Sign Your Financial is Healthy

“Never spend your money before you have it” Thomas Jefferson

From the moment you wake up to when you go to sleep, you make constant choices. Should I eat the salad instead of the burger? Should I go jogging after work? And much much more. Over time we form habits, good and bad ones. Every day, we constantly try to implement more good habits in our daily routine. “Running on Tuesday, Friday, and Sunday; High-Intensity Interval Training (HIIT) on Monday and Thursday”, those are mine with few “Should I go and grab a coffee with a friend and skip the HIIT for today?”. Of course, the better your lifestyle is the better your physical fitness will be.
Financial fitness, like physical fitness, is mostly about good habits. Here are the 6 habits to adopt for better financial health.

Know how much you make and how much you spend
Knowing how much you make every month is where you should start. If you have a fixed salary, it is easy. More difficult if your salary depends on commission. Even harder if it is purely based on them. If you work in a cyclical business, then you will probably have highs and lows throughout the year. You should average your last two to three years income, excluding special bonuses.

“A penny saved is a penny earned” Benjamin Franklin

Spend less than you earn
This habit is at the core of all good financial management. It is how rich people get rich. When you spend less than you earn, you save. And what you save becomes wealth. First, you need to know how much you spend. You need to start to register all your expenses. Starbucks, Movie ticket, Milk,… , everything goes into it. The first three months should be taken as “survey months”, I am sure you will be surprised on how much you actually spend on certain things. If you carefully register each of your expenditure without intervention, it will be easier for you to take actions.

“Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earngs to create an estate for his future and that of his family” The Richest Man In Babylon

The first law of gold in the amazing book “The Richest Man in Babylon” Says to save 10% of your income. The 50/20/30 rule for minimalistic budgeting is a proportional guideline that can help you keep your spending in alignment with your saving goals. This rule allocates 50% to your essential spending, 30% to your personal spending. The remaining 20% is for saving. More “extreme” and frugal people will save up to 80% of their income. Your personal situation and commitment play a role in your saving percentage, however, do not go below 20%. To achieve it, follow this simple rule: “Play Yourself First”. As you receive your salary set aside 20% and do not use it.

Stay Insured
A study done at Harvard University indicates that Medical Expenses are the biggest cause of bankruptcy, representing 62% of all personal bankruptcies in the States. A good health insurance can protect you. However, one of the interesting caveats of the study I just mentioned, shows that 78% of filers had some form of health insurance. My own take is that you need to select an insurance that is personalized to your needs. If you have dependents you would need a different insurance compared to your single friend.

Be prepared for the unexpected
One year ago I lost my job, my monthly salary went from five figures to zero within two weeks. With today’s mind, I can say that being laid off was probably one of the best events for my career. When that happened I was emotionally devastated. Before I started a new adventure in the special place I am right now, I spent few months without any income. I was able to sustain my previous lifestyle with few adjustments, thanks to the money I had saved. Most will call this “rainy fund”. I much rather call it “Opportunity fund”. Rainy fund brings the memory of scarcity, whether opportunity fund is something full of optimism. I had to use some of my funds during my unemployed days, and having a positive mindset helped me go through that difficult time.

“Make all you can, Save all you can, Give all you can” John Wesley

Develop a long-term financial plan
If you do not know where you are going, you will probably end up somewhere else. Your financial future is much more important than your next holiday. My work colleagues are always busy planning their holidays, if you do the same, channel some of that energy and focus on what your long term plans are. Write them down.

Earn more
Your income matters. Saving 20% of 1,000 is different than saving 20% of 10,000. Everyone has the opportunity to tap into their free time and find something that could produce extra income. Baby-sitting, tuition, music lessons,… The only limit is your imagination. It may be awkward and difficult at first, but with time and persistence you can succeed in developing one or more sources of extra income

Time To Review Your Insurance Portfolio

Consumers of insurance are often unaware that their insurance needs are constantly changing. While there may be numerous circumstances and events that may lead to this. It is only logical to conclude that you should reevaluate your insurance coverage as years roll by. As a rule of thumb, you should revisit your insurance portfolio annually to keep up with ever-changing predicament and dynamism of life.

There are many reasons why you should revisit your insurance portfolio from time to time. Here is a checklist of what you should look for when reviewing your insurance portfolio:

• You just moved into a new home, condo, or apartment
• You bought a new car or additional one
• You just got married, divorced, birth or adopt a child
• Some relatives moved in with you
• You or your spouse changed job or one of you lost his/her job.
• You become self-employed or start your own business

This is not an exhaustive list and there are lots more but anytime there is a change in your family or lifestyle it can impact your insurance needs tremendously. It is known fact that financial commitment increases with time or when a new member joins your family.

You may need to adjust your insurance policies to fit your current circumstances, for instance, if you are single with no children your insurance need will not be much. Couples with kids should consider some form of permanent insurance which is useful for providing a death benefit to survivors but this type of insurance is expensive and not every couple need this type of coverage.

It doesn’t matter what your circumstances are you need to rethink your insurance needs. Your current coverage may not be sufficient to cover your insurance needs in a year or two. As every year presents its own challenges, you must adjust your coverage accordingly. To better prepare for all these, at the beginning of each policy year, it is advisable that you reevaluate your insurance needs. You can also purchase a new policy to complement those already in your portfolio.

Eliminate what you don’t need anymore, for instance when your kids are grown and the mortgage is paid off, then your insurance policy may have outlived its purpose. So it’s either you let it lapse, cash it in or purpose it for a new coverage.

All these factors and changes are the reasons why you should always review your policy at least once a year and making sure that you on a safe side. You don’t know what life may throw at you tomorrow, so you have to be prepared and get your insurance in other.

Why you should always consult your insurance broker

Your insurance broker is in the best position to advise you on a wide range of products available on the market. Once your broker assessed your individual needs he/she can find you the right coverage at a competitive price.

Assessing your insurance coverage frequently is one the smartest financial move you can make to help you eliminate the possibility of staying under-insured.

How To Win Financial Freedom

You can think of financial freedom like a video game. You’ve got to get through 7 levels to make it to financial freedom. What does financial freedom mean? It’s when your income is higher than your expenses. When you can get your money to make enough money to cover your expenses, you’ve reached financial freedom. It’s like running a gauntlet, but it can be accomplished! So let’s first outlay what the seven levels are and how to make it to your goal of financial freedom.

The 7 levels of financial health and freedom:

1. Level I – Handle all bad debt

Bad debt is distinguished by it being used for consumption rather than production. Bad debt typically does not have beneficial tax treatment like good debt does. By getting rid of all bad debt, you’ve established you can budget and you can produce more than you consume. These habits are critical to achieve financial success. In addition, these habits must be learned before anything else can be accomplished.

2. Level II – Start a Retirement Account and add 10% per year

Retirement is the first goal you should tackle after handling your bad debt because you want to add small amounts of money over a long period of time. You need your money to have a chance to compound over time. So, you need to start a retirement account as early as you can, preferably in your 20’s. I like the automatic investing approach provided by “robo-advisors” such as Wealthfront, Betterment and Personal Capital. The earlier you start, the more time your money has to compound and the easier it will be to retire with enough money.

3. Level III – Create a Savings Account with three months of expenses

This is an important step and many people try and skip this step. I did. Everything goes fine with your investment account (#4) until it doesn’t. Inevitably, something comes up in life. If you don’t have a cushion built up, all your investments come crashing down at the worst time possible when you have to cash out. Needing to cash out investments early, with bad timing and losses, destroys wealth. Before you can invest, you need a savings cushion of ~three months of expenses, minimum.

4. Level IV – Start an Investment account (taxable brokerage account)

Your first goal may be to build income for a home payment. Setting up an investment account could go several ways. You could set up a Wealthfront account and use passive index investments like retirement. Or you could open a TD Ameritrade account and invest in particular stocks or ETFs that usually generate a higher return. What determines this is how much time you’re willing to spend on active investment. It’s important to be able to generate consistent returns based on outlined risk.

5. Level V – Buy a house

Once you are able to generate some return from your investment account and you saved up enough money, the next goal is to buy a house. Buying a house allows anybody to fix the second highest expense, rent as well as creating a forced savings plan. The house is an asset and has the chance for capital appreciation. An additional benefit of real estate is that you can use leverage, in the form of a mortgage, to help boost your returns. Mortgage interest can also be tax-deductible, which makes it favored tax treatment and a good path to increasing annual net income by reducing taxes. A home is an important part of successful financial plans.

6. Level VI – Build multiple streams of income

Start building income-generating assets. These could include REITs (real estate investment trusts), LPs (limited partnerships), Equity Income Accounts and Fixed Income Accounts, such as municipal bonds and annuities. Now that you’ve finished Level 5 and you’re on Level 6, you’re onto the more advanced aspects of the game. Deferred annuities can be one method. Real estate, in the form of REITs, can be another method. The goal is to invest in income generating assets and start to pay attention to the income and cash flow they generate more than the principal value. There is an investing shift that’s going on where you are less interested in capital appreciation and more interested in cash flow. Buying partial businesses in the form of stocks for equity income, or REITs to invest in real estate, and generate yield, all represent early stage vehicles for cash flow investing. The goal is to build this up to a semi significant amount so that a portion of your expenses are now offset by your newly found cash flow income.

7. Level VII – Buy cash flow businesses or income-generating real estate

This is the critical level to work on until you can passively produce more income than expenses. OR, build your own growth start-up company you can sell for millions. I distinguish this final stage from the previous stage in that you’re buying “whole” businesses or real estate investments. At the previous stage, you’re buying “portions” of investments in the form of stocks, units of companies or limited partnerships. The final step in the financial game of life is to be able to buy cash flow businesses or income generating real estate in enough quantity that your income is higher than your monthly living expenses. Once you can do that you have won the financial game of life. You are financially free.

This is the basic financial life plan. For me, I’ve made it to Level VII, but was cast back down to Level V, where I’m currently playing the game of Financial Freedom. Where are you in the current Financial Game of Life? What are your next moves?

Why Saving is Necessary

It can be easy to overlook the importance of saving for retirement, especially when you’re focused on shorter-term financial priorities such as buying a new car or saving for college. However, it’s crucial to consider your long-term financial security and make saving for retirement a priority. If you start early and save regularly, even small sums can grow into significant retirement savings. Additional money you save today may have years – or even decades – to grow before you need it for retirement.

Consider the following two examples to see how saving a dollar a day or an additional one percent could make a big difference in helping you retire with confidence.

Set aside one extra dollar per day

To start, set a goal of saving the equivalent of one dollar per day. Or if you’re already saving, strive to save one dollar more per day. If you invest this $365 over 30 years, earning an average annual return of seven percent a year, your dollar-a-day commitment would grow to nearly $34,500. If you extend this commitment to 40 years, the total accumulated more than doubles to just shy of $73,000. That’s a meaningful amount of money when you consider the minimal effort needed to save one dollar per day.

Boost savings by one percent

You can also consider boosting your savings by one percent. Let’s say you are committed to setting aside five percent of your income for retirement. For this example, we’ll assume you began saving when you earned a salary of $30,000 per year in 1987 and your salary rose by three percent per year for 30 years. If you continued to save five percent of your income and earned a seven percent average annual return, you would accumulate approximately $208,000 over those three decades.

But what if you choose to boost your savings to six percent of your income? Over that 30-year period, you would increase your nest egg to nearly $250,000. One percent of additional annual savings could add up to 20 percent more in accumulated savings at the end of 30 years.

It pays to get started

No matter how small the dollar amount or how modest any additional savings may be, your diligence and patience can be rewarded. You don’t need a lump sum of money to start saving. Whether it’s one dollar more or a one percent increase, any amount can help you get closer to achieving your financial goals. Now, the most important part is getting started.