6 Everyday Money And Financial Tips 2015

6 Everyday Money And Financial Tips 2015

These days, there are a number of great resources from which to receive financial advice.  Between financial advisors, digital advisors, investing newsletters and websites, and financial radio shows and podcasts, valuable information is literally at our very fingertips.

While the plethora of information out there comes in extremely handy as we work to formulate our financial plans and get our money matters together, sometimes it’s the everyday advice from real people that has the most profound impact.

To that end, my colleagues at digital advisory firm Wela have begun asking their weekly podcast guests what the best piece of financial advice is that they have ever received.  The guests have given some fantastic answers, all which are applicable in our daily lives.  Take a look at what they had to say:

Jessica Dauler, Owner, JessicaShops.com

I think that the best piece of financial advice I ever received was from my father who taught me at a young age about establishing credit but not abusing it.  He co-signed for my first credit card and taught me about using it and paying it off and explained to me all about interest.  It was a great way to learn to be financially responsible.  The fact that he taught me early on encouraged me to have a reverence for credit whereas I think a lot of people don’t any more.

Kevin Peak, Owner, CaJa Popcorn

My financial advisor told me that we’d never be able to save enough money for our kids’ college because they’re so young.

We don’t know how much college will cost in 10 or 15 years.  So save something, but don’t let it dictate your lifestyle now or your retirement savings.  Even if you’re great at saving, be careful that you have balanced savings.

Joey Fehrman, Author of Pirates of Financial Freedom

The book that changed the course for me was Rich Dad Poor Dad.  In college I had no interest in finance.  I thought the whole things was stupid.  Then I read the book, and it opened my mind and changed my perspective.  I realized that this stuff was valuable.

Greg Corey, Founder of creative design firm Porchlight

No one dropped a bombshell on me, but the way my dad raised me was that we had to go cut the grass.  We had to go make money, and we had to save money.  There wasn’t an option.  We didn’t have money struggles even though we were wealthy, and that resonated with me.  Ultimately, it comes down to don’t spend more than you make.

Alex West, Founder of Ontologic and CTO of Wela

A good friend and a mentor of mine told me, “no one can pay you what your free time is worth.”  It took me a long time to really understand what the meant.  It’s easy to get distracted by what car we drive, what phone we talk on, or what zip code we live in.  At the end of the day, Wela or wealth is really about what you’re doing with your life, and the love you have, and the pride you have.  So I think that keeping that definitely of wealth at heart and the number-one priority is really important to be who you are, and live within your means to do what you want to do with this life.

How To You Can Avoid A Wealth Transfer Failure 2015 Latest

How To You Can Avoid A Wealth Transfer Failure 2015 Latest

Wealth transfers are a hot topic right now in the world of personal finance, and for good reason.  We are about to enter into a period of wealth transfer so massive that it will be the largest wealth transfer in history. For the next 50 years, more than $1 trillion in assets will be transferred each year totaling an expected $59 trillion!

Unfortunately, according to several studies that have been conducted, 70% of wealth transfers fail due to familial miscommunication and misuse of funds.

In previous articles we’ve talked about how to both prepare your heirs andprepare your finances for a successful wealth transfer. But sometimes it takes a real world example to really drill the point home.

Bad Budgeting Equals Loss Of Funds

There’s a lot of buzz going on right now about the 22-year old girl that recently called into nationally syndicated show, The Bert Show.  The story goes that the young woman (Kim) received a college fund worth $90,000 from her grandparents upon entering college, all of which was to go towards college expenses.

But now the 22-year old college junior has a year left of school and her funds have been depleted.  She squandered her money, apparently on a European spring break trip, nice clothes and the like.  Ironically, when she called into The Bert Show, instead of being painfully embarrassed and mortified, she was mad.  She told the hosts that her parents should have taught her how to budget a little more carefully.  She went on to say that they never sat her down to have a serious talk about it.

Who’s To Blame?

We’re all probably thinking the same thing about Kim right now–that she’s spoiled, entitled, and beyond irresponsible.  But, practically speaking, I have to place some of the onus for this financial debacle on Kim’s grandparents.  After all, if you’re going to give a 19-year old $90K, you should also give that 19-year old a plan to go with it.  It’s not enough to assume that a person of that age is going to be mature enough or have the budgeting experience to manage such a large sum of money.

Five Tips For Back To College Budgeting 2015

Five Tips For Back To College Budgeting 2015

Educating children about fiscal responsibility should begin well before the day they leave for college.  However, it’s during this exciting new phase of life that they will likely have the first real opportunity to put that fiscal education to work.  It’s critical that those children entering their college years have the skills necessary to budget and keep expenses in check.  As the next couple of months mark “back to college” season, it’s a great time to look at some ways that you can help your child learn how to create a budget- and stick with it!

Create a budget with your child 

The very first thing you’ll want to do is sit down with your child and create a budget.  Remember, just like your own budget, this budget will include money that is coming in (income), and money going out (expenses).

First, you’ll want to list all possible sources of income.  This may include the agreed upon amount of money that you’ll give your child per month, plus any on-campus or off-campus jobs.

Hopefully your child will be spending more time studying than spending money, but inevitably there will be expenses.  Consider everything from car and cell phone expenses to social expenses like movies and the occasional dinner out.  Determine if your child is going to have a meal plan through the school or if he/she will also be paying for weekly groceries.  Don’t leave out extracurricular on-campus activities such as sporting events and sorority/fraternity costs.

Now that you’ve determined your student’s income and expenses, if the expenses are much greater than the income, you may need to re-work the numbers and reconsider areas that your child might be able to spend a little less.

Decide who will pay for what

Next, it’s a good idea to decide who is going to pay for what.  If you and your child know the financial expectations per month, it will be good for both of you.  Go through the list of expenses and make some decisions before the first day of school.  You can always revise later on, but it’s good to have a set plan before too much time goes by.  Additionally, if there are big ticket items throughout the year, determine how you will pay for them.  Will your child have a credit card to use for those items or in case of an emergency?  If your child does have a credit card, how much usage is permitted beyond what is necessary?

Remember, budgeting means that your student will need a bank account.  Be sure that you help your child select the right account for their needs.  You’ll want to look for low fees and convenient ATMs both for financial and safety purposes.  On some campuses, a student ID doubles as a prepaid debit card.  If this is the case, you’ll want to be sure to determine the spending limits on that ID and will want to be sure to include this as a line item in your budget.

Staying on the budget 

Next, it’s up to your child to stay on the budget.  This will in large part have a lot to do with your involvement and follow-up.  While no college student wants to be micro-managed, it’s best to come to a mutually agreeable option in terms of how much follow up you will have.  Will you review the budget monthly with your child?  Or weekly?  In the beginning, it might be advantageous to encourage your child to keep a daily spending log.  This will allow them- and you- to see exactly where the money is being spent and will assist with future budget adjustments.

Plan for emergencies

No one wants to consider an emergency situation, but they happen.  Be sure that your child keeps a small emergency fund in the event of the unexpected.  By having an emergency fund- comprised of cash- your child will be less likely to be stressed out by the situation and it will alleviate the need to rely on credit.

Six Ways To Diversify Your Portfolio For Added Protection 2015

Six Ways To Diversify Your Portfolio For Added Protection 2015

Whether you’re a new investor or you’ve been in the investing game for a while, one word that you’ll hear repeatedly isdiversification.  The reason for this is simple- and important.  Diversification is essential for mitigating risk.  Jim Cramer, infamous host of CNBC’s Mad Money television program, says, “Diversification is the single most important concept in investing.  It’s the key to avoiding enormous losses and making sure you can weather a storm.”

So exactly how can you diversify your portfolio and can too much diversification be a bad thing? There are several different ways to diversify your portfolio, but keep in mind that any big financial decisions should be made with a trusted financial advisor or after you’ve done a lot of important homework.  It’s also important to remember that too much diversification can be dilutive and costly.

1. Security Diversification

The most fundamental level of diversification is security diversification. Here, risk is reduced by increasing the number of different stocks in the portfolio.  The big question here is how many stocks you should own to be properly diversified.  Studies have shown that the level of diversification continues to increase as more stocks are added to a portfolio, but at a decelerating rate.  Owning too few stocks is risky, but owning too many can be dilutive.  It can also be very costly, and it’s certainly hard to keep up with the news and financials of a large number of companies.

For optimal security diversification, it’s best to talk to an expert about how many stocks should be in your portfolio.  A trusted advisor can suggest a strategy that will provide the benefits of security diversification without going overboard.

2. Sector Diversification

Sector diversification is extremely important to consider.  Sectors are a particular group of stocks within a specified economic market.  To be too heavily weighted in one sector could cause nothing but a headache if that sector takes a big hit.  Consider the 2008 financial crisis.  To say that the financial sector was hit hard is an understatement.  Anyone who held a large number of bank stocks probably saw their net worth drop dramatically, practically overnight.

Here’s a list of the market’s main sectors:

  • Utilities
  • Transportation
  • Technology
  • Consumer Discretionary
  • Industrials
  • Consumer Staples
  • Utilities
  • Financials
  • Energy
  • Basic Materials
  • Communication Services
  • Health Care

Remember, individual sectors of the market can and do produce widely divergent returns, depending largely on economic conditions.  Investing in only a limited number of sectors can increase volatility (risk) of returns.

3. Industry Diversification

The next level of diversification is industry diversification.  It is entirely possibly that securities share the same sector, but not the same business focus.  Let’s take the technology sector as an example.  There are companies that focus on making computers, others that make components for computers, and yet others that develop software.  And this is barely scratching the surface when it comes to technology.  In the healthcare sector, you will find companies that produce medication, others that develop medical equipment, and others that are working to find cures for disease and illness.  As you can see, you can widely diversify your investments within a given sector.

4. Capitalization Diversification

The next level of diversification market capitalization.  No doubt you are used to hearing or reading the terms large-cap, mid-cap, and small-cap stocks on a daily basis.  As a review, capitalization is simply the price of a company’s stock multiplied by the number of shares outstanding.  For example, a company whose stock price is $25 with 10,000,000 shares outstanding has a market capitalization of $250,000,000.  The levels of capitalization are determined by their market cap:

  • Large Cap Stocks- large cap stocks typically have a capitalization in excess of five billion dollars.  Some examples might be General Motors, Microsoft, and Coca-Cola.  Large cap stocks are less risky than mid-cap and small cap stocks, which also means that they tend to generate the least return (less risk = less return). The value of large cap stocks are tracked by two major indices, the Dow Jones Industrial Average and Standard & Poor’s 500.   
  • Mid Cap Stocks- mid-cap stocks typically have a capitalization of between one and five billion dollars. Stocks of companies in this sector of the market offer investors the opportunity to invest in companies more seasoned than their small cap counterparts, but they aren’t as large as large cap stocks.  The S&P 400-Mid Cap Equity Index is the most appropriate benchmark for following mid-cap stocks and provides a value-weighted index of 400 stocks.
  • Small Cap Stocks- small cap stocks are generally those of smaller, growth-oriented companies with a capitalization of up to one billion dollars.  Small cap stocks are knowns for being the riskiest group of stocks, but also offer the greatest return potential.  There are two main indices that track these stocks.  One is the Russell 2000, which tracks 2000 stocks that only represent 11% of total U.S. market capitalization.  The other small cap index is the well-known NASDAQ (National Association of Securities Dealers Automated Quotations Composite), which is a cap-weighted index that measures the performance of over-the-counter securities.

5. Geographic Diversification

Geographic diversification deals with developing portfolios that contain both international and U.S. stocks.  The past shows us that portfolios containing both international and domestic stocks have had lower overall risk levels than those invested exclusively in one or the other.  However, it takes a seasoned investor to be comfortable with investing in international stocks.

6. Investment Style Diversification

Investment style diversification is the way that you, as an individual investor, manage your portfolio.  Investment styles tend to move in and out of favor in the market, with one style outperforming the other over certain time periods.  For this reason, selecting one particular style can be quite risky.  Below find a very brief overview of the three main styles of investing:

  • Value– this approach seeks out companies that seem to be undervalued by the current market
  • Growth– this approach seeks to identify companies that may grow faster than the market
  • Indexing- this approach is a neutral approach, and tends to try to replicate a market index

Remember, diversification is an important way to reduce risk, but too much diversification can be dilutive and costly.  Be sure to do all of your homework and always consult a trusted financial advisor before making any big decisions.

Financial Success Requires Daily Discipline 2015 And Consistency

Financial Success Requires Daily Discipline 2015 And Consistency

Have you ever made the decision that it was time to get into better shape?  If so, you know what that entails.  On a consistent basis you need to exercise, eat right, get enough sleep, and drink enough water.  You know that your body isn’t going to transform overnight and that one 5-mile run won’t make the numbers on the scale go down, nor will eating a few extra helpings of kale and celery.  Getting fit requires a change of mindset and discipline on a daily basis.

You can lift your foot off the gas every once in a while, but it’s really about consistency.

It struck home with me the other night that the psychology of how we go about transforming our bodies to get physically fit is very similar to how we need to train to our minds to get financially fit.  I was attending a back-to-school evening for my two oldest sons when one of the moms approached me and said, “keep posting your financial articles on About.com and LinkedIn…they are a great reminder to keep me on track!”  At that moment it occurred to me that to get really financially fit, it takes no one article, book or lesson.  Rather, it’s the totality of advice, council, and discipline over time that makes financial success possible.

Chances are, the majority of us (as in 99.99%!) won’t get rich from winning the lottery or becoming the founder of the next Facebook.  Instead, we will need to find wealthy methodically.  Vincent Van Gogh said, “Great things are done by a series of small things brought together.”   This is exactly the path to financial success.

Here are a series of four small but very important things that if done correctly, can result in a lifetime of financial fitness: 

1.  Start saving early.  We all intellectually know the importance of saving early, but a new survey really drills the point home! According to a USA Today/Bank of America Better Money Habits survey,  both parents and children agree that advice to start saving as soon as possible is the most critical financial tip parents have given their Millennial offspring.

2.  Remember the Rich Ratio.  The Rich Ratio is a ratio that I created for individuals and families to give them an easy way to understand their money.  Simply put, the Rich Ratio is the amount of money you have in relation to the amount of money you need.  Any ratio over 1 is fantastic and any ratio below 1 indicates that you may have some work to do.  To calculate your Rich Ratio, take the monthly income you have (or if you are entering retirement, the income you will have) coming in (social security +pension+ any other income streams), including what your nest egg should produce, and divide it by what you expect to spend each month.  The equation is Have/Need = Rich Ratio.

3.  Find the right balance of spending and saving using TSL.  TSL is short for taxes, savings, and life.  I encourage people to adopt a TSL-driven budget that contains the three buckets where most of our dollars go and a split that looks like this:

  • Taxes: 30% to federal and state taxes (adjust accordingly to tax bracket).
  • Savings: 20% to a 401(k) plan or to pay down debt.
  • Life: 50% for food, housing, fun, and everything else.

4.  Invest!  Harness the power of compounding.  Every dollar that you start saving today will be beneficial to your long term financial stability.  The power of saving early is very real.  Take a look (each example assumes a 7% annual return):

  • If you put $1 away at age 20, that dollar will be worth $21 by age 65.
  • If you wait until you are 30 to invest that same $1, it will be worth $10.68.
  • If you wait until you are 40 to invest that same $1, it will be worth $5.42.
  • If you wait until you are 50 to invest that same $1 and you’ll get a measly $2.76.  This means that a dollar invested at age 20 is nearly twice as powerful as a dollar invested at 30 and 7.5 times more powerful than a $1 that is invested at 50.

Are you financially fit?  If not, sit down and write down some goals to help you get there.  Don’t forget that true financial fitness can be reached with discipline and consistency.