Money Lessons from 2 Countries - Chapter 3

This week I have decided to talk about the way people purchase stuff in both of the countries where I have lived. When you read this, please keep in mind that things have changed in Romania in the 3rd millennium and I have lived in the US since 2002. I would like to talk about the money habits I have observed in the adults that surrounded me growing up, as well as in my friends who still live in Romania, and who are now adults. 

When I talk to American friends, even now, about the ease of getting credit (especially via credit cards) in the US, they are surprised to find out that I had never even heard of a credit card while growing up - outside of movies (if that). I remember being fascinated by the amount of mail people found in their mailbox in the movies while I went for many weeks between letters from penpals around the world - in the world before the internet. After I moved to the US and I told this story to friends here, I found out that most mail consists of junk and bills. So my fascination with it died a quick death - especially once I started getting my own junk mail. 

Even now, when the banking system in Romania is much more developed compared to the 1990's and especially compared to the communist regime, there aren't many credit cards around - besides, most people still use the good old, hard cash when paying. Many of the mom and pop retail places don't even deal with any plastic. So if you believe in supporting local businesses, you don't really have a choice but use cash. 

When I first moved to the US, I had to figure out first what a credit card was, then what a credit history meant. I came from a country where you got a loan for a big ticket item, like a house, based on the fact that you had a steady job with decent pay. Nobody has a credit history somewhere for lenders to see, and a credit score is a foreign word - literally and figuratively. Getting my first credit card was exciting - event with a $500 limit, not because I could spend more, but because someone (albeit be it a big bank) believed I was trustworthy enough to have access to $500 that were not mine.

Of course, in the passing years, I learned that I wasn't that special, since almost every young American who turns 18 has the opportunity to into as much debt as he/she wants to. I found out that credit cards are a necessary evil if you want to have good credit - which allows you better interest rates on things many people can never pay cash for, such as a house or a good car. I also learned that they can get people in a lot of trouble because they show you there is money to be spent, even though it is not yours and you have to pay it back - with interest (and what an interest). 

If I didn't scare you with all this talk about credit cards, we'll talk some more next week.

Prosperity Mindset Month - Chapter 3

Now that we have talked about your wedding, you are ready to start your new life and probably want what the American Dream is all about: your own house with a white picket fence. Great! Just remember, usually, this house comes with a mortgage - for the next 30 years or so. Most people want to buy a home, so the long commitment to a monthly payment is not a deterrent. 

Most of us sign on the dotted line and agree to the monthly payment without considering what the contract says, the only concern being that the APR is as low as possible, and the monthly payment manageable for the monthly budget. Everyone knows (or can find out) that the APR refers to the annual percentage rate. Though few know that is also influences the monthly payment for the mortgage. By having a smaller APR, your monthly payment will be lower - but have you thought that the amount of total interest is still high, because you pay less on the principal (the borrowed amount)? 

This is why, in order to pay less interest overall, you need to make extra payments, so you reduce the number of years you pay it all off. I know all the financial gurus out there tell you to pay an extra payment a year or to make payments every other week when you get your paycheck, in order to save a lot of interest and pay off your home in less than the 30 years usual mortgage is set up for. This may feel like a tough order if you cannot afford an extra payment annually. Even if that is the case, you may still benefit from this technique if you can pay something extra every month - you may choose to round up your monthly payments to the nearest hundred, or add an extra $50 or $100 each month... whatever fits your budget. Just make sure that you designate the extra payment as going towards the principal, because otherwise it is very likely for it to go towards both interest and principal, and therefore diminish the impact on lowering the amount you owe.

We will be talking about the impact of the interest payment on your taxes for the year in a later post, but for now all I want to emphasize is the benefit of paying off the mortgage earlier than the original schedule. If you can pay the property taxes and the homeowners' insurance separately from the mortgage payments, it will help decrease your monthly payments, so you can pay more - if you can afford to add anything to that payment. A word of caution here: if you make payments for taxes and insurance by yourself, please make sure you plan them into your budget, so you can keep on track. In my experience, your payments will add to less than what the mortgage company charges through the escrow account. 

Next week, we will talk about some budgeting ideas, to help you fit all this into your available money every month. 

Prosperity Mindset Month - Chapter 1

This is the month when many lives change in the US. Whether it is the college graduation that launches the new adults into the real world, or the wedding that unites the lives of two people (formerly single), May is a month of changes in many lives.

I will apologize right now for playing the role of Debbie Downer! Since this a blog related to finances, and especially to YOUR relationship with money... we will talk about the increase in personal debt the month of May brings about: student loans that now need to get paid, wedding expenses that add up to a high balance on your credit card if you didn't plan it right, and maybe even a new mortgage if you timed your home purchase with your wedding.

Since we already learned that we always eat an elephant one bite at a time, we will tackle one of these scary debts in this first post - stay tuned next week for another exciting episode (LOL). Today we will talk about the student loans, and some information that may help you pay them down faster, or at least to plan appropriately for when you can be rid of them.

For those of you who are the parents of students, please think twice before co-signing on the student loans. Now, please don't get offended, and don't accuse me of not being sympathetic to your desire of being a great parent and helping your child financially. If you can provide the capital for them to go to school, by all means, do so. Even if you want to take on some loans to help them out, that is entirely your choice, and I can respect that. 

Having worked in the financial industry for more years than I care to acknowledge (since I'm still 25 years old), I have met a lot of people who have put their retirement in danger by taking on loans they could not really afford. If your budget doesn't suffer by adding another monthly payment (such as a student loan payment), then by all means, take on a loan for your child. Otherwise, please consider helping them in other ways that don't risk your ability to retire. One idea for you is to check out some grants offered by smaller organizations in your area. If you are not familiar with such organizations in your town and still have some time before your student goes to college, please consider reaching out to organizations in the community; it will be an opportunity to meet some great community leaders.

One great resource that I came across while watching Shark Tank (valuable resource for entrepreneurs) is an app called Scholly - provides a list of many organizations and companies that provide scholarships. This can cut down on your research time. 

Please feel free to share in the comments any resources you have that can help another un-broke woman with money for college and limit the amount of student loans.   

Money Friendship Month - Chapter 4

As we are building better relationships with our money and we are becoming friends, we want more of it to hang out in our own bank account instead of the credit card company. Most people know that interest can work in your favor or against you. That may be a cliche but it is also a truth. Every dollar bill you have wants to hang out with its friends - other dollar bills - so either it brings you more of said friends and they hand out in big groups in your wallet or your bank account, or it goes to a bigger company - credit card company, store - to find friends to hang out with.

If you want to build a friendship with your money, you need to make sure you give as little as possible to the creditors. Now, I'm not suggesting to lower your payments, just to shorten the time you pay - this in turn will reduce your paid interest. This same method applies to credit cards, as well as car payments or even mortgage. The faster you eliminate a debt, the less interest you are paying on that debt.

There are 2 ways to tackle debt, each with its pros and cons. One is based on paying the highest interest first, and the other one is based on paying the lowest balance first (known as the snowball effect).

They are both efficient and can be followed by anyone. The challenge is that we are humans, and we naturally procrastinate, and we also naturally get side-tracked even when we are working on the project. Therefore, when making the decision on which way works best for you, the most important to keep in mind is your personality and your motivation.

If you know you can stay focused, and if you want to pay as little as possible in interest, the “highest interest first” method may be your best choice. For the rest of us however, the most likely way to succeed may be the “lowest balance first” method. The reason is the increased motivation once a debt is paid off.

Either way you decide to tackle your debt, it is important to keep working on it and never give up. The best approach is to pay the minimum required on all credit cards and other loans, except for the one you are working on at the time – whether that is the lowest balance or the highest interest. On that one, you want to put as much money as you can, in order to pay it off as soon as possible.

The total monthly payments should stay fixed (or increase if possible – if you want to pay everything off faster). Once a card is paid off all the money that was going on it should be redirected to the next debt, thus keeping the monthly at the same amount but increasing always the payment on one debt until it is paid off. 

Remember we talked last week about building an emergency fund that would take care of unexpected bills. When you have that in place, you don't have to worry about higher credit card balances due to things you could not budget for. And after you obliterate credit card debt, make sure to tackle all your other debts, such as car loan, mortgage and student loans. None of them are your friends, even though your tax preparer may suggest you keep a mortgage in order to deduct the interest on your taxes. Chances are slim to none that you would be able to use that, especially if you have been paying for 5 years or more. Not worth making your mortgage company rich.

If you want your money to be your friend, don't pass it on to creditors! Encourage it to hang out with you more.

Money Mondays Episode 6

spreaker.com/show/money-mondays

Check out the new episode to learn more about a topic you might find scary... Budgeting. We are helping you make friends with your budget, so you can achieve your goals and take confident steps toward your financial serenity. Emerald Sparks shares her money story, and you can learn how a young woman was able to buy her first car while in college, without having to take on a car payment. Can you learn anything from her story?

SMART Goals for Financial Freedom

There are 2 ways to work towards your financial freedom:

1.    Figure out how much money you need annually to live comfortably, to at least maintain your current standard of living. Then, take that number and divide it by 0.4% to find out the total amount of money you need to have set aside. When you invest this money (once your reached your number) and generate at least 4% interest, it will generate the income you need.

2.    Figure out how much money you need annually to live comfortably, to at least maintain your current standard of living. Then, work on building assets that generate enough money annually to provide that amount without you holding a job. These assets can be: real estate investments, businesses, investments.

Visualization of your goals is important, and so is planning. You either plan your work, and then work your plan; or you fail to plan, and then you plan to fail. The reason why planning your finances is probably your most important plan, is that all your dreams and goals will be in some way connected to money.

Writing down your goals and having a vision board will help you find ways to achieve your goals; your brain will come up with ways to lead you to what you most desire. Which also means you must be very certain that your really desire those things you claim to want. Part of the planning and mapping of your goals will include coming up with the money to achieve some of your goals. Of course some goals like happiness and health don’t have a price tag. Others like a trip, college education or a new house or car, come with a price tag that must be known.

It may seem simplistic to say that if you know how much something costs you can start working on achieving that. However, even though it is simple, that is how it is done. I’m not saying it is easy – otherwise everyone would achieve their goals. But it is simple – in 3 steps: see it, map it and plan it. All that is left is the hardest part: doing it.

When setting your goals, keep in mind that they must be SMART in order for you to reach them: Specific, Measurable, Attainable, Relevant and Time-bound. In order for you to achieve your goals, they have to fit in this SMART description. So if your goals are vague - ie. I want more clients, I want to make lots of money - you need to redefine those goals. It is not good enough to want more money; your brain does not work on anything so vague. So think instead: How much money? ("a lot" is not a number - therefore it is neither Specific, nor Measurable) When do you want to have the money by? (give yourself a deadline) And, perhaps most importantly, make sure your goals are Relevant: do you really want it? Is it Relevant to you?

If you are a successful business woman, whether you own the business or lead a corporation, you probably rely on a board of advisers. You may call them mentors, business partners or directors. They are your sounding board when it comes to ideas regarding business growth and what is the best way to implement new ideas to achieve the objectives. But how about your financial life? Do you have a board of directors to run your ideas by? Do you have an accountant who knows your like and your story to help you lower your taxes? Do you have an investment adviser who looks out for your best interest in a fiduciary capacity?

Money and dieting?... Well, they have something in common!

Have you ever thought about your dreams coming true? If money were no object, where would you be now? What would you do? What are you passionate about? And would you do that for free?

If you want to honor your passion, think about it every day, imagine yourself living your passion and let your brain live it as if it were true. And then, while your subconscious mind works on a plan to bring your passion to life, start looking at your finances and make a plan.

If you think your situation is hopeless, you are not the only one. If you have debt you can’t even see yourself paying off, you are not alone. I understand it is not pretty, or sexy, to be thinking about the debt; but I can promise that ignoring it doesn’t make it go away.

If you were ill, you would go see a doctor and follow her instructions to get well, right?! Well, if your financial self is ill, you also need to follow someone advice on how to get well – only this person is a money doctor, and not a people doctor.

Finding a financial coach, a prosperity mentor, a financial adviser is the first step in working on a solution for any and all your money problems, challenges and frustrations. And just like a personal trainer, this coach’s job is to help you get on a workout schedule, also known as budget. And not just to show you what your budget should be, but also to hold you accountable to stick with it in the long run.

If you ever wanted to look like a supermodel, then you should know that takes a lot of dieting. Well, in finances, that is the equivalent of budgeting. And just as a supermodel makes a lot of money at the end of years of dieting, you will have a lot of money at the end of years of budgeting.

Now, I’m not suggesting a long and depressing fast. I’m merely talking about some smart planning, and sticking to the plan. And the first step in that plan is having a SMART goal written down. 

(in 2 weeks we will go over what a SMART goal is - stay tuned) 

Wishing well

Have you contributed to this?

I had to share this picture from the Lewis Ginter Botanical Gardens. I found it so important to share that I decided to put it on the blog, and not just have a couple of lines about it on Facebook.

You may wonder what is so important about this picture…. Well, it is just another wishing well. (Excuse the pun!) But it made ME wonder what people are thinking to just be throwing money in this little pool of water created for decorative purposes.

Looking at the coins resting at the bottom of this little decorative waterfall, I had to wonder how many “wishes” (meaning coins) collect there over the course of the year… and then, also wonder how many of those wishes are money-related, i.e. pay off debt, save for a vacation, buy a new house, buy a new car, etc. Has any of the wishers considered saving that penny, or nickel, or dime, or quarter and put it toward achieving that goal?

Some of you might know the story of the penny that doubles every day for 30 days… I guess the people how throw money way like this, don’t know it. I know you are going to say that nobody nowadays will double your money daily and make you a millionaire in 30 days. You are probably right. But you also have to agree that if you keep your money instead of literally throwing it away, you have more chances or multiplying it. And if a penny won’t make you a millionaire, no problem. Keep your penny, and find some friends for it – in your piggy bank, in your pocket or in your bank account. You will be richer with all your money rather than just some of it, won’t you?

This is not a way of saying you should not give, or help others, by any means. This is just my way of saying that you can and should do what you want with your money – as long as your decisions are wise, and well thought out. And if your choice is to support Lewis Ginter Botanical Gardens, I will commend you on a wise decision. Give them a donation (from your bank account, tax deductible) and not the change in your pocket thrown in the wishing well.

Another thought that came to mind was the example that we set for the children when we teach them it is OK to throw money away, and that it will bring us more money and more of what we want. What will they think, and how is that going to impact their future?  

New Year Resolution

Where is your money going?

Is getting out of debt one of your goals this year? Or maybe you resolved to lose weight – again… Well, if that is the case, you sure are not the only one. Weight loss and paying off debt are resolutions most people make at the beginning of each year. And then, less than a month later, they get back to old habits and forget to pursue their goals.

If that sounds like you in previous years, maybe you can make a difference in 2016. And here is an idea about getting out of debt: track your spending. I know you think it is tedious and boring, I know it takes time to do, and I know you think you are tracking everything on your credit card statement. The good news is that you already have a centralized place to get the info you need. The bad news is that the credit card statement is not a good tracker for you.

Still, budgeting and lowering your spending are still the best solutions for getting your debt reduced, and later eliminated, tracking expenses is the only way to go. But to make it easier, you have the option of only tracking what you spend eating out. Even though most people don’t realize, that is one of the larger monthly bills – and one that can be lowered quite easily, if you are determined. If you are one of those people who must have Starbucks every day, maybe you should look at your monthly total. You may have a sticker shock! Motivate yourself to cut down by saving the money for a bigger ticket item that you really want – that way you own the item out right, and don’t pay for it with a credit card.

Working just to pay bills is no fun at all! And it definitely is no motivation! So if you want to keep your budget under control, make it a goal to have fun traveling while paying upfront, or own something you like that you pay in cash for, or have an experience you enjoy that is paid for with cash, not credit card.

Sounds like a lot of work? Well so is worrying about where the money is going to come from to pay the credit cards off. And so is dodging calls from bill collectors. So maybe you can resolve to dedicate this year to tracking expenses, and reducing them. It’s only short-term hard work.

Is your business FOR SALE? How much is it worth?

What is your EXIT strategy?

I know you think you will work your business forever, but that’s just not realistic. I can hear you saying: “But I LOVE my business… I don’t want to stop working… I can’t stay at home and do nothing… I like to work… I miss the activity, and cannot let it go…” Those are all valid arguments against retiring but sometimes your exit from your business is not completely within your control.

Even if you can and will work for the rest of your life, a great business should live longer than the founder. The only way to ensure your wishes are respected is through proper planning. Don’t let your LEGACY disappear! Make sure you have an exit strategy! Here are just a couple of exit strategies to consider as you’re putting your plan together:

·         -- Sell your business: Mark Cuban, Kevin O’Leary, and many others became billionaires by selling their businesses.

·        --  Pass your business down to a child or family member: Some people want to make their business a family legacy, passing it down to their children and/or grandchildren. Make sure you have an adequate plan to execute this desire. You also need to be prepared if your children decide that they do not want to run your business.

I understand that none of this is exactly pleasant to talk about because you’re actively building your business now. But, despite your feelings, you need to give some consideration to what is best for the business. You put your blood, sweat and tears in your business for many years – it is your child – so you must make sure it will thrive after you are no longer around, or are no longer able to actively work it.

Regardless of your specific exit strategy, make sure you have systems in place to execute it properly; whether your plan to sell your business or will it to a family member, you want to make sure to leave an easy to follow blueprint to sustain your business for years to come.

Scary? Yes! Necessary? VERY!

How much life insurance do you need?

This is a subject that most Americans choose to avoid. The first thought is that it is just plain morbid. Who wants to think of the unthinkable happening? You want to live life, not think about dying, right? But, what about those you love? How important is it that you protect and provide for them, even when you are gone? Outside of the fear factor, other people avoid taking care of this out of sheer procrastination. There is no sense of urgency. The truth is, we don’t know when but one day we WILL leave this world, and our family will bear the responsibility of taking care of things for us, in our name, on our behalf. We cannot alleviate the emotional pain, but can do something to prevent the financial pain.

When considering your life insurance policy, there are some things that you need to consider. These five questions will navigate you through the process of setting up your policy. Carefully consider the answer to each of these questions before sitting down with an agent. And, if you’re unsure about some of these, highlight them and work with your chosen agent to help you figure it out. A good agent will focus on the best possible outcome for you and your family.

Q1: How much do you want your funeral to cost?

Q2: How much money will your family miss annually when you die?

Q3: How many years will your family need your income in order to adjust to new situation?

Q4: What debts do you leave behind that your family has to take care of?

Q5: What future needs do you have to take care of? (E.g. Kids’ college)

You want the peace of mind in knowing that is something happened to you tomorrow, your family would be taken care of. Don’t delay in putting together a good life insurance policy. Honestly, it’s better to have the wrong kind of life insurance, than no life insurance at all. So don’t postpone this process while you analyze it to death (pun intended). Consult with 2 or 3 different to determine who you feel most comfortable working with. But, most importantly, don’t postpone it. Tomorrow is not promised for any of us!