What NOT to Do With Your Money

Sometimes it can be helpful to be told what not to do with your money rather than being told what you should be doing. That’s what we are going to take a look at today. Knowing what not to do can save you from costly mistakes or financial crisis. I’ve provided a list of a few of the big things you’ll want to stay away from doing with your money.

Never shop when you’re feeling down

A little retail therapy never hurt anyone, right? Well, it doesn’t really help your finances. Shopping while emotional will only lead to unnecessary spending. Also, shopping when you’re feeling under the weather makes you more susceptible to pushy salespeople. Their flattery might make you feel better, but give too much into that and you may end up making a purchase you can’t afford. Their goal is to get you to spend as much money as possible, don’t allow their hollow compliments to sway you.

Forgoing a budget

If you don’t have some kind of budget in place, you’re asking for trouble. Without a budget how are you supposed to keep track of your spending? Your budget doesn’t need to be overly involved to be effective. A simple budget that puts a cap on spending in all major areas will go a long way. A budget will keep you accountable to yourself and your wallet.

Having an inadequate emergency fund

It is a huge mistake to have an inadequate emergency fund. Ask yourself these questions:

Do you have six months of your salary saved?
Is that money separate from your regular savings?

If you’re jaw just dropped at the idea of having six months worth of your salary saved, pick it up and I’ll explain why it’s important. An emergency fund if for, you guessed it – emergencies. Things like losing your job, expensive car repairs, or unexpected medical bills. These things generally tend to cost a lot and can be detrimental to your finances.

If you answered yes to the first question, but not the second, you’re not out of the woods yet. Your emergency fund needs to be a separate account from your checking and regular saving accounts. The reason for this is because you should treat it differently than your ordinary savings. That money is for vacations, gifts, and any other “wants” you have. You should not be dipping into your emergency funds for a guys weekend away.

Don’t lend money to people you can’t trust

It will be very tempting to help out those in need – especially family and friends. If you are going to lend money out, make sure you can trust them. An untrustworthy person will have no problem asking for a loan with zero intention of paying it back.

A little bonus on this topic: Even if you can trust the person who’s asking for a loan, make sure you can afford it. Loaning money you don’t actually have to loan out will be a hit to your finances.
Managing your money is no easy task, but hopefully knowing what not to do has given you a different perspective. Overall, setting guidelines for your money will shed light on what’s important and push aside the things that aren’t.

How Do You Know You’re Ready to Buy a House?

Buying a house is quite possibly the single largest purchase you will ever make. It’s natural to be unsure of the best time to buy and even question if it’s worth it. Investing in property and buying a home is a great financial decision, but only if the time is right and you are within your means to do so. I have put together some factors that will help you decide when the right time to buy a house is.

Do you have a 20% down payment saved?

It won’t be impossible to buy a house if you don’t have a 20% down payment on hand. It will absolutely cause you to spend more money in the long run. In order to be granted a mortgage, you have to either have a 20% down payment or be ready to make up for it in “Private Mortgage Insurance.” Depending on your situation, you could be throwing out at least $100 extra each month just to secure a mortgage. It’s best to wait until you have the preferred down payment, but it’s not the only factor you need to consider.

What about money for maintenance & repairs?

If you by your own house, say goodbye to the days of calling a landlord once (okay maybe a few times) to get something fixed. As a proud new homeowner, you might also find yourself six months down the road and the owner of a brand new water heater. In this case, I’m sure it will be an expense you won’t be too thrilled about. When it comes to home ownership, think about your income and financial situation. Would you be able to handle all necessary repairs and general upkeep on the house?

What is your plan?

Do you plan to buy a home and live in it for 20+ years? If that doesn’t seem in the cards for you, it may be best to rent until you’re actually ready to live in the same place for a long period of time. A house is expensive to buy in general, but selling again too soon can cost more than what would have been the same time in rent. After closing costs, mortgage interest, property taxes, and maintenance, you probably are not going to come out ahead.

What about market fluctuation?

This kind of piggybacks off of the question above. If you don’t plan to stay in this home for years to come, then you should be worried about the housing market fluctuations. If you buy at a decent time, but turn around to sell a few years down the road in a dip in the market, you’ll end up losing big time. On the flip side, if your plan is to purchase a house for your family and also have the hope of growing equity, you’ll have time on your side.

How to Build an Emergency Fund

If you are like most people, you don’t have a substantial emergency fund. What constitutes as an emergency fund? Great question. An emergency fund is a runway of at least 3 months of your salary – the more the better. The hard part for most people is starting and consistently adding to that fund. With bills and unexpected costs, it can be even more difficult. The list below provides some tips and tricks on how to start and maintain an emergency fund for when life throws curveballs at you.

Budget

Create an effective budget for yourself. This will allow you to see where you are overspending. Additionally, sticking to that budget gives you an opportunity to take the money you were previously overspending and put it towards your emergency fund. You may also decide to sacrifice some things, like eating out, in order to stick to your budget. This can be hard at first, but you will start to become adjusted to the new budget and lifestyle that comes with it.

Decide Where to Keep the Money

You will need to have a place to store your money that is easily accessible in the event of an emergency. Creating a separate checking account can be a great way to have access to the money in a quick way. Having the additional account also makes it easier because there is no mixed money. That account is solely for emergencies.

Use it for Emergencies Only!

This will take a bit of discipline, but your emergency account is for…emergencies! What counts as reason to withdraw from your new account? There are quite a few instances where your emergency fund is appropriate to draw from. Here are a few examples:

  • Major car repairs
  • Sudden loss of job
  • Medical bills
  • Home repair

These are all instances where having a cushion of money will be extremely beneficial.

Automatic Payments

Treat your emergency savings account like one of your monthly bills. Set up automatic payments and stick to them! Knowing that your budgeted amount will end up in your account every month will be an excellent piece of mind. Plus, you can always make additional deposits if you end up under budget – and that’s a bonus!

Set Goals

Set goals for yourself. Things like “after x months I want to have x amount saved.” Goals are incredible ways of keeping you accountable to yourself and also marks your progress. When you hit your goals, make sure to give yourself a small reward. You earned it!

Financial Bucket List

When people think of a bucket list, most often they associate it with experiences they want to have before they pass on. Bucket lists in the traditional sense are great, but there is another type of bucket list that not too many people spend time thinking about. I’m talking about the financial bucket list. You know – what are the financial goals you want to hit before you kick the bucket? Sketch out your own financial bucket list or feel free to steal some from the list below!

Pay off Student Loan Debt

Paying off student loans is a big one on a lot of people’s financial bucket lists. With the cost of college rising it may seem nearly impossible, especially for millennials. This is a great thing to put at the top of your bucket list. It is absolutely achievable and can be done so well within your lifespan. Come up with a plan and start chipping away at it.

Having Perfect Credit

Having perfect credit open’s a lot of doors for you, but it’s also a pretty awesome achievement. If you feel like you want to earn this badge, stick it on your bucket list and start thinking of ways to improve your credit. You can start by making payments on time and keeping debt as low as possible.

Retiring Early

Wouldn’t you love to retire early with enough money to enjoy it? This is a great thing to add to the bucket list. How are you going to achieve it? If you are starting this bucket list at an early age you’re in luck because time is quite literally on your side. Invest the full amount in your 401k to get full company match. If you are eligible, open a Roth IRA as well and plan to hit the cap amount every year. If you plan well, you will easily be able to take an early retirement!

Setting Your Kids Up for College

You know just how much college costs and how hard it can be to pay down that debt, especially if you put this at the top of your bucket list. If this fits your bucket list goals, set up a college account for you kids and stuff as much money in there as you can for them. They will be eternally grateful and even more surprised if they don’t know about it.

Buy a House

We all need a place to live and many people rent in order to do so. There is absolutely nothing wrong with that, but if you have a goal of owning your own house someday – throw it on the list! Owning a home is a major financial investment and should be taken seriously. You will want to start saving for a decent sized down payment and also have the money to make repairs and upgrades to really make it your dream home.

Pay for a Car in Cash

Paying for a car in cash may not be the most practical thing that ends up on your bucket list, but you have to admit it would be pretty darn cool. If you want to look like a big shot and see a wild reaction from a salesperson, start planning and saving for the car you want to pay for outright. Much like everything else on this list, with proper planning and saving, you can achieve it.

How to Handle Client Expectations

Managing expectations as a wealth advisor can be difficult at times, but by keeping a few things in mind, it can be easier. Clients are more understanding about market dips and risky investments if there are a few essential things in place. Below is a list of crucial things to establish early on to help manage clients overall expectations.

Discuss and Manage Risk

Discussing and setting guidelines for the amount of risk that a client is comfortable with can go a long way. Problems tend to arise when the risk of investments are not completely understood before hand. If a client is comfortable with a moderate amount of risk and you know this, they will not be a surprised and upset when an investment does not go as you both hoped. On the other hand, if a client is risk averse and you have not picked up on that, their expectation is that you will not lead them astray.

Build a Strong Relationship

Relationships are the building blocks of overall expectations. In order to be on the same page, a client must understand the relationship and trust your judgement. Additionally, with a strong relationship established, missteps along the way are easier to swallow because they know you have their best interest at heart. A client will be less likely to send an angry email if they know you ultimately have their back.

Be Transparent

Transparency, especially when it comes to others money, is fundamental. Do not be afraid to be open and honest about big wins, but also the failures as well. Showing the good and the bad lets the client know you are not keeping anything from them. This will go a long way, especially if an investment does not go the way that you both had previously discussed. It is human nature to feel more relaxed with someone they trust and knows has their back. Your client with thank you for your transparency and in turn they will trust your overall judgement.

Listen

Take the time to really listen to your client. They will tell you exactly what they are looking for and where their interests are. Additionally, this gives you the chance to directly manage expectations from the beginning. Listen to a client’s needs, if they do not align with what you think is possible with their portfolio – tell them. It is better to talk about these things in a clear way early and often. By listening to their concerns and hopes, you will be able to proactively work towards a portfolio that is realistic and that the client is happy with.

Remain in Regular Contact

Constant contact is a great way to mitigate any issues. By staying in regular contact, the client knows exactly what is going on. They can take all the guessing out of it! The more informed they are, they less likely they will feel blindsided when things do not go the way they hoped or envisioned.

Money: The difference between right and wrong

People do not always use their money wisely, some of it is easier to see than others. There is a grey area of what are the right and wrong things to do with your money. Of course, these things all depend on where you are in life and how much (or little) money you have. The list below documents some of the more applicable guides of how to handle your money.

Gifting money

There is nothing wrong with helping out people in need, especially deserving family members. It really all comes down to where you stand financially. People run into trouble when they gift more money than they can afford, if they can afford it at all. If you can cover all past, present, and future expenses and then have some expendable money, by all means help. The real issue is if you do not have it. If gifting money to a loved one will help them, but puts you in financial trouble, nobody wins.

Saying yes…to everything

There is nothing wrong with doing fun things, but where the problems come up is when you can’t say no. You won’t be able to afford going out every weekend and you won’t be able to afford big trips all the time. Saying no to save your wallet is a good skill to learn. Plus, you will eventually get really good at picking the most exciting and fun things to do.

Withdrawing from retirement accounts too early

Retirement accounts are supposed to be reserved for, wait for it, retirement! If you are withdrawing from a 401(k) or an IRA before 59 and a half, you are quite literally short changing yourself. Any withdrawals that are not for qualified reasons are subject to tax and a 10% penalty. Do yourself a favor and leave this money alone.

There are a few exceptions to the rules, but be careful when doing so. You can dip into this money early for purchasing your first home, if you become disabled, or to fund education, but make sure you look into other options before dipping into your retirement – your older, wiser self with thank you.

Credit Cards

Credit cards are a great thing to have and great credit is even better. You can’t have one without the other, so be smart. Credit card debt weighs a lot of people down and is an unnecessary expense that adds up rather quickly. Having these cards around for emergencies or paying bills is a great thing, as long as you can pay off the debt rather quickly.

Managing your money can be tough, especially when it is tied to literally everything you do. It’s important to realize where you fall short and try to clean up your finances before you get yourself into too much trouble. Spending some time learning about what is good for you financially and what is not can save you a world of worry

Managing Student Loan Debt

Student loans are on the minds of all college grads – recent or not. It is important to have an understanding of your loans and the ways to make them work best with your current and future situations.

Know Your Options

Most lenders offer different repayment options. After all, everyone is not on the same financial ground after school. Discussing repayment options with your lender let’s them know you are serious about paying your loans back in a way that works best for you. Some options are income based repayment plans, graduated plans that increase the monthly payment at different stages, and even consolidating loans. You will not know your options without exploring them first. Become an expert in your debt to make it work with you – not against.

Make Larger Payments

When possible, pay more than the minimum on your monthly payment. It won’t always happen, but when possible it’s a great investment in yourself. Additionally, larger payments cut into your overall debt and save you money on interest in the long run. The sooner you pay off your loans, the less interest can accrue.

Tax Breaks

There are often tax breaks associated with student loan interest. In the U.S. for example, a tax credit is applied for the amount of interest paid the following year. Do yourself a favor and take that amount and apply it directly to your debt. It may be tempting to spend that money, but it’s money you wouldn’t have without your debt. Additionally, using all or some of tax returns can be a great way to take a chunk out your loans. You have already lived without the money, why not pay down your debt with it.

Pay On Time, Every time

Paying consistently and on time is extremely important. Ignoring payments can be extremely detrimental to your credit and will pose other issues down the road. Bad credit can prevent you from buying a car or house. Plus, consistent on time payments provide you with reassurance that your debt is being tackled bit by bit.

Avoid Additional Debt

If you can, try to avoid any additional debt – especially credit card debt. Accruing more debt can only cause more headaches and normally higher interest rates. By keeping your debt down, you are able to tackle one piece of debt before accruing more. It will be inevitable, buying a house or a new car will add onto your debt, but keeping it down for as long as possible will only benefit you in the long run.

Student loans can be a large issue for some people and is important to know what you can do. Stay on top of your debt and it won’t cripple you. Make your debt work with you – not against.

Wealth Management Terms to Know

raoulfraser-wealthmanagement-imageIf you are new to the world of wealth management, or want a better understanding, there is a large list of terms you will need to have a grasp of. The following list will give you an understanding of some of the more prominent terms you may expect to hear. Knowing these terms will also give you the knowledge to ask your wealth advisor questions based on your understanding.

Asset Allocation

Asset allocation is an overall portfolio strategy. This strategy is focused on balancing risk and reward. The delicate balance is achieved by assessing the client’s goals, their tolerance for risky investments, and what they see on the investment horizon.

Capital Appreciation

Capital Appreciation refers to an investment objective. The object signals that a particular client seeks to grow the value of investments over time and are willing to invest in securities that have demonstrated a fair amount of risk. The client has an appreciation for the market and a willingness to take some risk to receive bigger returns.

Consumer Price Index

The consumer price index, or CPI, “is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.” The CPI can be calculated by taking the price changes for each individual item and averaging them. The goods are then weighted on their importance. CPI is used to understand price changes affiliated with the cost of living.

Equity

Equity is represented by a stock or security with an ownership interest. A client may have equity in a company if they possess a large amount of shares.

Liquidity

Liquidity is used to describe the measure of how much time it will take to turn an investment into cash. A mutual fund would be considered a liquid investment because shares can be traded in at any time. A house or car would be considered an illiquid investment because it takes time to turn that asset around into cash.

Municipal Bonds

Municipal bonds are a debt security issued by any level of state government to finance large scaled projects or renovations. Municipal bonds are often exempt from federal, state, and local taxes.

Preservation of Capital

Preservation of Capital is another investment objective. Preservation of Capital is on the opposite side of the scale opposed to capital appreciation. Preservation of Capital refers to an initiative to maintain the principal value of a client’s investments. The objective is achieved by investing in low risk venture that almost guarantee security.

Risk Tolerance

Risk tolerance refers to a client’s specific tolerance for risky investments. A high risk tolerance, for example, would be willing or able to withstand declines or even loses in an investment. On the other hand, someone with a low risk tolerance would not be interested in taking risk resulting in losses or declines.

Risk can also change depending on a client’s investment timeline. An individual investing for the long term may be willing to see ups and downs.

Share Buyback

Share buybacks are executed by the company in an attempt to reduce the number of shares in the market. Companies can choose to do this for many reasons. The most common are for reducing supply to increase the value of available stocks or even to keep investors from gaining a controlling stake in the company.

Wealth Management and the Millennial Shift

Within the next 5-10 years, Millennials are expected to inherit more than $30 trillion dollars across the board. Once they are in control of a substantial amount of money, they are going to want to invest, but not necessarily the same way their parents did. There will be a shift within the wealth management industry and advisors need to start preparing now.

Impact Investing

A recent survey distributed by The Brookings Institution found that, “84 percent of millennials consider a company’s involvement in social causes when making purchasing decisions.” This finding lends itself to investments as well. Millennials will begin to look into impact investing instead of more traditional investment routes. Wealth managers are going to start seeing a change in investments that align with their clients values.

Skepticism of Wealth Advisors

Wealth advisors will also begin to see a shift in loyalty. Millennials will not necessarily remain with the same wealth advisor as their parents. The reason behind this is due to a general distrust for wealth advisors. Ultimately, it will be wise for wealth managers to explain that they are not the salesman in the sense that Millennials think they are. A good practice is to remain completely transparent in regards to the way the process works.

Wealth managers may need to explain their position and how they only receive commission or bonuses off of overall portfolio growth and not per investment. Gaining a Millennials trust and becoming more of a partner than an advisor will serve the wealth management well as a whole.

Tech Advancements

Technology has always been, and will continue to be, a huge part of the millennial generation. Being the first generation to completely grow up with tech, it has become an integral part of their everyday lives. Millennials are going to start looking for wealth management firms who are able to provide them with online resources and apps to check on their investments. Many firms currently are dragging behind in terms of tech and this may very well become a problem sooner than later.

Reliable apps and websites take time and money to implement. Wealth management companies need to start looking past the horizon to begin developing products and services that will soon be expected of them.