Personal Budget: How to Build it the Easy Way

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Building a personal budget sound incredibly boring, doesn’t it? I’m here to tell you that they aren’t. They are actually really important for your day-to-day success. Why do you think larger companies have a corporate budget? They need to know what they are spending money on, of course. Comparatively, you need a personal budget as a tool to help ensure your success.

 In this article I give five easy steps to create a personal budget and tips to consistently use it.  Finally, I will give you my personal thoughts on budgeting for your future. It is important to discuss what a budget can do for you.

What a Personal Budget does for you

Some of you may know that I like to define my terms whenever I start a new post, so in like manner, we should define what a budget is. Investopedia defines a budget as an estimation of revenue and expenses over a certain period of time in the future. Basically, a budget lets you see how much money is coming in versus how much money is going out. There are three types of budget outcomes: a surplus budget, deficit budget and a balanced budget. For a personal budget plan, it’s preferred to have a surplus or balanced budget. In short, you have either paid off all your expenses and have no debt (balanced) or you have paid off all your expenses and have extra money left over (surplus). Balanced is good, but we like having extra money left over!

More specifically, a personal budget helps you understand where you are spending your money and if you need to make changes to your spending habits. Have you ever come to the end of a month and think, “where did I spend all my money?” That’s probably because you don’t track your spending. A personal budget would help you monitor this and be able to save or invest in your future. More on savings and investing in my Tips for Saving and Investing post.

How to build a Personal Budget in 5 steps

If you build a personal budget, I guarantee it will be beneficial in many ways beyond just knowing what you spend. You may ask, how to build one? Below are 5 easy steps to do this. Best of all, if you have any spreadsheet software or a smart phone of any kind, you can do this quite easily.

Personal budget example. Use Expected versus actual to compare plan versus what you actually spend
Example of a Personal Budget

Check your Financial Information

  • Take inventory of your financial situation. This is the most important part of the process and key to your personal success in creating a budget. To take inventory of your finances, you must gather all your financial information.
  • Review bank statements, investment accounts, credit cards, loans, utility bill, pay stubs, receipts from the last few months, etc.

Your Income Matters

  • Start with those paychecks. We want to take a look at any monetary source. This doesn’t just mean paychecks; if you have a side business that you get 1099’s from, add that in.
  • If you have a consistent interest payment from an investment, include that as well.
  • Basically, we are looking for anything that pays you something.

Expenses are Key

  • Watch for planned and predicted expenses. This section is called the “expense” section. This step could be the most intensive depending on your lifestyle.
  • Once we have established the monthly income from the previous step, we need to compile the expenses. In this step, we need to create expense accounts to add to our budget. These items need to be separate line items on your budget.
  • Add lines for mortgage or rent, car payment, utilities and cable/internet, groceries, going out, clothing, gym fees, etc. If you are putting money away or investing every month, that should also be a line item. To be honest, anything that you spend money on should be considered an expense and needs to be added.
  • The most important part in this section is to be completely honest with yourself. If you don’t consider all your expenses, you will only hurt yourself in the end.

Cash Flow

  • Compare what you take in versus what you spend, and adjust. This is the cash flow analysis section and the part that may or may not require some math skill.
  • Add up all the expenses and subtract them from the revenue section and what you have left over is your surplus or deficit. If you were honest in step three and have a positive balance, that is great news! If you have a negative number in this section, then it could be time to rethink the expense section. This is where the adjustment process can come into play.
  • If you found some expenses that maybe you don’t need, (i.e., cable subscription that you don’t use or a dating app that you haven’t looked at in years but still paying for), cancel it.
  • There is no need to pay for something you don’t need or use. This is the power of having a budget. Now you know!

Control the Spending

  • Establish boundaries for your spending. If you are brand new to creating a budget, then you may not understand how much is “correct” to spend on each account. The general rule is that you want to have a surplus left over as a buffer. However, if you also invest or save, include that in the monthly budget. Maybe your budget is balanced instead of in surplus.
  • Generally, housing cost should not exceed a max of 30 percent of your gross income per month. I would honestly suggest spend closer to 15 percent of your gross income on housing cost per month and use the remainder to invest in yourself.
  • Any other costs need to be evaluated based upon your analysis from the first step. If you spend 500 dollars per month on groceries, but 1000 dollars per month on going out, maybe you go out too much. But again, this is all relative and will depend on your income. By establishing budgeting boundaries, you can see where you are and where you can revise when needed.

How to stick to your Personal Budget

Now that we know the basics on how to create a budget, let’s discuss how to stick to the budget. Sticking to a budget can be harder than creating the budget itself. There are so many distractions and enticements to spend money frivolously. The best way to stick to a budget, in my opinion, is to think of the main purpose of the budget. What is your main purpose? Are you worried if you have enough money? Are you curious if you can afford something?

Understand your goals and think of that whenever you make a purchase. I cannot tell you how many times I have mulled over a purchase and in my mind I’ve said, “do I really need this?” We are a very consumption-based society and our society says, “if you want it, buy it.” This is not the best way to live life and it certainly doesn’t help to easily and consistently maintain a personal budget.

Envelope System

Sometimes creating a working personal budget requires drastic measures. Limiting yourself to what you can spend can be beneficial.

Another way to stick to a budget that requires less self-control is going to a cash-based system. Oftentimes, it is harder to spend actual cash than just swiping your debit card. Therefore, many people I know that watch their spending have switched to a cash only basis. In this scenario, you only have an ATM card and must pull out cash whenever you need to make a purchase.  This is known as the “envelope system”. Cash is divided into separate envelopes with the corresponding expense written on the outside. When the cash is spent, no more purchases are made for that expense. It can be very effective on controlling your spending.

Myths on Needing a Personal Budget

I hear many people say, “I don’t need a budget,” or “budgets are hard.” In this section, I want to expel some myths that you may have heard about creating a personal budget. Budgets are for everyone, whether you are rich, broke, or in the middle. It does not matter. A budget helps you understand your financial snapshot. It helps you understand where your money goes. If you don’t know where your money goes, odds are you are overspending. Money is a tool that can be used for many things; use it effectively.

If you think budgets are hard because you “aren’t good at math,” or you “aren’t disciplined enough,” I have good news. There are apps that can do it for you. Here are the 7 best Budget Apps for 2021. Budgets do not have to be hard. If you think they are hard because you don’t want to think about how much money you spend, maybe there is a self-control issue there. It’s important to think about the future. If you are living under the notion that you want to spend everything on entertainment and pleasure, understand that those things are temporary. You may never be able to stop working in order to pay for your lifestyle.

My Thoughts on a Personal Budget

My thoughts on having a personal budget. Why is this really important?

I use and check my budget daily. I’m actually a little old school in the sense that I use Excel for my personal budget. I just prefer to be more involved in the number crunching. The budget apps are very easy to use and work well. I just prefer to do it more myself. A budget helps me understand what money goes in and what money goes out. I also have a personal business that I use a budget to track all of my expenses and revenue.

One key account that everyone should have as a line item on their personal budget is investing in yourself. I don’t mean buying the best watch, purse, or the newest shoes on the market. I mean investing in your personal development. If you have any desire to grow your income through a second job or a side hustle (which, by the way, you should!), you must invest in your own knowledge.

I buy programs and read books on investing in real estate, stock market and e-commerce quite frequently. For more on building a business, read my post on The Mindset of an Entrepreneur. The business world changes so rapidly that you need to stay on top of all the new programs and options that are out there. A last benefit of budgeting allows you to know how much you can spend on personal investment.

Disclaimer: I receive affiliate compensation for some of the links in this article at no cost to you. However, these are the best tools I have used and tested that I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy.

Before you go…

Do you want to learn how you can take ANY business and scale it to achieve your dreams and goals?

Partner up with me by clicking on this link and watching the video.

We will show you EXACTLY how to build a business online and customize a plan just for you. We will help you choose a niche, setup your online business and help with selecting offers that you can promote.

On top of that you will get ONE on ONE mentoring to make sure you are doing things right.

A great way to be able to save more money is when we make more money.

Cheers to your success and See you at the Top!

-Cameron

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Investing with ETFs for Beginners

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Investing with ETFs can be an exciting and profitable addition to your investment portfolio. There are definitely some nuances to ETFs that must be discussed before investing. ETFs are investment vehicles and you should never invest in something that you do not understand. We discussed in detail what is an ETF in my previous post, ETFs 101. Check that out as well.

In this review of Investing with ETFs for beginners, I discuss how to get started investing with ETFs. It gives a quick comparison between ETFs and Mutual funds and offers some advice on which ETF might be a good option for your portfolio. Keep in mind that I am not a financial professional and any advice offered here is purely based on my personal knowledge. Please consult a professional advisor before making any investment decisions.

How do I start Investing in ETFs?

Investing with ETFs can be very easy. We discussed what an ETF is and what kinds are out there in ETFs 101, so we won’t go into much detail on that here. Quickly though, ETF stands for Exchange traded fund and is a collection of investments that tracks a particular index. In other words, a collection of companies and their stock can be bought in one particular investment and that collection of companies is part of an index. Think of the S&P 500 index for reference.

Open an Account

ETFs can be purchased in an investment account, either a brokerage or a retirement account. When you start investing with ETFs, you may see a three or four letter ticker name that is next to the full name of the investment, for example;  SPDR S&P 500 ETF Trust (SPY). The SPY is the ticker symbol and this is what you would use if you bought shares of the fund. Whether you buy with an investment advisor or if you are investing on your own.

Invest In The Right ETF: Narrow down Your options

Investing in ETFs or investing in general may seem overwhelming with the options out there, but It's not that hard if you narrow it down.

There are over 2000 ETFs out in the market now. They have been really picking up attention. That being said, most brokerage firms have some kind of ETF screening tool. You should use this. It can really help narrow down the options. I would first start with screening out any funds that charge a brokerage commission or have a high expense ratio. As with Mutual Funds, there are many zero commission funds. So, you should not have to pay a commission since.

Next, I would suggest narrowing down the category or sector. Do you want to invest in Stocks, bonds, commodities, International Stocks? You can also look into what companies the ETF holds. There is a rating system for ETFs and I would encourage looking at the higher rated funds while keeping in mind if a fund has a high rating now, it may not indicate that the performance will continue to be high. Lastly, I would narrow down the price of the ETF. Decide how much you would like to spend per share. A more expensive price per share does not indicate a better fund. Conversely, a lower price does not necessarily mean a fund is a lower performer.

Fun Part of Investing with ETFs: Placing the trade

An ETF will trade just like a stock. If you haven’t traded a stock before there are several things to consider during the trading process. The ticker symbol is what you will use to find the ETF to buy. Once you enter the symbol, there should be two prices, a Bid and an Ask. This is the buy and sell aspect of the market. The difference between the Bid and the Ask is the spread. If you are looking to buy shares of an ETF, you would pay the Asking price. If you are looking to sell shares of an ETF, you would receive the Bidding price.

Investing with ETFs: Order Type

When investing in ETFs, make sure you understand how to place the trade.

A final decision you will need to make when buying shares of an ETF is what type of order do you want. There are several options, so I have listed a little table below.

  • Market Order: This is the easiest and most common. I would not suggest that it is the best, but this order type means that once you place the order, the order will execute immediately. This means you are going to take whatever price that is available at the moment.
  • Limit Order: This is saying you want to buy or sell at a particular price or better. For example if you have a buy limit order of 100 dollars on a ETF that is trading currently at 102 dollars, you will not buy shares of the ETF until it drops to 100 or lower.
  • Stop Order: This is an order that specifies either a sell or buy at market after it reaches a certain price. For example if you own shares of an ETF and place a stop order to sell shares at 95 if the stock is currently trading at 100, this means that if the stock falls to 95, your shares could be sold immediately at the market rate.
  • Stop Limit Order: As expected, this combines the benefits of the limit order with the stop capabilities as well. For example, if you are looking to sell shares of an ETF at a limit after the price reaches a certain point. As in our example above, if your stop if 95, you can set a limit at 96, so if the price drops to 95, your order becomes a limit order. You ETF would sell at 96 or higher.

Investing with ETFs versus Mutual Funds

Investing with ETFs and investing in Mutual funds are similar in that they both offer diversification and can have low cost. ETFs are purchased by buying shares and mutual funds are purchased by selecting a dollar amount to spend. Both can have low to no brokerage commissions. ETFs trade intra-day like stocks and mutual funds are priced at the end of the day after the trading on the exchange is over. Typically settlement of mutual fund trades is one day and you have access to your cash, whereas ETFs may have 3 days of settlement before you can withdraw any of your cash.

Mutual funds are typically actively managed and ETFs are typically passively managed. Given that, ETFs usually carry a lower overall cost than mutual funds. Lastly, ETFs may have better tax treatment than mutual funds. Due to the active trading nature inside of mutual funds, they generate capital gains, which can be taxed. This is true whether you sell the mutual or not. Whereas ETFs are not taxed until they are sold and there is a profit on the sale.

In Which ETF should I Invest?

Questions about investing in ETFs? Make sure to do your research

Making the decision to start investing with ETFs is a great step into financial freedom. Selecting the correct one can be daunting and even stressful. Bankrate.com has a list of their 5 best ETFs for 2020 if you need a place to start. These funds may not be the best choice for you particular situation, so I would still encourage you to use the ETF screener and base the decision on things you know.

Just like with Mutual Funds, I would suggest investing in something you like or know about. ETFs are more active in the sense that they trade daily and prices will update real time. Resist the urge to buy or sell on emotion. Investing is a long-term game unless you are looking to become an active trader. For now, I would encourage you to look at index ETFs as they are going to have the lowest expenses in the business and you will still benefit from the diversification of multiple companies.

I hope you enjoyed this post on Investing with ETFs and that it was informative. Please remember that investing takes research and working with a licensed advisor to make the best decisions.

Disclaimer: I receive affiliate compensation for some of the links in this post at NO cost to you. However, these are the best tools I have used and tested that I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy. Also, I am not a licensed advisor, any information within this article is purely my opinion and not an endorsement of an investing strategy.

Before you go…

If you want to learn how you can take ANY business and scale it to your dreams and goals?

Partner up with me by clicking on this link and watching the video.

We will show you EXACTLY how to build a business online and customize a plan just for you. We will help you choose a niche, setup your online business and help with selecting offers that you can promote.

On top of that you will get ONE on ONE mentoring to make sure you are doing things right.

A great way to be able to save more money is when we make more money.

Cheers to your success and See you at the Top!

-Cameron

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ETFs 101: Quick guide to Exchange Traded Funds

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Exchange traded funds, more commonly known as ETFs are frequently mentioned on many of the financial and investing channels, but what are they really? I would imagine more commonly, ETF could refer to Electronic transfer of funds, but that is not the case.

In this quick guide to ETFs, I discuss what an ETF is, within investing, how they work, different types of ETFs and various pros and cons of this investment type. I believe it’s important to have at least a base understanding of this investment type as it could be a viable option for investing.

What is an ETF in Investing?

An ETF (Exchange Traded Fund) is an investing tool similar to a mutual fund in its diversification, but trades in the stock market like a stock. After learning about mutual funds, we understand that a fund is selection of companies in one particular investment. So, you are able to diversify across multiple types of industries and usually that is good way to protect your investment from downside risk. An ETF does that very same thing. However, you can buy and sell this investment multiple times during an investment day.

ETFs are designed to specifically track some index. An index is a way to track how a set of particular companies perform. Examples include the Dow Jones industrial Average or S&P 500. These indices give a value associated with all of the underlying companies they follow. When this article was written, the Dow Jones industrial average was around 30,000. This number refers to the assigned value average of the 30 companies that make up the Dow Jones. This number will go up or go down based upon the performance of the 30 companies it follows.

For the purpose of this article, it’s important to understand that an ETF tracks an index and attempts to mirror that change in value. If you buy any ETFs that track the Dow jones industrial average, you should see that fund go up in value if the Dow goes up and conversely go down if the Dow goes down.

Types of ETFs

ETFs may trade like stocks, but they are more similar to Mutual funds in that they combine multiple companies or investment products. The ETF is designed to be a “tradeable index”. This means that you can get all the benefits of the diversification within that index but be able to buy and sell shares of the investment many times during the day.

ETFs are typically passively managed versus actively managed. Which basically means that there is no active manager like a mutual fund. Remember we discussed how mutual funds have a professional investor who buys and sells within the fund using the money you invested. ETFs do not have a professional manager, typically the fund will automatically invest in the necessary components of the index that it tracks. Below are a few common types of ETFs. I have categorized them by their investment.

Stock ETFs

This type of ETF is very similar to a Stock mutual fund. The money invested into this type of fund will increase assuming the value of the underlying stock and index it follows will go up. For example, a Dow Jones ETF. Whenever money is invested in that fund, the investor benefits from the gains. But similarly, share in the losses. Keep in mind with an ETF, you are purchasing a basket of existing investments. This is not like a mutual fund where the fund manager buys more using your investment. There is no active management in most ETFs. With Stock ETFs, you are also able to buy investments that track specific industries. Say you want to invest in the technology space, but not sure which particular company to invest in. There are several technology ETFs that could be good investments. Also, there are several ETFs that focus on investing in socially responsible companies. For more on those ETFs, check out my review of SRI and ESG investing.

Bond ETFs

Unlike individual bonds, bond ETFs don’t have a maturity date, so the most common use for them is to generate regular cash payments to the investor. A bond is effectively a loan of money to a company where the lender (you) gets an interest payment. This allows the purchaser of a Bond ETF to benefit in the same interest payments. Bond ETFs can be an excellent, lower-risk complement to stock ETFs and they usually offer a much higher dividend than any stock ETF

International ETFs

ETFs can hold investment from almost anywhere in the world.

This particular type of ETF investment seeks to mirror non-US indexes. So if you are looking to invest or achieve similar results to an international index, this might be a good option. There are ETFs of nearly every international index in the market. This is a way to diversify your portfolio with some exposure to markets outside of the United States.

Commodity ETFs

Commodity ETFs track gold, silver and oil among other things

Commodities are physical goods. They can be traded in an open market. We discussed this a little in the mutual fund post as well. Here though you may have to do more research or work with your investment advisor, because this type of ETF can either be solely tracking the index of the underlying commodity or it can track the index of the company that specifically sells this type of commodity. To explain further, you could either buy an ETF that tracks the specific price of gold or you could buy the investment that tracks companies that are in the gold industry.

Pros and Cons

Diversification

One of the key advantages of ETFs is similar to Mutual funds; Diversification. Unlike individual stocks, mutual funds and ETFs are based upon multiple companies. This key factor allows the investor to spread the investment over multiple industries so that if one company in the group goes down in value, it may be offset by another company going up in value.

ETF Cost

There are many ETFs that do not charge any fees to buy into or sell out of. As a best practice, I would suggest avoiding additional brokerage fees to buy and sell the investment. However, they are typically less costly than mutual funds when considering additional fess. Exchange Traded Funds are not actively managed versus their mutual fund counterpart. There are more fees when a fund is managed professionally.

Tax Benefits

In most cases, ETFs can be more tax efficient than mutual funds acting, once again as a stock transaction. Tax is typically charged when the ETF is sold. It is based upon the length of time you hold the investment. A mutual fund, however, can be taxed even while the fund hasn’t be sold. The mutual fund consistently buys and sells stocks creating capital gains.

Intra-day Trading

One of the major benefits and differences of ETFs and mutual funds is the ability to trade the ETF during the day. You can only trade mutual funds once per day. This key benefit allows an investor to get into an investment and if they need to get out quickly, they can. However there are limitations to this as well, make sure you don’t get an “itchy trading finger” and try to buy or sell too quickly. It is extremely difficult, if not impossible to affectively time the market with the perfect investment.

Liquidity

Liquidity of an ETF indicates how quickly you can get out of your investment to get your cash out.

Since the ETF trades like a stock, investors must buy at the Ask price and sell at the Bid price. If there isn’t a large market for this particular ETF, the difference between what you buy at and what you sell at could be significant. Furthermore, there is rule of settlement. When you sell a stock or ETF, there is a 3-day settlement rule before the funds can be withdrawn. This is typically not the case with mutual funds, they have a settlement period of 1 day.

Disclaimer: I receive affiliate compensation for some of the links in this article at no cost to you. However, these are the best tools I have used and tested that I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy.

Is an Investment in an ETF right for me?

This is difficult to answer in an blanket statement. Everyone is different and at different stages of their investment journey. I would offer that prior to making any investment decision you must first consult a financial advisor. In general, ETFs carry lower costs, offer diversification and more flexibility than mutual funds. However, you must make sure to do your due diligence and confirm all the costs associated with an ETF. Make sure to watch for any hidden costs just like with Mutual Funds. In addition, make sure you aren’t too quick on buying or selling the particular fund.

An investment in an ETF could be a very lucrative investment. I have ETFs in my personal portfolio. I also have been investing for many years. Typically I use ETFs as a broad market diversification strategy that allows me to capture the investment gains of an index. If you are not looking to actively manage your investments, it may make sense to look at mutual funds as an alternative.

I suggest looking into investments that track an index such as the S&P 500. This is a good strategy if you are not extremely comfortable with the stock market. Keep in mind that I am not an investment advisor or tax advisor. Two books that I would recommend to better understand ETFs would be ‘Getting Started in Exchange Traded Funds‘ and ‘ETF Trading Strategies Revealed‘. Both go into much more detail on ETFs and trading strategies. Please consult a professional before making any investment decisions.

I hope you enjoyed my article on ETFs and a brief summary of what they can do. Please follow me on social media and feel free to comment below.

But before you go…

If you want to learn how you can take ANY business and scale it to your dreams and goals?

Partner up with me by clicking on this link and watching the video.

We will show you EXACTLY how to build a business online and customize a plan just for you. We will help you choose a niche, setup your online business and help with selecting offers that you can promote.

On top of that you will get ONE on ONE mentoring to make sure you are doing things right.

A great way to be able to save more money is when we make more money.

Cheers to your success and See you at the Top!

-Cameron

Mind Money Masters

Mutual Funds: What are they?

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Mutual funds are one of the most common investments. They seem to be popular in conversations around retirement and in the personal finance world. For that matter, whenever you watch any news show, it seems there is someone talking about investing or saving money in either insurance or mutual funds.

Mutual funds are one type of investment option that nearly anyone can invest in, but you should never invest in something that you don’t quite understand. In this discussion around Mutual funds, I will hopefully clear up some confusion and offer a better understanding of this powerful investment tool.  Let’s take a look at what mutual funds are, how they work, and if investing in mutual funds is right for you.

What is a Mutual Fund?

Many Mutual fund companies can be found in large cities.

Mutual funds are large pools of money that are managed by professional investors. They offer access to a lot of different investment opportunities. It can be to be a very inexpensive way to have a portfolio advisor. Typically, anyone can invest into a mutual fund by opening up a brokerage account at a financial institution and depositing money into the mutual fund account. Investment professionals manage the money. They use the cash to invest in multiple companies, which make up the portfolio.

Pool of Investment

It may help to clarify this by imagining 10 people standing around a table and there is a large empty bowl in the middle of the table, everyone then puts $50 dollars into the bowl. The bowl now has $500 dollars. An investment advisor takes the bowl and invests in other companies. The investment advisor takes 5 dollars out of the bowl for their services. The bowl then becomes the investment. When the advisor takes the money and invests in other companies, you do not own the other companies. You simply own one-tenth of the mutual fund.

Now, if the companies that make up the mutual fund go up, then you gain appreciation on your mutual fund. However, if they go down, you lose money on your investment. It’s important to understand that when investing in mutual funds, you do not own any of the underlying companies.

Types of Mutual Funds

Since the the money is invested in other companies, it’s important to know what those investments can be. The type of fund will tell you what it invests in. This can be company stock, company bonds, commodities, real estate, and the list can go on. If they invest in large companies in the U.S., they would be considered a Large US Stock fund. Likewise, if they invest in only company bonds, they would be considered a Taxable Bond fund.

Stock Fund

Inside a typical stock mutual fund are stocks from dozens, sometimes hundreds, of different companies. When you put money in a mutual fund, you’re effectively buying into all of those companies. As I mentioned earlier, you may make money on your investment if the underlying stock of that company goes up, conversely if their stock goes down, you may lose money. Typically, the benefit of investing in these is that not every single company will go down at the same time. Some go up and some go down, the net of this is your return. This concept of spreading your risk by investing in mutual funds is often call diversification.

Bond Fund

Inside a typical bond fund, there are investments in bonds from various companies. A bond is debt obligation that a company must pay an interest rate on. When you hold a bond from a company, you offered the company a loan that they pay back. When a mutual fund company uses your money and invests in a bond fund, the mutual fund is loaning the money to the company for you. However, you benefit from the value and interest rate increase associated with all the bonds in the fund. The concept is still the same as a stock fund, the difference is simply debt versus equity financing.  

Other Funds

Since a mutual fund is effectively a pool of cash that is used for investment, it can invest in anything, as long as it meets the criteria of a fund. Real estate funds seek to gain value by investing in various real estate ventures, this could be commercial or residential. Commodities funds seek to benefit from the rise of the commodities exchange. Their underlying assets could be sugar, gold, cotton and many more. Government bond funds or treasury funds seek to invest in the government of the U.S. or other countries.

Are Mutual Funds Right for You?

Investing in Mutual funds is typically very easy. One advantage is the initial cost. There are so many funds that have a $0 dollar minimum to invest. I know that Charles Schwab offers many low investment funds. Another key advantage of investing in mutual funds that was mentioned above is diversification. You may have heard of the phrase, “Don’t keep all your eggs in one basket”. They were created with this concept in mind. I would encourage you to read, ‘The Little Book on Common Sense Investing’ if you have some time. John C. Bogle is the author and he discusses index funds and diversification in some detail. Read this book if you would like to take your mutual fund knowledge to the next level.

Automate your Investment

Mutual funds offer automatic investing. Money just flows from account to account and you don't have to think about it.

Furthermore, investing in mutual funds can be automated. There is usually an automatic investment option where you can make a monthly transfer into the fund directly from your paycheck and which makes it harder to spend the money before you invest it. More on automated investing my post Savings and Investing. The key here is that automatically investing in stand alone company stocks usually not an option provided by the financial institution.

Picking Stocks can be Hard

Mutual funds offer the diversification of multiple companies. If you enjoy picking individual stocks or any type of active trading, then they are not the correct investment vehicle. Mutual funds take out a lot of the guess work of picking individual stocks. Given that there are thousands of companies out there on the stock exchange, how do you begin to invest in individual stocks? Bottom line, research is required in picking individual stocks. Plus, you must actively monitor the investment. Investing in mutual funds allow other people to do a lot of the guess work.

Disclaimer: I receive affiliate compensation for some of the links in this article at no cost to you. However, these are the best tools I have used and tested that I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy.

Conclusion

Mutual funds are very common investment options. They can be a great way to spread your money over different companies and thereby reducing some of your investment risk. Mutual funds can also be a very easy way to invest in the potential gains associated with the stock market. Most mutual funds offer an automatic investing process so that is a very easy way to save automatically.

If you like the idea of putting your money somewhere, which on average earns more interest than a savings account, then mutual funds could be right for you. In addition, they could be right if you don’t want to do research on individual stocks. Moreover, if you don’t want to be exposed to one sector of the financial market, and prefer to not put all your eggs in one basket, then mutual funds might be a good option for you. There are so many factors to consider when looking at the correct fund to invest in. In general, they are safer than individual stocks and can offer investment growth.

As always, please seek advice from a financial advisor before making any changes associated with investments. I really hope you enjoyed this post and learned a little bit regarding mutual funds.

Before you go…

If you want to learn how you can take ANY business and scale it to your dreams and goals?

Partner up with me by clicking on this link and watching the video.

We will show you EXACTLY how to build a business online and customize a plan just for you. We will help you choose a niche, setup your online business and help with selecting offers that you can promote.

On top of that you will get ONE on ONE mentoring to make sure you are doing things right.

A great way to be able to save more money is when we make more money.

Cheers to your success and See you at the Top!

-Cameron

Financial Debt Review: Good versus Bad

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There are many opposing thoughts regarding financial debt and whether or not there is such a thing as, good debt. Is all financial debt created equal? In this review of financial debt, I discuss what you may have heard regarding good debt and bad debt, whether it is always best to be debt free, and how you might be able to use debt for your advantage. One thing I can tell you is that you have probably been told many incorrect things about financial debt.

What is Financial Debt?

First of all, what is debt? Investopedia defines debt simply as money borrowed by one party from another. It goes further to describe a debt arrangement. Effectively this is an agreement whereby one party agrees to pay another party for the use of funds. They pay the giving party an interest payment on this. Interest is simply the cost to borrow the money.

Types of Loans Available

You may have heard reference of multiple types of loans out there. Loans fall into two general categories, secured and unsecured. The only major difference between them is whether or not they are backed by physical property. This can also be called collateral or a collateralized loan. Please also keep in mind that I am not a financial advisor and for more specific details on any of these topics, please reach out to your financial advisor.

Mortgage Loans

Is buying a home good or bad financial debt?
Is Buying a home good Financial Debt?

Mortgages are the most popular secured loan. They are secured because the borrower receives money to purchase the physical property. Typically these loans are 15 to 30 years and have a much lower interest rate. They offer a lower interest rate because the banks believe the money borrowed is a safe investment. Another type of mortgage loan you may have heard of is a Home Equity Loan. This is very similar to a standard mortgage loan, but has a slightly higher interest rate because this is second mortgage on your home.

Auto Loans

These would also be considered a secured loan since the borrower is using the money to purchase a physical asset which is the car. Duration for these loans are oftentimes 3 to 7 years. They typically have a higher interest rate than a mortgage loan. They are considered a riskier investment by the bank. This is because there is more depreciation on a vehicle than on a home and typically cars do not increase in value. For more on reasons why interest rates vary, please read my post on Personal Credit.

Student loans

These loans are considered unsecured since there is no collateral that the lender is giving money against. However, they are treated differently than typical unsecured loans due to government stipulations and intervention. These loans can vary widely in payment terms and interest rates. The ideal time for student loan repayment is 10 years.

Credit Cards as Financial Debt

Credit cards are usually bad financial debt, but it depends on how they are used.
Credit cards are usually bad financial debt, but it depends on how they are used.

These are the primary example of an unsecured loan and offer a borrower access to funds up to a limited amount. These are more often than not actually considered “lines” of credit. A loan gives all the money upfront but a line offers access to money. This type of credit typically has no set repayment schedule. Banks design credit cards to keep the borrower in debt for as long as the borrower has the card. In this way, they receive a perpetual payment from offering credit cards.

Other Loans

There are many types of loans in the market. The four above are incredibly common, but there are personal loans, medical loans, business loans, and construction loans. Lenders will basically issue a loan for anything that a borrower would need money for.

Good Financial Debt versus Bad Debt

Many financial advisors offer that all financial debt is bad and that, we should live a debt free lifestyle. I would differ greatly with that perspective. I would suggest that financial debt can be a tricky vehicle to maneuver, if you do not have a good understanding of how to use it. In my experience financial debt can be very useful and offer a wide array of benefits.

Leverage

Financial debt offers the borrower the ability to use the financial institutions money to purchase an item, that they may or may not have originally had enough cash for. I would agree that if you are using debt to buy the hot new consumer product out there, then that is a bad use of debt. However, if you are using debt as an ability to purchase an asset, then that may be a wise financial decision.

Assets and Liabilities

Financial Debt can be absorbed by the asset they purchase

An asset is anything of value or having value. If you had an accounting class in high school or college, you probably learned this. Typical assets include cash and equivalents, property, businesses and other intangible assets such as brand name and goodwill. I would like to consider an asset as anything that produces positive cash flow. Liabilities are anything opposite. Typically something that someone owes. My interpretation of a liability is anything that you pay for, which doesn’t generate cash flow beyond what you are paying for it.

Your Home is not Your Biggest Asset

Let me go into more detail. I do not believe that your house is your biggest asset. This is typically contrary to most financial advisors. Your house can be an asset, but I would not consider it an asset unless it’s completely paid off. If we go back to the original definition of an asset, how does your home make you money? Think of this way, if you had no money to pay for your mortgage, does the house pay for itself? No. If you do not pay your mortgage, the bank, who owns the house, forecloses on the mortgage and takes the house away. So the house is an asset for the bank, not for you.

If however, you take a mortgage out on a rental property and have a tenant rent from you and they pay you a monthly rent, that house could be an asset. From a personal finance perspective, an asset is only something that offers you positive cash flow. Similarly, if you take out a loan to fund a business venture and your sales per month pay the cost of the loan, that business is an asset. I’m drawing the distinction here for a purpose. If we understand truly how assets and liabilities work, we can build better assets.

Disclaimer: I receive affiliate compensation for some of the links in this article at no cost to you. However, these are the best tools I have used and tested that I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy.

How can Financial Debt be good?

So is it always best to live debt free? That was the big question at the beginning, wasn’t it? I would say no. But that is also because I am an entrepreneur and business owner. Plus I used financial debt as leverage to build my business. Using financial debt for business can offer the necessary leverage to build faster side hustles. Also, you can take advantage of tax benefits using leverage while building a business.

However, if you are judging from a personal perspective and a 9 to 5 is your only source of income, then perhaps being debt free is a better way to be. Being in debt may be a bad thing, if you are not buying assets using your debt. If the cash flow that you earn from your assets pay the debt, then that is the best situation to be in.

Tax Advantages

Another value you have in owning your own business are tax advantages, but please consult with your tax advisor on this. There are many tax credits that people can take during the general process of starting and running a business. Obviously, we don’t want to start a business purely to avoid taxes, but there are many advantages.

Side Hustles

I would encourage everyone to have a business or work on a “side hustle”. They are plentiful. Did you know that most millionaires have seven streams of income? Everyone should have multiple side hustles. There is so much time available in the day to work on an opportunity to build a business for financial freedom. You have to find the available time. If that means making sacrifices of things that are non-essential or making time elsewhere, we can all find an extra 30 minutes per day. Check out my post on ‘The Mindset of an Entrepreneur‘ for more tips and information on becoming your own boss.

Conclusion

I hope this brief discussion surrounding financial debt was beneficial to you. This post is designed to give you only an introduction to the world of financial debt and some pros and cons within. Using debt as leverage can be a good long term business plan, but it requires diligent focus and detailed planning to be successful. Many successful people use debt in a positive way and I would suggest leaning on their experiences.

If you want to learn more, one book I would recommend is ‘The Cash Flow Quadrant’. It will go into further detail around assets and liabilities. Another book to check out is ‘Credit is King‘. It will discuss how important credit is and how controlling financial debt is so important. Thank you for staying until the end and I wish you all great amounts of financial success!

Before you go…

Do you want to learn how you can take ANY business and scale it to your dreams and goals?

Partner up with me by clicking on this link and watching the video.

We will show you EXACTLY how to build a business online and customize a plan just for you. We will help you choose a niche, setup your online business and help with selecting offers that you can promote.

On top of that you will get ONE on ONE mentoring to make sure you are doing things right.

A great way to be able to save more money is when we make more money.

Cheers to your success and See you at the Top!

-Cameron

How Personal Credit Works

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Personal credit and the credit scoring system can oftentimes be confusing. It seems nowadays that you cannot do anything without first checking with the credit “gods”. In this review of how personal credit works, I discuss in detail what a personal credit score is, how credit scores are calculated, how banks use your credit history to make lending decisions and some quick tips on how to improve your credit. Personal credit is not the only factor that goes into lending decisions, but it is definitely important.

What is a Personal Credit Score?

A personal credit score is a three-digit number derived from the data in your credit report that indicates how likely you are to repay a loan on time in relation to other borrowers. Typically, this number can range from 350 to 900. Correspondingly, a lower score means banks will consider you a higher risk customer.

There are three personal credit bureaus: TransUnion, Experian, and Equifax. Although most of your credit report will be the same across all three, there can be differences.

You may have heard of the word FICO or VantangeScore. These are the models to calculate the credit score. Each of these companies may have several different versions of their score for different end uses (for example, one for mortgage lenders, one for credit card banks, another for car insurance companies and even for home utility companies).

FICO

FICO Scores, which are used by 90% of lenders, are a highly trusted measure of whether a loan will be paid on time. FICO’s algorithms calculate your creditworthiness based on the information found in your credit report. Comparatively, other types of scores simply use payment history to calculate your score.

Typically the FICO scoring model looks at 5 key factors; Payment history, Amount currently owed, prior credit history, new credit applications and what type of credit your currently have.

How Banks use your Personal Credit Score

Banks can lend you more money or give you a better interest rate based on your credit score.

Today, companies use the data in your credit report to create credit scores. Most lenders will use this score in the underwriting process as an alternative to manually reading your credit file. To clarify, underwriting is the process where the bank looks at your financial, tax and credit documents to offer you a loan.

That said, you can expect an underwriter to look more closely at your credit report when applying for a large loan such as a mortgage or a personal loan. Your credit score and financial information are important factors that affect the interest rate you receive.

Think of the personal credit score as a financial report card. The credit reporting agency monitors how you use your money and how you pay your bills. It will then give you a grade. Institutions use this grade to confirm you are trustworthy enough to get more financial responsibility.

Why is this important?

Having good credit can offer an individual a lot of opportunity. Personal credit can be used not only as a consumer, but as a business owner as well. Personal credit can be a very easy way to get business start up capital. This can help pay for many of the initial decisions of a business.

This discussion goes more into the concept of good debt versus bad debt. Obtaining credit to fund potential business ventures can be very profitable. Correspondingly, It is first important to understand how your financial decisions affect your creditworthiness.

Having good credit is extremely important to save money. If you have good credit and are looking to purchase a home, you can save hundreds of thousands of dollars based upon a better interest rate. For example, if you are buying a home and the purchase price is $350,000 dollars, the difference in total interest payments is $153,890 on a 30-year mortgage between a 4% interest rate and 6%. Just a two percent change on the interest rate causes over $150,000 dollars more in payment.

Sometimes, companies will use your credit score for other decisions, too. Have you ever applied for a job, rented an apartment, used cable, internet or electric? How about applied for car insurance? Typically, all of these items will require some form of credit check to either be approved. In addition, if good personal credit is an issue for you, typically you are required to pay a higher deposit. You may not get approved at all.

How to Improve your Personal Credit Score

Increasing your personal credit score could be easier than you think

Now that we understand how important the credit score is, let’s discuss some quick tips on how to improve the score. In order to improve your score, you must look at improving all the factors that go into creating the score. I have broken down into five categories that can assist in improving the score below.

There is no blanket formula for improving your credit score. Therefore, I would encourage you to reach out to a credit repair company if you want advice tailored to your specific situation. Below are the 5 quick tips that may help:

5 Quick ways to Improve your Credit Score

  1. Get a free credit report: This will allow you to know what is on your credit report. More often than not there are things on your credit report that shouldn’t be there
  2. Enlist the help from a credit repair company. This will help to either remove errors or offer a debt consolidation loan to refinance all the debt into one payment
  3. Build a budget to understand how much money you are spending monthly. Set a reminder for each bill that you must pay to pay it on time
  4. Pay the highest interest card first and then moving to the next card. Once paid off, do not cancel the card. Available credit will actually increase your score.
  5. If possible, get a side hustle that can offer you additional income to help you pay off the debt faster. As a matter of fact, there are many work from home opportunities out there where you can set your own hours.

Check out this Work from Home Opportunity – Click here to watch a short video

Conclusion

Personal credit is very important and not something to take lightly. Good personal credit can not only save you hundreds of thousands of dollars but also open financial doors that otherwise would not be available. That being said, there are many ways to improve your credit score. It is vitally important to first understand your credit situation, set financial goals and stick to a budget. Only then can you really have the financial knowledge to fix the issue.

I hope you enjoyed this post on personal credit. Go ahead and take a look at the Savings and Investing post for additional tips on personal finance. My goal with these posts is to offer financial education. Hopefully, also offer viewpoints other than what is popularly thought. Credit and debt can be incredibly useful tools. They can fund start up capital for businesses and assist in leveraged purchases. The more you know about credit and the general banking process, the better off you will be.

Before you go…

If you want to learn how you can take ANY business and scale it to your dreams and goals?

Partner up with me by clicking on this link and watching the video.

We will show you EXACTLY how to build a business online and customize a plan just for you. Furthermore, we will help you choose a niche, setup your online business and help with selecting offers that you can promote.

In addition to of all that, you will get ONE on ONE mentoring to make sure you are doing things right.

A great way to be able to save more money is when we make more money.

Cheers to your success and See you at the Top!

-Cameron

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Financial Literacy: A Path to Financial Education

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Financial literacy and financial education are thrown around a lot in the personal finance arena. And to be honest, I believe this topic should be discussed in much further detail. In this review of Financial Literacy, I am going to discuss what financial literacy is, why it is important, how it can start you on a path for financial education and how true financial education can help us become financially free.

What is Financial Literacy?

How can financial literacy help me?

Financial Literacy is defined simply as having the knowledge that can help you make informed and effective decisions with all your financial resources. And from a general perspective that is true. I would hold to the definition that financial literacy is, understanding the basics of personal finance. True financial education is beyond financial literacy. You must first, become financially literate before you can embark on the continued financial education process.

Budgeting

Budgeting is a key component of financial literacy. This can be a simple budget or more complex. I realize that budgeting can sound extremely boring, but if you do not understand what goes into your bank account and what goes out, then how can you possibly plan for the future? Most of us have autopay on various bills in our household. At the end of the day, do you “hope” that everything will get paid or do you “know” that everything will get paid. I want to avoid any and all bank fees that I can.

The key takeaway here is that you understand what is added and subtracted from your income every month. A budget can help you also understand fixed costs versus variable costs. The variable cost is something that changes every month, typically dining or entertainment. A fixed cost is something that is basically the same every month, typically mortgage, rent or auto payment. There are apps that can help you with this or if you are like me, you can create a massive spreadsheet through Excel.

Savings and Investing

I wrote another article on Savings and Investing that I would encourage you to take a look at, so I will be brief in this section. Understanding that you should save and invest is a basic fundamental concept of financial literacy, however, what to save for and what to invest in, leans more towards additional financial education. It’s important to know that you should save a portion of your income and you should invest a portion of your income, but how much, and in what? How do you know what the best savings account is or should you invest in a Mutual Fund or ETF? For that matter, what is a Mutual Fund or an ETF? This is the distinction that I draw between financial education and just financial literacy.

Financial literacy can help you learn better saving and investing habits.

A general rule to follow regarding savings and investing is to “pay yourself first”. This is something most financial “gurus” would suggest, and I do not disagree. Whether that is 5 percent or 50 percent, automatically save something for yourself that can only be used for its intended purpose (i.e. vacation or big purchase). Also consider saving for a larger investment such as a rental property or additional financial education.

Financial Debt

You must take inventory of financial debt. This is a silent destroyer of dreams. I have seen many people not even realize how much debt they were in until it was too late, and the creditors were knocking down at the door. Make a list of everything you owe and add it up. I know this can be painful, but knowledge is the potential for power. The more you know about a situation, the better you can affect change on it.

Credit Interest

An important topic to bring up in this section is interest rates and how they can affect how you pay off debt. Paying off credit and becoming debt free can be a very rewarding achievement. It is not always easy, but there is an element of freedom when you pay something off. Credit interest is the additional charge for borrowing the banks money. So, in a very general understanding, if you want to borrow 1,000 dollars and the bank charges you 10 percent interest, simple interest means you would pay 1,100 dollars at the end. 1,000 dollars plus 10 percent interest gives you 1,100 dollars to pay back. I have another post on this, and for more information take a look at my Financial Debt Review post.

Why is Financial Literacy and Financial Education Important?

Now that you see what financial literacy is, it’s time to discuss why it is important. The obvious answer is that it can save you money. But it can save you in three ways; firstly, the more you know how you spend, the more aware you become and maybe won’t spend the same way (Budgeting). Secondly, the more you know about how to save or invest, the more prepared you are for the future (Saving and Investing). Lastly, the more you know about your debt, the faster you can pay it down or learn how to avoid more debt.

Financial environments are constantly changing

Financial literacy sets the stage for your financial education journey, and that is a continued and daily increase of knowledge. The financial markets and personal finance arena are changing every day. There is no way that I could just give you three items as a discussion point and call you financially educated. True financial education discusses how money flows and how we have the power to make it flow for our benefit. The more you know about finances the better you will be. The stock market was not the same 50 years ago as it was today, nor will it be the same 50 years from now.

Learn more efficient investing techniques

Financial literacy helps you get started on your journey. For example, now that you understand, from a high level view what a budget is and what several aspects of financial literacy are, you can expand your knowledge further and learn the best way to budget or the best way to invest. You can invest in Real estate or digital business. What about starting your own side business? Do you think financial education is important there? In the next section, I suggest several books that would be highly beneficial in your financial education process. These can be physical books or audio books. I prefer the physical book, but that’s just me.

Disclaimer: I receive affiliate compensation for some of the links in this article at no cost to you. However, these are the best tools I have used and tested that I believe are most effective for launching and running an online business. You can read our full affiliate disclosure in our privacy policy.

Conclusion

Financial literacy is extremely important today and does not get enough press. My goal is providing the best possible source of true financial education. Becoming financially literate is just the first step to true success, but it is the most important step. Learning more everyday should be the ultimate goal. Everything in this world changes so rapidly, that includes the world of personal finance. I would encourage you to read some additional books on financial education that I have found extremely helpful; ‘The Millionare next door’, ‘Unshakable’ and ‘Rich dad, poor dad’ are three books I found very helpful on my journey. They are all very inexpensive and very quick reads. Thank you for reading and I hope you enjoyed a brief look into financial literacy.

Before you go…

If you want to learn how you can take ANY business and scale it to your dreams and goals?

Partner up with me by clicking on this link and watching the video.

We will show you EXACTLY how to build a business online and customize a plan just for you. We will help you choose a niche, setup your online business and help with selecting offers that you can promote.

On top of that you will get ONE on ONE mentoring to make sure you are doing things right.

A great way to be able to save more money is when we make more money.

Cheers to your success and See you at the Top!

-Cameron

Emergency Fund Savings: Do you need one?

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Banks and Financial Advisors often talk about an Emergency Fund Savings Account, also known as an emergency fund, as something required for every individual. Is it really required? Are there other financial vehicles that can accomplish this? In this review of Emergency Fund Savings, I will first define what is meant by an emergency fund, secondly how much you should have, how to start one, and where to potentially keep those funds. I would encourage you read until the very end as I also give my personal thoughts on an emergency fund.

What is an Emergency Fund Savings Account?

What is an emergency fund savings account?

In a general sense, the definition of emergency fund is in the name. Emergency fund Savings is a savings account for all “emergency” issues. Notwithstanding, this can include any all situations where you need immediate access to cash funds without having to liquidate any physical assets. Some quick examples of when you may need cash immediately, would be a car wreck, hospital visit, roof repair, major appliance issue, job loss or family emergency.

Another way to look at an emergency fund is a “peace of mind” fund. An account where you have stored funds to use in case of something unexpected. An emergency fund savings is always better than dipping into the available credit on that high interest credit card. The savings account, albeit not earning much, is your money. Using a credit card is using the banks money at a high interest.

How Big should your Emergency fund Be?

This is the question, right? If we supposedly need the emergency fund savings, how big does it need to be? Consequently, there are multiple schools of thought on this one. Some advisors say 3 months, some say 6 months, others even say 12 months of expenses.

This will really depend on your lifestyle and family stability. I also believe that it will depend on what kind of business you are in. If you are a two income household with no children, then maybe only 3 months would be plenty, however if you are a one income household with multiple children and working in a full commission role, maybe 12 months would be better. The amount of money in your emergency fund depends on many factors, and absolutely cannot get a rubber stamp of approval, saying you need 3 to 6 months only. I would suggest working with your financial advisor to create a plan.

How to Start your Emergency Fund?

If you, like many others in the world who don’t typically plan for emergencies, the idea of starting an emergency fund savings account sounds a little daunting. There are multiple ways to start this account though. First, I would suggest opening up brand new account. This can be an online account or another account at your local bank. There are many online savings account offers that actually give you a higher rate of return than local banks, make sure to look online. Second, we must find a way to fund that account given that you currently have expenses and may be living paycheck to paycheck.

Auto Save

In my post, ‘Savings and Investing’, I discuss ways to auto save so that you don’t actually realize the money is being stored away for you. Auto saving is a great way to build up savings, however if the number of bills do not seem to equal the income, this can be challenging. We need to think about lowering expenses.

Know Your Expenses

In order to lower expenses, we must first create a budget. I know that’s a “dirty” word in many households, but it’s very easy, plus there are phone apps that can help you do this. A budget is extremely important to understanding how much you spend versus how much you save. Many times I’ve helped individuals create a budget and afterwards they said, “I didn’t know I was spending that much on going out!” Have you heard the term, “ignorance is bliss”? Well it’s not bliss if you are broke!

Tracking your expenses is important

Once a budget is established, you can see ways to decrease expenses. That extra money can fund your emergency savings account. I understand that this is a very basic example. The takeaway is that I guarantee you are spending more than you need to on something in your household budget. Would you like to be free of the debt baggage you carry, and maybe even find financial freedom? What would that look like to you? If you did not have to even think about how much something cost? Financial stress is one the biggest causes of family and health issues in the world.

Where do you keep the Emergency Funds?

First, let me start out by saying that I am not a financial advisor and I do not work for any of the financial institutions that may be suggested. The banks will tell you that your emergency funds should be in one of their institutions. American Express is offering 0.60% APY at the time this article was written. Citi is offering 0.70% APY, so is Capital one. Ally bank is offering 0.60% APY as well for high yield savings accounts.

According to Inflationdata.com, the average rate of inflation has been 3.22%. Quick math shows me that on an annual basis, if we keep our money in a high yield savings account, we actually LOSE 2.52% on our money. This assumes averages and savings yields stay consistent. My purpose here is not to confuse anyone, but simply to educate. I have a savings account and it earns me roughly 0.50% APY. I want to make sure that when deciding on where to store funds you realize all the potential issues.

Now, is there a better way? Perhaps. I recently read a book by Brent Kesler and Chris Naugle, ‘Mapping out the Millionaire Mystery’ and would strongly suggest reading it. The concept here is using a form of life insurance help someone create their own banking system. Comparatively, this is not a new concept and has been around for about 200 years. R. Nelson Nash discussed this in his book, ‘Becoming your own Banker’. Both of these books are incredible. They opened my eyes up to the general banking system and how individuals can become their own bank.

Conclusion

Is an Emergency Fund Savings Account necessary for you? Unfortunately, I cannot answer that. I don’t know your particular situation. Is having the ability to access quick cash very important? Most financial advisors would probably say yes. They might say everyone needs an emergency fund and it should be in a savings vehicle that is easily accessible. I do believe that you need to have access to cash which in an emergency, can be used quickly. However, is a savings account the best vehicle? There is definitely debate on that.

My goal is to offer options and make sure, to the best of my ability, that you have as much information as possible to make the best decision. Financial education is the only way that we can all make better business decisions. Whether that is the business of business or the business of life. Thank you for reading, please subscribe to my blog and comment below.

Before you go…

Do you want to learn how you can take ANY business and scale it to your dreams and goals? If you want to learn how to build more than an emergency fund and be financially independent?

Partner up with me and learn how I was able to achieve financial freedom.

Click on this link to watch a short video

We will show you EXACTLY how to build a business online and customize a plan just for you. We will help you choose a niche, setup your online business and help with selecting offers that you can promote.

On top of that you will get ONE on ONE mentoring to make sure you are doing things right.

Cheers to your success and see you at the TOP!

-Cameron

Mind Money Masters

Tips for Saving and Investing Money

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Have you ever wondered where are the good tips for saving and investing money? How do people know which is better, Saving or investing? Or are they both equally important? In this tips for saving and investing money post, we will discuss why both are important and why you may consider one over the other. Just to be candid, I am not a financial advisor, this information is purely based on my experiences and opinion. There are many certified financial professionals that would be able to go into as much detail as possible. First though, I would like to discuss the multiple benefits of saving and investing.

Saving and Investing Early

No one really wants to talk about saving money or a savings account because it’s boring. Plus, there are so many books or classes that talk about saving money and it is almost saturated. Personally I like the books ‘The Millionaire Nextdoor‘ and, ‘The Richest Man in Babylon’. They are not your typical budgeting books but offer great concepts.

Benefits of Saving and Investing Money

I’m not sure about you, but when I think of savings, I think of my grandparents, who had a savings account at the local back and consistently gave money to the bank for a small portion of interest. For whatever reason, we also think of saving as something that we will do later in life. Well that couldn’t be further from the truth. What I would like you all to consider, is changing the mindset on savings.

A major benefit of savings or investing is the ability to store usable cash for future growth. This can be for either a personal business or larger investments. I read a book a while ago which really changed my mindset. I’m not sure if he created the concept, but the idea is to consider savings as storage. I like this because storage indicates that we are storing this for a better use.

Storing for Future Investment

If you think of savings as storing, it may help with the concept since “saving” sounds like something we can’t touch and therefore makes it taboo. Typically, if it is taboo, then we tend to want to spend it even faster. I would encourage you to consider it as a storage account for a future investment.

If you focus on consistently challenging yourself to invest or store a portion of your income every time you get paid, you get into the habit and won’t necessarily feel like you are depriving yourself of things. Furthermore if you put money away early on when you don’t need it, you may have quite a bit later on to use for something you do need. I have below five specific benefits to investing early rather than later.

Investing Early Reduces Risk

If you ever watch the stock market, typically you will see a chart whenever someone refers to a stock price. The chart references a time horizon. This is how the company has performed over a certain time. The longer you invest, the better chance you have to take on any risks of the stock going down. If you are looking for a great book that will give you multiple tips for saving and investing money, I would highly recommend the book ‘Unshakeable: Your Financial Freedom Playbook‘ as it is a great guide to investing.

Investing Early Starts Compounding

Saving and investing early with a piggy was how I started.

We just talked about the timeline and risk, but another reason to invest early is start gaining from compound interest. Say a 25 year old invests $2,400 dollars annually over 40 years, which equates to $96,000 dollars total. If we assume an average growth rate of 8 percent, their investment would have grown to over $620,000 dollars by the age of 65*. Only $200 dollars per month, less than $7 dollars per day.

Conversely, a 35 year old invests $4,800 dollars annually for 30 years so they can retire also at 65. Now the 35 year old invests $144,000 dollars total over the 30 year period. Assuming an average growth rate of 8 percent, their investment would have only grown to $543,000. In conclusion, the 25 year old spent $48,000 dollars less and ended up making $80,000 dollars more and they both retired at the same age. Some of these concepts can also be found in a book, ‘The Everything Guide to Investing in Your 20s & 30s‘.

Keep in mind this is just a model, if you are starting to invest after 35, all hope is not lost. My point in this section is to start today. Time is constant, in that everyday is another day where you could miss out on investment gains. Ideally, we would want to start sooner rather than later.

*Calculator found from Investor.gov.

Investing Early Improves Quality of Life

This really is more of a personal opinion in this section. I feel that if you focus more on the future and how to prepare financially, then you focus less on things that can cause high risk in life. Saving and investing early allows you to have a goal and something positive to look forward to. There is less chance of wasting the money on things that ultimately give you no gain.

Investing Early Leads to Better Budgeting

When the mindset shifts we realize that saving or storing money for a future purchase sinks in, it’s important to know how to effectively budget your expenses. I will go into budgeting in further detail on another post, but one trick I learned is an investment concept called the 40/40/20 rule. The goal is to be really successful managing money.

When you are able to live off of 20 percent of your income and you store 40 percent then the other 40 percent can unfortunately go to Uncle Sam. The highest tax bracket as of the article is 37%. That applies to any earners over 520k per year. I have heard people say live off of 10 percent of your income and I’ve heard others say 30 percent. Personally I like the 40/40/20 rule, but the point is you need to have a plan. And you need to have a budget.

Investing Early for an Emergency Fund

There are different schools of thought regarding “emergency funds” which consist of somewhere between 3 to 6 months of stored expenses. To be completely honest, I didn’t have a “emergency” fund until I was in my late 20’s. I’m not suggesting that should be your situation, but that is my experience. I also go into much more detail on an emergency fund and the pro’s and cons of having one. Please read this blog on Emergency Fund Savings: Do you need one? to understand more on that.

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Automatically Saving and Investing Money

With Auto saving and investing, you are hands free. Less stress, it automatically saves it for you.

Now that we understand how important it is to save and invest, I wanted to give you tips for saving and investing money automatically. This will make your life so much easier. Listed below are three ways that you can go on auto pilot for your savings and investments.

Auto-saving is one of the most underrated concepts out there. This is the concept that when you get paid, automatically either there is a direct deposit to your investment account or your savings account. This can also be combined with auto-investing. If you know that you are going to get paid every 2 weeks, then set up a plan to purchase an investment every two weeks that you get paid. I would suggest you talk to an advisor on how to get this set up. There are so many online brokerage companies out there that would happy to help.

Automatic Round ups

Following the tips for saving and investing money will take you on a path to financial freedom.

Rounding up for saving or investments is a great way to automatically save for future investing. Round up is a concept where you spend money on everyday items but the when the amount comes to something other than a whole dollar amount, the company will automatically round up your purchase and deposit the small amount into an investment account. Acorns is a company that I personally use for this and have been using for several years.

Lastly, my suggesting for auto saving is utilizing any company sponsored plan. Whether your company has a 401k, 403b, ESPP or some other type of matching / discounting savings vehicle. Those are benefits that should never be overlooked, especially if there is a matching program to any of them. A matching program basically gives you free money. Always max out your 401k to at least what your company offers as a match.

Conclusion

I hope you were able to find some additional tips for saving and investing money wisely. As with anything, investing and savings takes dedication and consistency. I learned many years ago that saving and investing can be fun. We must change our mindset from a constant consumer to a constant builder. Building financial freedom and a future is so much more rewarding than following the crowd and living for the moment.

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Before you go…

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-Cameron

Mind Money Masters
Master your mind, and you will master your money.