Category Archives: Personal Finance

How The “Little Things” Can Control Your Financial Health As A Millennial

The other day I was in my apartment after a long workday and the Internet was down. Seeing as though I didn’t have much else to do without our beloved muse, I decided to re-watch one of my favorite movies: “Vanilla Sky.” For those of you who have not seen the film (shame on you), Tom Cruise gets in a horrible accident and is left with a deformed face. He must then go through life wearing a mask, reinventing his identity and hiding himself from his former life. The movie ends with a quote that I will never forget, “the little things in life…there’s nothing bigger, is there? In the context of the movie, Cruise’s character was referring to all the little moments in life that add up and can bring you happiness. While this is definitely true, I also think it can be applied in other areas of life, such as your finances! 

It’s the little things expenditures in life that add up and can lead to the biggest sum of debt. It’s the Starbucks, the fast food, the taxi rides, the drinks, the hair products, toothpaste, the gum or the dates that you pay for and buy every week that add up. Compared to more serious investments like your monthly rent, these expenses don’t seem very damaging to your wallet, but over time these costs combined can be very detrimental. 

What’s a couple bucks here and there? A couple of bucks here and there is $3,000, 5,000 or 10,000 dollars worth of small instant gratifications spent over a year. One thing you can do to prevent these small costs from getting out of hand is to plan ahead and budget exactly how much you have spent in the past, over a certain time frame. I’m predicting the results will blow your mind. Just the other day I was looking at some of my daily spending habits. Every day I get breakfast for about $4.50. Multiplied by 261 workdays in a year, I am spending $1,174.50 on a breakfast that could cost me $0.75 if I prepared it for myself at home. Lunch was even more costly, at a daily rate of around $9, meaning I have been spending $2,349 a year. If I cut that down to $3 a day, I could save $1,566 a year. Taking this out of your yearly salary on an annual basis makes that delicious lunch much less tasty. 

Every day I see some of my co-workers take their twice-daily trips to Starbucks. If we are saying on average a Starbucks order costs $3- $4, so x2 can be as much as $7-8. This then equates to $2,088 a year. Is it really the coffee they want? Especially when we have a Kurig machine right in our break room providing the office with FREE COFFEE in over 15 different flavors. Now some of this can be justified with needing a break from work and a friendly ritual with co-workers, but the point I am trying to emphasize is that you should really consider just how necessary these small purchases are in your life or if there are ways you can cut down on your spending with cheaper alternatives. If you want to be financially successful throughout your life you need to always be analyzing your wants over your needs. Do I really need this or do I just want it? 

A good way to counter this mentality is to focus on the why you are spending so much money on these things and if you can do without them in your life. Try to find substitutes if possible with smaller unit prices. If you’re out of college, maybe you want to buy your first car, a trip or a house in the near future. Setting larger goals will help detract from spending so much on the smaller stuff, especially after you have realized just how much every dollar counts. Staying away from instant gratification purchases will make you happier and more successful in the long run. Just remember that its the little things you buy that can be the biggest threat to you’re financial health, so always be aware!

So you want to be Rich? 9 tips to get you started

The other day I read a fact on the internet: “The middle class today is 20% poorer than the middle class 30 years ago, in 1984.” At first I was startled by this statistic, but then I thought about it more. It all started to make sense to me. I thought about money… how money in this day and age, has become such a taboo topic. It’s like, we sit around looking at Instagram and Facebook photos of everyone flashing their wealth or attempted portrayals of lives they want to appear to be living. Money is a tool, and while it may seem to cause more problems than good, we all want it. If you are serious about obtaining this tool, as we often don’t like to admit, continue reading. I have compiled a list below of tips to help you take yourself more seriously and make more money.

1. Go where the money is. Wealthy people don’t become wealthy by staying in one place, simply hoping to win the lottery. You have to be proactive by relocating yourself to areas where larger influxes of money are more common. Money breeds money, it’s a natural fact of life. So if you want to increase your chances for making some, you first have to find where it is being made.

2. Don’t show off. Showing off your money is for people who either don’t have it or have just come into a lot of it too quickly—new money, for lack of a better term. As I’ve mentioned previously (and will continue to mention) investing your money is key! Yes, while it may be a fun drunk activity to try to impress girls by buying bottle service in meatpacking with your $10k bonus, but everyone sobers up eventually and you want your money to be there when you do too. Be smart, and let your money work for you in the future. Whether it be investing in your 401k or in a small business venture, both options have a greater return value than a one-night stand with a social climber.

3. Show up. Another quote for you today: “80% of success in life is just showing up.” Even when it’s a struggle, you don’t want to miss a day taking a step toward achieving your goals. Perseverance is very important, even when you feel discouraged. In sales they use the phrase “pounding the pavement” to represent this idea. This means physically going out and making sales happen, shaking hands and kissing babies… basically doing whatever it takes to get ahead. Keep this in mind. Alcoholics don’t go to one AA meeting and call themselves sober. It takes time and effort. Always show up.

4. Find a mentor. If you don’t know how to make money on your own, there are plenty of people out there who do. Network and ask successful individuals for advice and guidance. A lot of times people will be more willing to help out than you might think, or they might have other connections that may lead you to future job opportunities or business ventures. Remember money breeds money.

5. Avoid debt when there is no return on the charge. My father once told me “don’t put it on your credit card unless it will pay you back or last you for more than a few months.” He was right. Only invest with money you don’t have if it’s going to pay you back the same amount or more. Do not ever put yourself in a position where you have to work for your money. You always want your money to be working for you. So be smart, invest wisely, and think thrice about what you are swiping your credit card for.

6. Shoot big. So you want to be wealthy!? Instead of aiming for $1 million, aim for $10 or $20 million dollars. Lofty goals will keep you hungry and make you less likely to settle after your first big paycheck. Many people stop working hard after they feel comfortable enough. This is why lottery winners never stay millionaires for long. If lotto winners had a financial savvy mindset (side note: they likely wouldn’t be playing the lottery in the first place), they would invest their money. And the disappointment that 80% go bankrupt after a few years (fact), would not exist.

7. Understand that Money doesn’t sleep. Just like the Michael Douglas in the classic Wall Street. You have to be a hard worker. Even though your job ends at 5pm, this does not mean the opportunities to make more money do as well. Opportunities to make more money are always arising, day or night, you just have to go out and find them.

8. Treat money like its a girlfriend. Keep a close eye on your wealth and money. If you don’t make your money your number #1 priority, it is going to leave you and walk right into the hands of someone else. So don’t ignore money because after a while it will end up ignoring you.

9. If you want to be rich avoid embracing the idea of being poor. If you want to truly be happy, this does not make sense. Yes, yes I know the saying that goes something like “it’s not about they money, it’s about being happy.” Well let’s be honest for a brief moment here. Whoever said that, definitely did not live in our generation. Money can bring you a lot more happiness than financial insecurity. No matter how happy you think you are, nothing is worse than not knowing when your next meal will be or how you will make next months rent. Stress resulting from financial insecurity can make even the most optimistic person unhappy. Money gives you more freedom in life… freedom to live how you want to live. As selfish Americans, we know how important our freedom is.

Finance Like A Pro: Buying A Car, What To Know

So you want to buy a car!? You’ve seen Dan Bilzerian’s recent Instagram photos and have already binge watched all seasons of Top Gear. Not only that, but you’re sick of driving your mom’s minivan to work. All things considered, it is time you had a little hot rod all for yourself. The only problem: now that you are living on your own, you have to pay for the car on your own as well. For most of you, this will be the first big purchase of your life, and this will be very exciting. One of the many milestones into adulthood is buying your first whip. While fulfilling this dream may bring you back to childhood, it will be very important to think maturely and be well informed in making this important financial decision. Below are some things you need to know before taking this step:

  • Talk to your bank about financing a car. Talking to a professional should be your first step. Being experienced with clients who have been in the same position, they can work with you to analyze your past statements and finalize a budget. You will want to know exactly what term you are able to afford, with the appropriate interest rate and how much you can fork over for the down payment. This step is crucial because in theory, as long as you are making money, you can afford any car with a loan. However, the amount you are making and/or able to pay forward will dictate just how long the term will be. In this sense, the longer the set term, the smaller the payment amount. However, the smaller the payments, the longer you are paying interest on the loan. A five year loan payment vs. a three year loan payment could be the difference of $200. This is something to strongly consider. Buying too expensive of a car may not take priority over other expenses you have to pay, no matter how long the term or how small the monthly payments. This leads me to my next point.
  • The price of the car isn’t the only cost you will have. Lest you forget you have to afford the interest, car insurance, gas and maintenance on the car to keep it running smoothly for the entirety of your ownership. When considering the cost of the car all of these factors must be remembered. Choosing a car in your price range is crucial and this price range should be determined keeping these other equally as important factors in mind. Just because all of your friend’s parents bought their kid a 3-series BMW, does not mean you can afford one yourself.
  • Car payments and loans have two parts: interest and principal. The principal is the amount you need to pay off the car or the balance. The interest is the additional cost of borrowing money. The APR is the rates, fees and other costs that come with the loan in the form of an annual percentage rate. My rule of thumb is three years; if it takes you longer you can’t afford the car.
  • When you want a loan you basically have two choices: dealership loans or bank loans. You will almost always pay additional interest if you go through a dealership. The dealer will get the loan through a bank, so they are just a middleman. That is why I suggest going straight to the source.
  • When you go see a lender, he will be assessing your credit score and credit history in order to make sure you will be able to pay off the loan. Essentially, the lender will be analyzing and predicting your future cash flows and budgets. If you have bad credit, you will likely pay higher interest rates or you may even be denied a loan. If a bad credit score is your reality, you will likely have to put a generous down payment on the car. The ability to pay a percentage upfront demonstrates to the bank that you are financially responsible which could help to lower your payments. When you are approved for a loan, the bank hands you a check to pay for the car and you will soon owe the bank a payment each month. Your new car will become what is called ‘collateral.’ In case you can no longer afford the monthly payments, the bank can seize your car to recover the money that is owed. Having the bank take your car will not only leave you riding a bike to work, but it will destroy your credit score, which will strongly decrease the likelihood of you ever being able to borrow money again. I know this sounds serious, but being a financially responsible adult is serious business.
  • Read consumer reports. In order to minimize these external expenses, you may want to consider a car that is more reliable in terms of average breakdowns or miles to the gallon. Legitimate consumer reports could help you save significantly. As long as looking at the resale value of certain cars.
  • Consider the pros and cons to buying a new vs. a used car. New cars have lower interest rates, but lose intrinsic value almost as soon as you drive the car off the lot. When the back tires hit the road, you have already lost up to a few grand. Buying a used car may mean that you can afford the quality brand you trust and essentially get more for your money. Buying new from a dealership usually means you have to pay for a salesman commission on top of the price of the car.
  • Be a savvy negotiator. The marketplace is still a marketplace, and therefore the concept of sales will apply. Many times salespeople have more leeway in terms of prices than they initially give off. These bottom line prices tend to be far below the advertised price of the car. This is important to keep in mind if you find yourself feeling pressured by a sales employee to buy a specific car. In actuality, you could put pressure on the salesman and turn things around, by negotiating and trying to get the lowest price available.

Lastly, make sure you take care of resale value, change the oil, rotate the tires, don’t drive recklessly, put a protective coat of wax on your car, and change the air filters regularly to keep mpg high. This will also save you a lot of money. So if you are buying a car, enjoy your new whip but be smart with your money at the same time! It will all pay off down the road, literally and figuratively.

 

Treat Your Life Like A Business With These 3 Statements

Businesses, like people come in all shapes and sizes. From big corporations, partnerships to sole proprietorships and LLC’s. These companies can range from businesses like Apple or Google to your sisters haircutting service or the local popcorn salesman on Main Street. You are a business, every day you make financial decisions and transactions with your finances to better yourself. You are constantly mirroring the acts of businesses all around you. Therefore, in order to be financially successful in your life you should always be thinking and acting like a business would, except instead working for a  product or service, you are in business for yourself and your product is a fulfilled life and financial security.

Budgeting with a ‘business sense’ is one of the tools that will get you there. A budget can be created by using the information from 3 different statements that businesses use everyday.  Like any business, you need to keep in touch with your accounting and finance department regularly in order to make smart life/financial decisions. This way you are aware of where your money is going and how you can make it work for you in order to get the best possible return. Using these statements or a financial tool like mint.com will help you keep track of your finances and how much you are spending and are going to spend on your “business”.

Income Statement

This is the statement that shows you your income in relation to your expenses. This statement usually is a single column report with income at the top showing your personal revenue. It doesn’t matter if the money is coming in from your job or other alternative sources of income., this just shows your inflow. The expenses are your outflow. The report will give you your NOI (net operating income) which is basically your personal profit. This will let you know if you are spending too much money. This way you can tell if you need to stop shopping in SoHo on Saturdays or buying too much late night pizza on the Lower East Side at 4am.

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(Click to Enlarge)

Balance Sheet

The balance sheet is your statement that tells you your net value at any given time. This statement breaks down your assets and your liabilities and what you physically own (equity). Here you will show your assets on the left column. These are things  like your cash, money that people owe you, your car, house, value of your investments etc. The right side has your liabilities. These are your debts, such as loans that you have yet to repay for a house or car, and/or your credit card debt. The left side is also where you put your equity. This is essentially your value or ‘net worth’. Your assets are going to equal your liabilities plus your equity. So the right side should equal the left. See below for a visual representation.

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Statement of Cash Flows

The statement of cash flows is important because this is where you are able to financially model where you will be at any given point in time.  this future value is based on certain assumptions such as how much you predict you will be making and how much you will be spending at a future point. This shows on a scale of time your income minus expenses.  It is usually a good idea to stay on the more conservative side because the future is never certain.  So it’s good to not overestimate income and underestimate expenses. Using this statement is helpful because you can see where in the future you will be able to afford more expensive things like a new car or vacation. This will keep you prepared. Click on the visual to see how this works.

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Even if you’re personal versions of these statements are on the more basic level that is okay. You are still making progress and will be more financially informed about your money. These are just power-ups to bring your budget to the next level. I would recommend updating them once a month, so you can always have an accurate sense of where you are. When finances are constantly on your mind you will be more self-aware when spending and save more money.

Don’t Redline your Financial Health, Stay Under Control

Continuation from the last article..

If you drive a stick shift car, then you are likely well aware of the dangers of redlining. Redlining refers to the red area on the RPM meter; This is the area above which the engine is designed to be safely operated. In terms of spending habits, riding the redline consistently will not only hurt your financial health, but will surely cause you problems down the road. When driving a stick shift car, it is important to shift when necessary so you don’t break your car, or your bank account. In terms of finances, redlining can be defined as spending or taking on more debt than your income can afford. Which is the opposite of creating wealth.

In last week’s article, I emphasized that becoming wealthy means that you absolutely must spend less than you make. This still rings true, but it is very important that this principle  isn’t over simplified or misinterpreted.

Living by this simple principle means that you must spend less than you make at every spending opportunity. The simple mind will look at their spending on the most basic of levels. I am very much guilty of this, as are most of my millennial friends. It seems so easy to justify spending $400 of your $600 dollar pay (post rent) on clothes, sunglasses, shoes, clubs, restaurants, bars etc. because technically, you are spending less than you earn. You may even think to yourself, ‘If worse comes to worst I will just skip a couple of meals.’

When most people think of the word expenses they think of the bare minimums such as

  1. Rent, water, electricity
  2. Food
  3. Going out

As a 20-something these are probably, the big expenses that you have to pay. From my personal experiences I have justified my frivolous spending on material items by making sure that these three bases were somewhat covered before I just went for it. This mentality is flawed, there are many other expenses that we tend to forget about, these include: lunch at work, Netflix, Spotify, gym membership, late night street meat, refilling bathroom supplies, dry cleaning/wash and fold, that extra round you bought everyone when you were already wasted, movies, dates, 5% to savings and many other random expenses that come along with living in the city. These are the extra expenses that will cause you to redline your personal financial health that you need to remain cognizant of (and don’t forget, just because the charge went on your credit card doesn’t mean that it shouldn’t be counted in your expenses).

When we’ve already spent all the money that we have early on in the pay period because we decided that we needed new Allen Edmond oxfords or those Jimmy Choo heels we are left with a credit deficit because it turns out they were just not our 20-something year old personal budget, go figure.

When I tell you to spend less than you make this means spend less after every single expense has been accounted for and sometimes this means that you actually don’t have enough money to drop $500 on a new suit or hand bag one Saturday of the month because it just doesn’t work within your means (also remember to base your income on your take home pay and not the amount you get before taxes). You can’t afford to be redlining. Redlining is bad for your financial health and makes saving impossible. The hardest part about credit card debt which is inevitable at our age is trying to save and pay off the debt at the same time. If you really really want to be wealthy you have to be consistent and strict with your money until you actually can afford to spend a little. I will be the first one to tell you that every once in a while its fun to rev the engine and redline a bit, splurging on something big but making a habit of this can become a downfall to any wealthy person.

Now is the time to save and skip the redlining because it only gets harder as life goes on and gets more complicated!

Stay tuned for part three of the spending sections.

3 Ways to Wealth

During my time in college I took many finance and business classes in order to graduate. Some of them were helpful and some were just there for me to take, pass, and move on with my life. I will always remember the words of one of my finance professors on the first day of class. He asked the class what are the three fool proof ways to become wealthy. So I thought I would share my professor’s insights with you all because its always good to learn more about how to become wealthy.

The first foolproof way to make money is by marrying into money or by inheriting money. We see often or hear about children with large trust funds and inheritances turning 18 and have sudden access to large amounts of money that was set aside for them or dictated by a will. We also see families acquiring wealth from deceased wealthy family members.

The second way to be wealthy is to be extremely lucky. This includes winning the lottery, investing in a fairy tail stock (that brings you millions) or having a million dollar idea and executing a business perfectly. Now this does happen every once in a while but the chances seem pretty slim for the average person to find such luck.

The first two ways seem like they carry a low probability for most of us and I would like to think people these days still get married because they love someone rather than trying to marry someones bank account.

But….the third way we can become wealthy in our lifetime is to always remember one rule. If you always spend less than you make or spend less than you are able to afford you will surely be wealthy. This concept is so simple yet so many people in all parts of life have such a difficult time understanding that, in order to have money, we have to hold onto it and not spend it.

This brings me to a good point. Millennials in our generation have a tendency to spend money like crazy whether its at the bar, on food, clothes, accessories, or phones etc. A lot of this stuff far surpasses our basic necessities. Most of the time we are not getting any kind of return on our money financially and a diminishing return on the thing that we buy.

So if you plan on being wealthy or want to start, just remember one rule, spend less than you make.

Stay tuned for the next article as we break this down more for better understanding….

Stepping Up Your Budget Game

Recently, while attempting to tackle a vast amount of credit card debt, I came across the much-needed concept of Budgeting. Budgeting is an unusual verb that is not often used in this generation, I too was a little lost. Especially after spending way too much last year on bars, food, beer, lunch, dating and anything else that drains your wallet. I felt like I hit rock bottom financially. I realized I had spent way too much money on too many perishable goods and services. This was a sign I needed to take better control of my financial habits soon or else this terrible pattern was bound to continue.

When it comes down to it budgeting means control, and control is a product of knowledge. Back when I was spending too much, I was lacking knowledge. Financial knowledge about where I was and what I was doing with my money. That was my biggest problem. I wasn’t thinking about how all of my expenditures were adding up. I would always think I had more money in my account than what was actually there, forgetting about the small things that I had bought for lunch or at the stores after work. Note: Small amounts add up the quickest!  So after my card declined a few times I finally forced myself to take control. My first attempt to regain control was an approach any millennial would do in this day—turn to technology. Technology in the form of Mint.com

Mint.com is a budgeting website and application that you can easily download onto your phone, laptop, or other smart devices for free! Mint.com provides personal budgeting tools that allow users (your futures selves) to add all of your financial accounts and display all of your balances simultaneously. This is done in a similar way to an instantaneous balance sheet showing your personal assets and liabilities. I was able to add all of my loans (school and car), bank accounts (checking and savings), credit cards, 401K, and even my brokerage account on Mint.com. At any given time you can view your exact net-worth down to the penny. With Mint.com I am able to see my balances and account activity anywhere I go. This application provides an accessible display of my spending habits in the form of helpful visualizations.

The best part about this service is the categorization tool and the budget planning aspects. Within the site I am able to see all of the purchases that I make on my various credit cards and withdrawals from my accounts in real time. I also have the ability to put these purchases into specific categories to see where my money is going every month. Using these categories I am able to customize personal budget plans. I therefore am able to manage the amount of money I am going to spend on certain necessities such as alcohol, fast food, work lunch, breakfast etc. Mint.com service will even send my cell phone alerts when I am spending too much or have gone over my set budget. These budget limits also tell me if I am saving the appropriate amount so that I am able to pay my loans and credit card bills on time.

This service helped me tremendously with my spending habits and keeping my debt under control. I highly recommend this service to anyone and everyone who wants to be proactive about their financial budgets! See Mint.com for more information and remember, knowledge is power when it comes to taking control of your finances.

Below are some relevant screenshots of Mint.com.

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