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Financial Planning 12 Step Process

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A financial plan creates a roadmap for your money and helps you achieve your financial goals.

The purpose of financial planning is to help you achieve short- and long-term financial goals like creating an emergency fund and achieving financial freedom, respectively. A financial plan is a customized roadmap to maximize your existing financial resources and ensures that adequate insurance and legal documents are in place to protect you and your family in case of a crisis. For example, you collect financial information and create short- and long-term priorities and goals in order to choose the most suitable investment solutions for those goals.

Although financial planning generally targets higher-net-worth clients, options also are available for economically vulnerable families. For example, the Foundation for Financial Planning connects over 15,000 volunteer planners with underserved clients to help struggling families take control of their financial lives free of charge.

Research has shown that a strong correlation exist between financial planning and wealth aggregation. People who plan their financial futures are more likely to accumulate wealth and invest in stocks or other high-return financial assets.

When you start financial planning, you usually begin with your life or financial priorities, goals or the problems you are trying to solve. Financial planning allows you to take a deep look at your financial wellbeing. It’s a bit like getting a comprehensive physical for your finances.

You will review some financial vital signs—key indicators of your financial health—and then take a careful look at key planning areas to make sure some common mistakes don’t trip you up.

Structure is the key to growth. Without a solid foundation — and a road map for the future — it’s easy to spin your wheels and float through life without making any headway. Good planning allows you to prioritize your time and measure the progress you’ve made.

That’s especially true for your finances. A financial plan is a document that helps you get a snapshot of your current financial position, helps you get a sense of where you are heading, and helps you track your monetary goals to measure your progress towards financial freedom. A good financial plan allows you to grow and improve your standing to focus on achieving your goals. As long as your plan is solid, your money can do the work for you.

A financial plan is a comprehensive roadmap of your current finances, your financial goals and the strategies you’ve established to achieve those goals. It is an ongoing process to help you make sensible decisions about money, and it starts with helping you articulate the things that are important to you. These can sometimes be aspirations or material things, but often they are about you achieving financial freedom and peace of mind.

Good financial planning should include details about your cash flow, net worth, debt, investments, insurance and any other elements of your financial life.

Financial planning is about three key things:

  • Determining where you stand financially,
  • Articulating your personal financial goals, and
  • Creating a comprehensive plan to reach those goals.
  • It’s that easy!

Creating a roadmap for your financial future is for everyone. Before you make any investing decision, sit down and take an honest look at your entire financial situation — especially if you’ve never made a financial plan before.

The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional.

There is no guarantee that you’ll make money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.

12 Steps to a DIY Financial Plan

It’s not the just the race car that wins the race; it also the driver. An individual must get one’s financial mindset correct before they can succeed and win the race. You are the root of your success. It requires:

  • Right vehicle at the right time
  • Right (general and specific) knowledge, skills and experience
  • Right you…the mindset, character and habit

Never give up…correct and continue.

Effectively, the first step to financial planning and the most important aspect of your financial life, beyond your level of income, budget and investment strategy, begins with your financial mindset and behavior. Without the right mindset around your financial well-being, no amount of planning or execution can improve your current financial situation. Whether you’re having financial difficulty, just setting goals or only mapping out a plan, getting yourself mindset right is your first crucial step.

Knowing your impulsive vices and creating a plan to reduce them in a healthy way while still rewarding yourself occasionally is a crucial part of a positive financial mindset. While you can’t control certain things like when the market takes a downward turn, you can control your mindset, behavior and the strategies you trust to make the best decisions for your future. It’s especially important to stay the course and maintain your focus on the positive outcomes of your goals in the beginning of your financial journey.

Remember that financial freedom is achieved through your own mindset and your commitment to accountability with your progress and goals.

“The first step is to know exactly what your problem, goal or desire is. If you’re not clear about this, then write it down, and then rewrite it until the words express precisely what you are after.” W. Clement Stone

1. Write down your goals—In order to find success, you first have to define what that looks like for you. Many great achievements begin as far-off goals, that seem impossible until it’s done. Though you may not absolutely need a goal to succeed, research still shows that those who set goals are 10 times more successful than those without goals. By setting SMART financial goals (specific, measurable, achievable, relevant, and time-bound), you can put your money to work towards your future. Think about what you ultimately want to do with your money — do you want to pay off loans? What about buying a rental property? Or are you aiming to retire before 50? So that’s the first thing you should ask yourself. 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 values and goals will act as a motivator as you dig into your financial details. Setting concrete goals may keep you motivated and accountable, so you spend less money and stick to your budget. Reminding yourself of your monetary goals may help you make smarter short-term decisions about spending and help to invest in your long-term goals. When you understand how your goal relates to what you truly value, you can use these values to strengthen your motivation. Standford Psychologist Kelly McGonigal recommends these questions to get connected with your ideal self:

  • What do you want to experience more of in your life, and what could you do to invite that/create that?
  • How do you want to be in the most important relationships or roles in your life? What would that look like, in practice?
  • What do you want to offer the world? Where can you begin?
  • How do you want to grow in the next year?
  • Where would you like to be in ten years?

Writing your goals out means you’ll be anywhere from 1.2 to 1.4 times more likely to fulfill them. Experts theorize this is because writing your goals down helps you to choose more specific goals, imagine and anticipate hurdles, and helps cement them in your mind.

2. Create a net worth statement—To create a successful plan, you first need to understand where you’re starting so you can candidly address any weak points and create specific goals. 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. Your ratio of assets to liabilities may change over time — especially if you pay off debt and put money into savings accounts. Generally, a positive net worth (your assets being greater than your liabilities) is a monetary health signal. If you’re in the plus, great. If you’re in the minus, that’s not at all uncommon for those just starting out, but it does point out that you have some work to do. But whatever it is, you can use this number as a benchmark against which you can measure your progress.

3. 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. Do you consistently overspend? How much are you saving? Do you often have extra cash you could direct toward your goals?

4. 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. Does your income easily cover all of this? Are savings a part of your monthly budget? Examining your expenses and spending 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 aligns with your values and what is most important to you.  An excellent method of budgeting is the 50/30/20 rule. To use this rule, you divide your after-tax income into three categories:

  • Essentials (50 percent)
  • Wants (30 percent)
  • Savings (20 percent)

The 50/30/20 rule is a great and simple way to achieve your financial goals. With this rule, you can incorporate your goals into your budget to stay on track for monetary success.

5. Create an Emergency Fund–Did you know that four in 10 adults wouldn’t be able to cover an unexpected $400 expense, according to U.S. Federal Reserve? With so many people living paycheck to paycheck without any savings, unexpected expenses might seriously throw off someone’s life if they aren’t prepared for the emergency. It’s important to save money during the good times to account for the bad ones. This rings especially true these days, where so many people are facing unexpected monetary challenges. Keep 12 months of essential expenses as Emergency Fund or a rainy day fund.  If you or your family members have a medical history, you may add 5%-10% extra for medical emergencies (taking cognizance of the health insurance cover) to the amount calculated using the above formula. An Emergency Fund is a must for any household. Park the amount set aside for contingencies in a separate saving bank account, term deposit, and/or a Liquid Fund.

6. 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. Don’t go overboard when taking out a home loan. It can be frustrating to allocate your hard-earned money towards savings and paying off debt, but prioritizing these payments can set you up for success in the long run. But, as a rule of thumb, the value of the house should not exceed 2 or 3 times your family’s annual income when buying on a home loan and the price of your car should not exceed 50% of annual income. 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. This is called the debt-to-income ratio. If you stick to this ratio, it will be easier to service your loans/debt. Borrow only as much as you can comfortably repay. If you have multiple loans, it is advisable to consolidate all loans into a single loan, that has the lowest interest rate and repay it regularly.

“Before you pay the government, before you pay taxes, before you pay your bills, before you pay anyone, the first person that gets paid is you.” David Bach

7. Get your retirement savings on track—Whatever your age, retirement planning is an essential financial goal and retirement saving needs to be part of your financial plan. Although retirement may feel a world away, planning for it now is the difference between a prosperous retirement income and just scraping by. 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. To build a retirement nest egg, aim to create at least 20 times your Gross Total Income at the time of your retirement. This is necessary to keep up with inflation. But if you begin saving early, you may be surprised to find that even a little bit over time can make a big difference thanks to the power of compounding interest. Do not ignore ‘Rule of 72’ – As per this rule, the number 72 is divided by the annual rate of return on investment to determine the time it may take to double the money invested. There are several types of retirement savings, the most common being an IRA, a Roth IRA, and a 401(k):

  • IRA: An IRA is an individual retirement account that you personally open and fund with no tie to an employer. The money you put into this type of retirement account is tax-deductible. It’s important to note that this is tax-deferred, meaning you will be taxed at the time of withdrawal.
  • Roth IRA: A Roth IRA is also an individual retirement account opened and funded by you. However, with a Roth IRA, you are taxed on the money you put in now — meaning that you won’t be taxed at the time of withdrawal.
  • 401(k): A 401(k) is a retirement account offered by a company to its employees. Depending on your employer, with a 401(k), you can choose to make pre-tax or post-tax (Roth 401(k)) contributions. 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.

Ideally, you should save 15% to 30% from your net take-home pay each month, before you pay for your expenses. This money should be invested in assets such as stocks, bonds and real estate to fulfil your envisioned financial goals. If you cannot save 15% to 30%, save what you can and gradually try and increase your savings rate as your earnings increase. Whatever you do, don’t put it off.

After retiring, follow the ‘80% of the income rule’. As per this rule, from your investments and/or any other income-generating activity, you need to generate at least 80% of the income you had while working. This will ensure that you can take care of your post-retirement expenses and maintain a comfortable standard of living. So make sure to invest in productive assets.

8. Check in with your portfolio—If you’re an investor, when was the last time you took a close look at your portfolio? If you’re not an investor, To start investing, you should first figure out the initial amount you want to deposit. No matter if you invest $50 or $5,000, putting your money into investments now is a great way to plan for financial success later on. 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. As a rule of thumb, your equity allocation should be 100 minus your current age – Many factors determine asset allocation, such as age, income, risk profile, nature and time horizon for your goals, etc. But you could broadly follow the formula: 100 minus your current age as the ratio to invest in equity, with the rest going to debt. And, never invest in assets you do not understand well.

  • Good health is your greatest need. Without good health, you can’t enjoy anything else in life.

9. Make sure you have the right insurance—As your wealth grows over time, you should start thinking about ways to protect it in case of an emergency. Although insurance may not be as exciting as investing, it’s just as important. Insuring your assets is more of a defensive financial move than an offensive one. 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. Have 10 to 15 times of annual income as life insurance – If you are the bread earner of your family, you should have a tem life insurance coverage of around 10 to 15 times your annual income and outstanding liabilities. No compromise should be made in this regard. Review your policies to make sure you have the right type and amount of coverage. Here are some of the most important ones to get when planning for your financial future.

  • Life insurance: Life insurance goes hand in hand with estate planning to provide your beneficiaries with the necessary funds after your passing.
  • Homeowners insurance: As a homeowner, it’s crucial to protect your home against disasters or crime. Many people’s homes are the most valuable asset they own, so it makes sense to pay a premium to ensure it is protected.
  • Health insurance: Health insurance is protection for your most important asset: Your health and life. Health insurance covers your medical expenses for you to get the care you need.
  • Auto insurance: Auto insurance protects you from costs incurred due to theft or damage to your car.
  • Disability insurance: Disability insurance is a reimbursement of lost income due to an injury or illness that prevented you from working.

10. Know your income tax situation—Taxes can be a drag, but understanding how they work can make all the difference for your long-term financial goals. While taxes are a given, you might be able to reduce the burden by being efficient with your tax planning. Tax legislation tend to change a number of deductions, credits and tax rates. Don’t be caught by surprise when you file your last year’s taxes. To make sure you’re prepared for the 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. You may also want to check in with your tax accountant for specific tax advice.

11. Create or update your estate plan—Thinking about estate planning is important to outline what happens to your assets when you’re gone. To create an estate plan, you should list your assets, write your will, and determine who will have access to the information. 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. Medical directive forms are sometimes available online or from your doctor or hospital. Working with an estate planning attorney is recommended to help you plan for complex situations and if you need more help.

12. Review Your Plans Regularly–Figuring out how to create a financial plan isn’t a one-time thing. Your goals (and your financial standing) aren’t stagnant, so your plan shouldn’t be either. It’s essential to reevaluate your plan periodically and adjust your goals to continue setting yourself up for success. As you progress in your career, you may want to take a more aggressive approach to your retirement plan or insurance. For example, a young 20-something in their first few years of work likely has less money to put into their retirement and savings accounts than a person in their mid-30s who has an established career. Staying updated with your financial plan also ensures that you hold yourself accountable to your goals. Over time, it may become easy to skip one payment here or there, but having concrete metrics might give you the push you need for achieving a future of financial literacy. After you figure out how to create a monetary plan, it’s good practice to review it around once a year.

Additionally, take into account factors such as the following:

  • The number of years left before you retire
  • Your life expectancy (an estimate, based on your family’s medical history)
  • Your current basic monthly expenditure
  • Your existing assets and liabilities
  • Contingency reserve, if any
  • Your risk appetite
  • Whether you have adequate health insurance
  • Whether you have provided for other life goals
  • Inflation growth rate

A financial plan isn’t a static document to sit on — it’s a tool to manage your money, track your progress, and one you should adjust as your life evolves. It’s helpful to reevaluate your financial plan after major life milestones, like getting m arried, starting a new job or retiring, having a child or losing a loved one.

Financial planning is a great strategy for everyone — whether you’re a budding millionaire or still in college, creating a plan now can help you get ahead in the long run, especially if you want to make a roadmap to a successful future.

For additional financial planning resources to create your own financial plan, go to the MoneySense complete financial plan kit.

References:

  1. https://www.pewtrusts.org/en/research-and-analysis/articles/2017/04/06/can-economically-vulnerable-americans-benefit-from-financial-capability-services
  2. https://www.forbes.com/sites/forbesfinancecouncil/2020/05/26/your-mindset-is-everything-when-it-comes-to-your-finances/?sh=22f5cb394818
  3. https://www.schwab.com/resource-center/insights/content/10-steps-to-diy-financial-plan
  4. https://www.principal.com/individuals/build-your-knowledge/build-your-own-financial-plan-step-step-Guide
  5. https://mint.intuit.com/blog/planning/how-to-make-a-financial-plan/
  6. https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf
  7. https://news.stanford.edu/news/2015/january/resolutions-succeed-mcgonigal-010615.html
  8. https://www.investec.com/content/dam/united-kingdom/downloads-and-documents/wealth-investment/for-myself/brochures/financial-planning-explained-investec-wealth-investment.pdf
  9. https://www.sec.gov/investor/pubs/tenthingstoconsider.html
  10. https://www.nerdwallet.com/article/investing/what-is-a-financial-plan
  11. https://www.axisbank.com/progress-with-us/money-matters/save-invest/10-rules-of-thumb-for-financial-planning-and-wellbeing
  12. https://twocents.lifehacker.com/10-good-financial-rules-of-thumb-1668183707

 

Financial Literacy: Six Principles of Personal Finance | TD Ameritrade

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Imagine operating a boat without the basic understanding of nautical rules of the road or even how to operate a boat. Scary thought.

Here’s another scary circumstance – one that is all too real. Many Americans are making financial decisions with minimal financial knowledge of investing, budgeting, and credit. The TIAA Institute conducted a survey on U.S. financial literacy, asking 28 basic questions about retirement saving, debt management, budgeting, and other financial matters. The average respondent answered only about half of the questions correctly.

Another study, conducted by Pew Research, found that one in four Americans say that they won’t be able to pay their bills on time this month.

It has been said that knowledge is power, and if that’s true, then too many Americans lack the power to control their financial futures. Financial success rarely happens by accident; it is typically the outcome of a journey that starts with education.

Talking about money is one of the most important skills to being a fiscally responsible and a financially literate person. However, 44% of Americans surveyed would rather discuss death, religion or politics than talk about personal finance with a loved one, according to CNBC.

Why? Two major reasons are embarrassment and fear of conflict, even though the consequences can be grave: 50% of first marriages end in divorce, and financial conflict is often a key contributor. Additionally, it is considered rude to discuss money and wealth.

The missing component is financial literacy education and training.

Mastering personal finance requires you to look at your financial situation holistically and come up with a plan for how to manage your money. In this TD Ameritrade video, we’ll look at helpful principles for six personal finance topics:

  1. Budgeting – focus on the big ticket items by cutting cost on the expensive costs such as cars and homes
  2. Saving and investing – be specific about your destination and your plan on achieving your goal and reaching your destination
  3. Debt and Credit – avoid high interest debt and loans on items that will quickly lose value
  4. Reduce taxes – find ways to legally pay less taxes on the income you earn,
  5. Avoid insurance for expenses you can pay out of pocket – purpose of insurance is to protect you in unfortunate scenarios.  60% of all bankruptcy is related to medical expenses
  6. Investing for retirement. – don’t just save for retirement, invest for retirement.

Make high impact adjustments to your finances to improve your financial future.

References:

  1. https://www.cnbc.com/2019/04/30/the-us-is-in-a-financial-literacy-crisis-advisors-can-fix-the-problem.html
  2. https://www.tiaainstitute.org/publication/financial-well-being-and-literacy-midst-pandemic
  3. https://www.pewtrusts.org/en/research-and-analysis/articles/2017/04/06/can-economically-vulnerable-americans-benefit-from-financial-capability-services

Looming Threat of Inflation

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“Inflation destroys savings, impedes planning, and discourages investment. That means less productivity and a lower standard of living.” Kevin Brady

Brian Wesbury, Chief Economist at First Trust Advisors, is concerned about inflation increasing faster than the Federal Reserve anticipates. Wesbury said that he is focused on the rapid increase in the M2 measure of the money supply. This measure has soared since COVID-19 hit the US, up about 25% from a year ago, the fastest growth on record.

From his viewpoint, the rapid increase in M2 is the key difference between the current situation and the situation in the aftermath of the Financial Crisis of 2008-09. During that first round of Quantitative Easing and big spending bills (like TARP), the M2 measure remained subdued because the Fed kept banks from lending, in part by raising capital standards. As a result, inflation remained subdued as well.

The late great economist Milton Friedman stress that policy makers watch M2: Nominal economic growth and inflation will tend to track M2 broadly over time, adjusted for any fluctuations in the velocity of money, the speed with which money circulates through the economy.

The US economy is healing faster than expected, while the US Congress and President Biden are intent on pouring at least one more massive government spending stimulus into the system, according to Wesbury. They are doing this even though the pandemic is waning, and a double-dip recession seems highly unlikely.

The big risk for the next couple of years is an upward surge in inflation that’s larger than anything we’ve experienced in the past couple of decades.

“I think the inflation prospects for the U.S. over the next five or six, seven years, are quite serious. You cannot have a bumper crop in apples without the value or the price of each apple falling. The Fed has had the largest increase in the monetary base in the history of the U.S., from colonial times to the present, times ten.” Arthur Laffer, an Economist known for his tax revenue theory called the Laffer Curve

He still project 2.5% CPI inflation for 2021, as the government’s measure of housing rents holds the top-line inflation number down. But commodity prices are likely to continue rising and overall inflation will as well in in 2022 and beyond. There is an old saying: When the Fed is not worried about inflation, Wesbury states, “the market should be worried.”

References:

  1.  https://www.ftportfolios.com/Commentary/EconomicResearch/2021/3/1/powell-disses-uncle-milty

Rising Bond Yield Leads to Market Sell-off | CNBC

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The culprit behind the recent stock market sell-off was the rapid rise in 10-Year U.S. Treasury bond yields. The 10-year Treasury yield remained above 1.4%, after surging to 1.6% in the previous day session to its highest level since February 2021 and more than 0.5% higher since the end of January, according to CNBC.

The spike in the 10-year yield , which is used as a benchmark for mortgage rates and auto loans, is reacting to positive economics as vaccines are rolled out and GDP forecasts improve, which should benefit corporate profits. But the move could also signal faster-than-expected inflation ahead. The sheer pace of the rise has also had the effect of dampening investors’ appetite for richly valued areas of the market like technology and other growth stocks. Higher rates reduce the value of future cash flows so they can have the effect of compressing equity valuations.

All three stock benchmarks — Dow Jones Industrial Average , Nasdaq and S&P500 — were tracking for weekly losses ahead of the final trading day of February. The Nasdaq was down nearly 7% from its February 12, 2021, record closing high. The Dow and S&P 500 both remain solidly in the green for the month. However, the S&P 500 was off almost 2.7% from its last record closing high, also on February 12, 2021, and the Dow had its worst day in nearly a month on Thursday.

Additionally, inflation concerns are being stoked on the thought that the $1.9 trillion COVID-19 stimulus bill — which passed the House of Representatives — on top of accelerating growth could overheat the economy.

Economists and investment managers say the bond market is reacting to positive economics as vaccines are rolled out and GDP forecasts improve, which should benefit corporate profits. But the move could also signal faster-than-expected inflation ahead.

References:

  1. https://www.cnbc.com/2021/02/26/5-things-to-know-before-the-stock-market-opens-feb-26-2021.html

What Every Woman Needs To Know About Her Money

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“The lion’s share of wealth, two-thirds of wealth in the United States, is going to end up in the hands of women by the year 2030.” Jean Chatzky

The women that Jean Chatzky, New York Times Bestselling Author and financial editor at the NBC TODAY Show, has talked with “share a lack of confidence” regarding managing and investing their money. “Whether we’ve got one hundred, one hundred thousand, or one million dollars, we don’t always feel equipped to manage it, even when we’re doing exactly the right things,” she explained.

In order to create a better world, Chatzky suggests women should, “…use this power that’s coming our way to improve not just our lives, but the lives of the people that we love and care about, and the causes that  we believe in. We really do have an opportunity through giving and investing to create the world we want.”

Women…”have an opportunity through giving and investing to create the world we want.” Jean Chatzky

Chatzky offers 15 tips to help you get a handle on your finances and to create the financial future you want for yourself.  A future that aligns with your goals, values and purpose in life.

1. Talk openly about money

Chatzky explains, “We gather groups of women who don’t make a habit of talking about money with the specific purpose of talking about money…and it’s really freeing.” One open ended question she asks is, “What do you want your money to do for you?”.

2. Track your spending to see what you really value

Do you want a clear picture of your spending? More so, do you want to uncover whether or not what you say are priorities are aligned with your expenditures?

3. Determine what your ideal life actually costs

“What do you want from your life?” This is a question Chatzky believe you need to consider so that you can determine what your ideal life actually costs. Write down what you want and next to each item, list the price to do or have it.

4. Use money as a resource to buy you more time

Money is a tool which creates freedom of time and choice. Chatzy shares, “The most important thing to realize is the opportunity that you’re wasting. Money we can get more of. Time, you absolutely can’t get more of…But by moving around some of our money, we can restructure our time in a way that feels much better, much more fulfilling, and much less stressful. We are so stressed, and using our money to swap for a little bit of extra time is one great way to reduce some of that stress.”

5. Identify your money scripts

“We all have stories around money which became ingrained as children. In some cases we mimic them, in others we rebel against them. In order to know where you’re going with your financial future, it’s helpful to identify the scripts that are overtly or subliminally impacting your views and habits around money,” advises Chatzky.

6. Find financial harmony in your primary relationship

Chatzy suggests, “Listening is the key to success within a relationship. You have to understand why your partner needs what they need as much as they need to understand what you need.”

7. Don’t let money injure your friendships

“Listen and read between the lines. We know an awful lot about our friends’ financial situations, even if they tell us not one thing. We see how they spend. We see how they manage. We know if they’re stressed financially. We just have to be a little bit empathetic and open-minded about the fact that they may not have the same choices or priorities that we have. And that doesn’t mean that we can’t be great friends,” shares Chatzky.

8. Teach your kids early

It can feel scary to talk to your kids about money, especially if you feel tentative about your own financial skills. Fortunately, it doesn’t have to be challenging: “Kids have to have money in order to learn to manage money.”

9. Get paid what you deserve

To charge or get paid what you deserve, “First, you must know what you deserve and once you know what that number is, you have to ask for it:

10. Negotiating won’t hurt your outcomes

The person on the other side of the table, they are waiting for you to negotiate, according to Chatzky. They’re not going to punish you for negotiating. You may not get the money. But asking is not going to hurt you.

11. To be or not to be (an entrepreneur)

30% of US businesses are women-owned, and that number is rising steadily.

12. Spend on others

Studies show that when you do for others, you’re guaranteed to feel happier. This includes when you spend on others. “There’s no sense in feeling guilty for spending money that’s not sabotaging our financial life”, says Chatzky.

13. Talk with aging parents

“If you haven’t had a conversation with your parents before you’ve hit age forty or they hit age seventy, it’s time”, she comments

14. Have a little fun with your money

Chatzky comes from a judgment-free zone when it comes to how you spend your money. But, “know how much it costs” since you earned that money and yours to do with as you want.

15. Consider your legacy

“You have to think about what’s important to you. That’s where a lot of us fall down when it comes to charitable giving”, Chatzky says.

Building wealth

If you want to build wealth, you need only do four things, according to Chatzky:

  1. Make a decent living.
  2. Spend less than you make.
  3. Invest the money you donʼt spend.
  4. Protect the financial world you build so that a disaster doesnʼt take it all away from you.

Building wealth sounds easy, so why is it so hard, particularly for women?  “Because women according to Chatzky, “make excuses”. We tell ourselves that we’re “just not good with money,” or that our husbands “like taking care of the finances.”

In short, “what successful women want from their money are: independence, security, choices, a better world, and–oh yes–way less stress, not just for themselves but for their kids, partners, parents, and friends.”

To read more: https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/

References:

  1. https://www.vunela.com/jean-chatzky-on-the-top-15-things-every-woman-needs-to-know-about-her-money/
  2. https://www.jeanchatzky.com/books/

Vaccination and Economic Recovery

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As the Federal Reserve Chairman Jerome Powell reiterated, the economic recovery is dependent upon not only the course of the virus but also the vaccination progress. One silver lining is that some of the data trends, such as new cases and hospitalizations, appear to have peaked and are steadily improving. However, for a full return to normality, vaccinations for the majority of the population need to occur swiftly.

“Recovery will depend on the willingness of people to get on an airplane, stay in a hotel, and go out to dinner,” writes Raymond James chief economist Scott Brown. “A quicker rollout of vaccines will get us there sooner, but there is also a risk that vaccines will be less effective against new strains of the virus. Booster shots may be needed.”

The number of new daily COVID-19 cases has declined from recent highs, but remain elevated. Increased social distancing, whether state mandated or voluntary self-preservation, should slow the pace (and the economy) in the near term, according to Brown. The New York Fed’s Weekly Economic Index fell to -2.28% for the week ending January 23. The WEI is scaled to four- quarter GDP growth (for example, if the WEI reads -2% and the current level of the WEI persists for an entire quarter, we would expect, on average, GDP that quarter to be 2% lower than a year previously).

Yet, there are a few reasons for optimism.

  • First, President Biden’s original pledge of 100 doses in his first 100 days has been increased to 150 million as production and distribution capabilities expand. Purchasing 100 million doses of each of the high-efficacy Pfizer and Moderna vaccines is a positive.
  • Second, more experience should allow state administrators to improve communications and streamline the distribution process of the vaccine at the local level to maximize daily inoculations.
  • Third, while additional vaccines such as AstraZeneca and Johnson & Johnson have a lower efficacy rate than Modern and Pfizer, they will provide further accessibility (assuming emergency use authorization (EUA) is granted by the FDA) for people to receive some level of protection and hopefully avoid hospitalization.
  • The bottom line is that more effective distribution and additional second wave vaccine options keep the expectation of a return to normality for the US economy (and likely the rest of the world) around midyear. The biggest unknown and threat to this timeline remains the potential deterioration in vaccine effectiveness against the new mutations of the virus.

    • https://twitter.com/raymondjames/status/1353402346550644737?s=21

    References:

    1. https://www.raymondjames.com/commentary-and-insights/economy-policy/2021/01/29/weekly-economic-commentary

    Financial Literacy and COVID-19 | Charles Schwab Foundation

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    “89 percent of respondents to a Charles Schwab’s survey believe a lack of financial literacy contributes to larger social issues—from poverty, to fewer job opportunities, to wealth and gender inequality.” Carrie Schwab-Pomerantz

    • Even in the wake of a global health crisis, Americans value financial education.
    • An overwhelming majority of Americans believe that a lack of financial literacy contributes to larger social issues.
    • Americans want our schools to take the lead in providing our youth with a financial education.

    The impact of financial illiteracy is not lost on the American public. 89% of Americans agree that lack of financial education contributes to some of the biggest social issues our country faces, including poverty (58%), lack of job opportunities (53%), unemployment (53%), and wealth inequality (52%).

    “Financial illiteracy is insidious. The antidote is financial education, which gives people the skills they need to make smart money decision and can help improve their lives.” Carrie Schwab-Pomerantz, president of Charles Schwab Foundation.

    Americans indicated they wish they had better money management skills, according to a Charles Schwab survey. When asked what they would teach their younger selves about personal finance based on what they know today, Americans said the value of saving money (59%), basic money management (52%), and how to set financial goals and work toward them (51%).

    From the survey, it is apparent that every person in America should be taught the fundamentals of money management including budgeting, saving, avoiding debt, setting financial goals and investing.

    “The pandemic has underscored just how critical basic personal finance skills are in preparing for the unexpected. Financial literacy is a survival skill that everyone needs.” Carrie Schwab-Pomerantz

    Carrie Schwab-Pomerantz recommends five key steps every American can take to help shore up their finances during this period of global health crisis and economic uncertainty.

    • Start an emergency fund (or add more to it) to help protect yourself against an unexpected drop in income or expense shock. Set aside whatever you can – every little bit counts. Try to aim for $1,000-$2,000 to get started, and then work your way up to 3-6 month worth of essential expenses over time.
    • Create a budget to help you prioritize and assess your financial resources. Self-isolation has led to different spending patterns for many people, including cutting back on what we may have previously thought of as “essential.”
    • Create a financial plan to help you navigate from where you are to where you want to be. You don’t need to have a lot of money to need a financial plan. Consider it a roadmap to reach your financial goals, whether that’s to pay off debt, build savings, or make a large purchase.
    • Ask for help if you’re struggling. Given the scale of this economic crisis, the government, lenders and creditors are trying to work with borrowers through this difficult time. Don’t hide from creditors – that can make things worse.
    • Focus on what you can control. You can’t predict or control the market, but you can control how you manage your investments, your savings rate, having a financial plan and how you react to events.

    “The need for financial literacy is especially urgent for women and minorities, who continue to face unique challenges at home and in the workplace,” said Schwab-Pomerantz.

    However, financial literacy isn’t a cure-all, but it is an essential key to unlocking doors to opportunity and financial security.

    References:

    1. https://www.schwab.com/resource-center/insights/content/americans-want-financial-literacy-now?SM=URO#sf237483690
    2. https://pressroom.aboutschwab.com/press-releases/press-release/2020/Charles-Schwab-Financial-Literacy-Survey-Exposes-Grave-Impact-of-Lack-of-Financial-Education-During-COVID-19/default.aspx

    Return Kids to In-Person Classroom

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    Many parents are rightfully concerned that their kids are not receiving the quality of educational services that schools are required, by law, to provide when school districts implement a 100% virtual learning or hybrid classroom model [that ask students to come to school on alternating days] options.

    The American Academy of Pediatrics’ (AAP) contends that based on experience and research, remote learning is likely to result in severe learning loss and increased social isolation. Social isolation, in turn, can breed serious social, emotional and health issues: “child and adolescent physical or sexual abuse, substance use, depression, and suicidal ideation. Furthermore, these impacts will be visited more severely on Black and brown children, as well as low-income children and those with learning disabilities.”

    Children are safer in their schools. And, there are lots of kids in this country who are, for example, food insecure, who may be experiencing abuse at home — not to mention the obvious academic benefits of simply being in school. We know that remote learning is just not that good.

    Nation’s Pediatricians support in-person schooling

    The AAP guidance “strongly advocates that all policy considerations for the coming school year should start with a goal of having students physically present in school.” Their guidance says “schools are fundamental to child and adolescent development and well-being.”

    The AAP cites “mounting evidence that transmission of the coronavirus by young children is uncommon, partly because they are less likely to contract it in the first place. Tests showed lower coronavirus rates in schools than in their surrounding communities.”

    The guidance for in-person schooling includes recommendations to maintain physical distancing, cleaning and disinfection of classrooms, frequent hand-washing, and using outdoor spaces whenever possible.

    Largest school system

    New York City’s Mayor Bill de Blasio plans to reopen the city’s public elementary schools and return to partial in-person learning. The plan is to reopen schools at the pre-k and K5 levels because “we have so much proof now of how safe schools can be” amid the contagion”, de Blasio remarked.

    Yet, concern remains at what is the critical amount of community transmission that is at a safe enough level to open schools.

    Parents and schools responsibilities

    Schools are requiring parents to attest to the fact that their children are not showing symptoms and that they took their temperature in the morning prior to the student arriving at school.

    Additionally, many schools are segregating kids into what they’re calling cohort groups, so that the same small group of 10 or 12 kids will stay together all day. That way, if there is a reported infection from one of those kids, then ideally you’re only contact tracing and quarantining that group instead of every child in the building.

    Furthermore, students will be socially distanced and will be wearing masks. The challenge of footprint and the ability to space out desks remains a challenge for most schools. Some schools have put those kids in the gymnasium or had to start holding class outside, but that often requires more teachers.

    “There seems to be less transmission from kids to adults than there is adults to adults. Kids don’t seem to be super-spreaders”, said Pediatrician Aaron Carroll of Indiana University. “We don’t have reports of sort of, you know, a kid going somewhere and spreading it to a bunch of other kids or even a bunch of other adults.”

    Public health experts and infectious disease experts agree that we all have to do the right thing if we plan to send our kids back to school.

    References:

    1. https://www.npr.org/2020/07/15/891598558/is-school-safe-will-districts-test-for-covid-19-answering-back-to-school-questio
    2. https://pediatrics.aappublications.org/content/146/3/e20201440
    3. https://nypost.com/2020/11/29/nyc-elementary-schools-to-reopen-for-in-person-learning-dec-7/
    4. https://www.msn.com/en-us/news/us/american-academy-of-pediatrics-says-benefits-of-in-person-learning-outweigh-coronavirus-risks/ar-BB16b9W9

    COVID-19 Fatigue Feeds Market’s Rise | Forbes

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    Managing risk should remain a key in life and in investing.

    There is very little that is typical about Thanksgiving 2020. The CDC and other U.S. public health experts requested that Americans avoid traveling, opening your home to people outside of your immediate family and hosting large gatherings on Thanksgiving.  

    Dr. Henry Walke, the Centers for Disease Control and Prevention (CDC) Covid-19 incident manager, said during the press briefing, “Right now, especially as we’re seeing this sort of exponential growth in cases, and the opportunity to translocate disease or infection from one part of the country to another, it leads to our recommendation to avoid travel at this time.”   

    Yet, a lot of Americans aren’t heeding the warnings and recommendations of public health experts. In Florida, for example, popular restaurants and bars were packed with customers and had wait times for a table exceeding thirty minutes. Moreover, AAA projects that 50 million Americans will be traveling for Thanksgiving.

    https://twitter.com/i/events/1330235471012667392?s=21

    The surge of COVID-19 infections, hospitalizations and projected rise in related deaths combined with adverse economy effects is just the “right” condition for creating a double dip recession and bear market.

    Additionally, the dips could be fast and outsized because the surge is widespread and exponential. Moreover, it is occurring at a time of pervasive disregard for COVID-19 and stock market risks.

    COVID-19 resurgence

    During this COVID-19 pandemic and stock market runup, many people have been blaming “COVID-19 fatigue” for the reason they refuse to stand safely on the sidelines in safer assets and watch others ignore risks of a double dip recession and bear market, and ignoring warnings of exponential Coronavirus resurgence.

    There are “a confluence of troubling issues, challenging uncertainties and destructive possibilities that descend on the economy and financial markets”, according to Forbes.

    Focus on reality and risk

    The incoming economic data in the US suggests that the US may be in jeopardy of experiencing a double dip recession because of the latest Covid-19 resurgence. Moreover, the data also indicates that there is no healthcare – economy trade-off.

    Unemployment

    Recessions produce outsized unemployment with many unable to find work for over over six months – a reality that is apparenty present now.

    Consumer sentiment and spending

    Consumer spending is equivalent to about two-thirds of the GDP. It is especially dependent on both consumer income and consumer sentiment. Increased unemployment naturally reduces both items.

    Consumer spending, like GDP rebounded partially, but could stagnate or even fall due to higher unemployment and lower income, reflected by the decline in sentiment.

    Hope for best, prepare for worst

    Widely expected new government stimulus and broadly administered vaccinations are the current rationales for hope.

    But risks remain. With the prevailing risk to the economy and markets, coupled with COVID-19 resurgence and uncertainty, it may be a wise move to play it safe.

    References:

    1. https://www.forbes.com/sites/johntobey/2020/11/23/covid-19s-fatigue-feeds-stock-markets-rise–both-are-unhealthy/?sh=5b0d20301518
    2. https://newsroom.aaa.com/2020/11/fewer-americans-traveling-this-thanksgiving-amid-pandemic/

    Making the American Dream Available to Every American – CEO Newel Brands

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    How can we make the American dream available not just to a select few Americans, but to every American?

    African Americans don’t feel fully part of the fabric of America society because systemic racism, discrimination and economic/social injustice have been barriers that have effectively denied people of color their full rights and privileges of American citizenship. Blacks and people of color have had to fight and to demand for decades for their inalienable civil and human rights and privileges, which are accorded freely to the majority, to become full citizens in America.

    “As Americans, we need to proactively address aspects of our society in which discrimination and racism are systemic and root them out,” Ravi Saligram, Newel Brand’s President and CEO wrote. “We need to open our hearts and truly believe that every one of us is equal, not succumb to tawdry stereotypes or allow the insidious hand of unconscious bias to seep deep into our souls.”

    Saligram wrote in a letter to Newel Brand’s team members entitled “Embracing Our Humanity” that “his hope [is that] this tragedy will galvanize Americans—black, brown, white, Democrat, Independent, Republican, male, female or however one identifies—to come together to acknowledge and reject racism and discrimination of any kind. As Americans, we need to proactively address aspects of our society in which discrimination and racism are systemic and root them out. We need to open our hearts and truly believe that every one of us is equal, not succumb to tawdry stereotypes or allow the insidious hand of unconscious bias to seep deep into our souls.”

    Social scientists say crises like COVID-19 and the murder of George Floyd are “focusing events,” events that recalibrates public policy and cultural norms. It often takes a crisis or tragedy to get society to wake up, look in the mirror, face up to uncomfortable truths and find a better way forward.

    We require new and innovative thinking and actions in America to solve deep rooted societal problems of systematic racism and economic inequality, to repair the economic devastation caused by the pandemic and to heal and bring spiritual peace (free of the burdens of uncertainty, fear and anxiety) to the country and the world.  

    “It would be tragic if the narrative that the general public remembers is property damage and violent acts instead of focusing on the real issues at hand, namely justice, equality and ending systemic discrimination,” Saligram wrote. “We cannot revert to the old normal of ‘Us versus Them’ and perpetuate senseless killings of people of color.”

    References:

    1. https://www.marketwatch.com/story/i-can-be-a-three-time-ceo-because-ive-never-been-infected-by-systemic-racism-newell-chief-executive-vows-to-level-the-playing-field-for-black-employees-11603123364
    2. https://www.marketwatch.com/story/back-to-normal-we-can-do-better-here-are-the-best-new-ideas-in-money-11601997311?mod=bniim
    3. https://www.newellbrands.com/embracing-our-humanity
    4. https://www.cgg.org/index.cfm/library/article/id/273/the-fruit-of-spirit-peace.htm