohort. 
    — Read on www.barrons.com/articles/most-seniors-stress-about-income-in-retirement-heres-what-theyre-most-worried-about-51582977602

    Integrity in College Athletic

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    “Conduct reveals character, and we best understand integrity when we see it lived out in a person’s life.” Charles H. Dyer, Character Counts

    On the competitive fields, pitches, courts and arenas of college sports, what role and responsibilities do university presidents, athletic directors and coaches hold to teach or emphasize integrity in behavior and conduct to college age young men or women student-athletes.

    On many competitive playing fields, courts or pitches around America college sports, there appears to be the prevailing mindset from college coaches and athletes alike to win at any costs.

    Winning overrides apparently playing with integrity–being honest and having strong moral principles– on the playing field.

    How many occasions have you observed a college football wide receiver trap the ball against the ground or the ball obviously hits the ground, and the receiver jumps to his feet proclaiming adamantly that they caught the ball.

    Or, how many occasions have you observed a college football coach setting a bad example by going apoplectic on a game referee because a perceived missed call or a call going against their respective team.

    Or, how many occasions have you witnessed a college soccer player execute a dramatic flop to the ground writhing in apparent agony when brushed by an opposing team’s player to obtain a temporary competitive advantage or yellow card penalty’s.

    “When it comes to our own behavior, we sometimes display an integrity gap between what we believe and how we behave.” Bob Stone, The Ethics Challenge

    In the recent past, there has been no or little consequences have befallen these college student-athletes or head coaches when they apparently attempt to mislead, omit and obfuscate during collegiate athletic competitions.

    Integrity in athletics appears to have taken a backseat and is often not in the vehicle when it comes to college sports. The pressure to win at all costs appears to have become the norm.

    College presidents and athletic directors must lead from the front. They must address strongly the growing questionable and less than acceptable conduct originating from their head coaches and students-athletes.

    In the words of President Franklin Roosevelt, “Knowing what’s right doesn’t mean much unless you do what’s right.”

    References:

    1. http://www.ncaa.org/about/what-we-do/fairness-and-integrity

    3 mistakes to avoid during a market downturn | Vanguard

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    Following a decade-plus of generally rising markets, a meaningful downturn in stocks may finally be here. We don’t know how bad it will be or how long it will last.

    We do know that some investors will make costly mistakes before prices rise again. Here are 3 common errors worth avoiding.
    — Read on investornews.vanguard/3-mistakes-to-avoid-during-a-market-downturn/

    Ditch Debt and Start Saving | Fidelity Investments

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    Balancing paying off debt and saving can be tricky. Here’s a step-by-step guide.

    BY STAFF WRITER, FIDELITY – 06/28/2019

    Key takeaways

    • Save for an emergency—consider saving enough to cover 3 to 6 months of expenses.
    • Consider a health savings account if you’re eligible, and contribute to your workplace retirement plan.
    • Pay down debts with the highest interest rate first.

    Student loans, credit card balances, car loans, and mortgages—oh, my. You probably have a variety of debt—most people do. So which should you focus on paying off first? And how can you save at the same time?

    Of course, make sure to pay at least the minimum required—and on time—to keep all loans in good status. After all, defaulting on credit cards, car loans, student debt, or home mortgages can destroy your credit rating, and risk bankruptcy.

    Before you tackle debt, pay yourself first. Make sure you:

    • Use tax-advantaged accounts like a flexible spending account or a health savings account if you have a high deductible health plan. That lets you pay for medical bills using pre-tax money.
    • Save enough in a workplace retirement savings plan to get the match from your employer—that’s “free money.”
    • Set aside some cash for emergencies.

    Assuming you are meeting those primary obligations, here’s a link to a guide to help you pay off debt while saving for emergencies and long-term goals like retirement. It may seem counterintuitive, but before you tackle debt, make sure you have some “just in case” money and save for retirement.

    — Read on www.fidelity.com/mymoney/ditch-debt-and-start-saving

    Virgin Galactic Chairman Palihapitiya says stock isn’t a bubble, points to $2.4 billion ‘pipeline’ | CNBC’s “Squawk Box”

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    “There’s a setup [in the market] where there’s no real growth, there’s no unique stories and there’s nothing that can give you long-term outlook.” Chamath Palihapitiya

    KEY POINTS

    • Virgin Galactic Chairman Chamath Palihapitiya identified a combination of factors as driving the stock’s recent rally, including current U.S. market conditions.
    • “There’s a set-up [in the market] where there’s no real growth, there’s no unique stories and there’s nothing that can give you long-term outlook,” Palihapitiya said.
    • Palihapitiya quantified the interest from potential Virgin Galactic customers, saying the nearly 8,000 people saying they want to fly to space translates to about $2.4 billion in future revenue for the company.
    • “There is a clear winner in electrification,” says Chamath Palihapitiya, one of Facebook’s first executives and the founder of hedge fund Social Capital.
    • People are focusing too closely on the “window dressing” of Musk’s behavior and not enough on the “main course,” which is Tesla itself and its competitiveness in the marketplace, he says.

    Virgin Galactic Chairman Chamath Palihapitiya thinks the recent rally by Wall Street’s favorite speculative stock is not the sign of a bubble, pointing instead to the space tourism company’s growing demand from possible customers.

    Shares of Virgin Galactic have tripled since the beginning of the year. But, asked whether he thinks the stock is getting ahead of itself, Palihapitiya identified a combination of factors as driving shares higher, including the current U.S. market conditions and the demand Virgin Galactic is seeing from potential customers.

    “There’s a setup [in the market] where there’s no real growth, there’s no unique stories and there’s nothing that can give you long-term outlook,” Palihapitiya said on CNBC’s “Squawk Box” on Wednesday.

    Palihapitiya added that this setup for Virgin Galactic’s stock rally “also applies to Tesla,” saying “those two things are the most similar stories.”

    “When a company comes along that has a unique narrative and is trying to do something that is differentiated, high margin and could theoretically grow for 10 years … these things get re-priced in ways that are non-traditional,” Palihapitiya said.

    Virgin Galactic as a business is “making amazing progress,” he said, although the company’s timeline for beginning commercial operations appears to have been pushed back. The company told investors ahead of its October stock debut that commercial flights would begin in the first or second quarter of this year, setting a target for 16 flights in 2020. But that schedule has slipped, as often happens in the space industry, with CEO George Whitesides telling shareholders on Tuesday that the company’s main goal this year is to safely fly founder Sir Richard Branson to space. Generating significant revenue this year, then, is not the company’s current focus.

    Tesla

    “Betting against entrepreneurs who are changing the world has never been a profitable endeavor.” Chamath Palihapitiya

    Demand for Tesla cars is strong and exceeds other players in the electric-car market.

    Palihapitiya states that, “All of that stuff doesn’t matter. It doesn’t change the fact that tens of thousands of consumers are buying that car faster than they can get their hands on it. It doesn’t change that as soon as you sit inside that car, your definition of what is expected is altered forever,” he said.

    “At the end of the day, whether you like his [Elon Musk] style or not, his substance is irrefutable,” Palihapitiya said. “People are betting against his style. Betting against entrepreneurs who are changing the world has never been a profitable endeavor.”

    In the end, Palihapitiya is taking a long view on Tesla.

    Read on: https://www.cnbc.com/2020/02/26/virgin-galactic-chairman-doesnt-think-spce-stock-is-a-bubble.html

    https://www.cnbc.com/2019/04/30/chamath-palihapitiya-musk-is-the-clear-winner-in-electric-cars.html