Generational Wealth Education Initiative, Inc.

Financial Freedom takes Discretionary Discipline

Being mindful now means you can be carefree later! Try not to think of budgeting, saving, and investing as chores, these practices set you up for financial freedom. Building wealth is not a get rich quick scheme- it takes time and discipline. Budgeting for the short-term is like dieting before a vacation whereas planning for the future is like making a lifestyle change. Be disciplined with your discretionary spending now and reap the benefits later. Think twice about splurging when those dollars could be allocated towards something more meaningful.

What you do with your discretionary money now will have an impact on how you retire and whether or not you will leave a legacy of debt or wealth.

Once you budget, or create a spending plan, you may find that you have miscellaneous money left over every month. This is not to say that you have to save or invest this money, but being disciplined in how you spend it could make thousands (or even millions) of dollars’ worth of a difference in what your future net worth could be. Don’t write off $20 a month as unworthy of investing—small seeds grow big trees!

Determine what you would categorize as your discretionary money. Discretionary spending would be the portions of your expenses that are non-essential. For example, is food essential? Yes. Is dining out every day essential? Probably not. If your monthly spending is heavy on non-essentials, think about how you could restructure that spending and use your discretionary money more wisely. Discipline in doing this will allow you to redirect that money towards saving and investing. Small sacrifices now will become big rewards later!

January 7, 2018

3 Ways to Allocate Incoming Cash Flow

I often say, “Know where your money is going!” or “Take inventory of your finances!” So once you’ve done that, take time to think about how you are allocating your income. Are you giving it away immediately? Holding on to it? Making it work for you? Let’s take a deeper look at the different ways we can allocate cash flow.

Once the money comes in, what are your options? At a high level, you can spend it, hold it, or invest it. Spending is necessary. We have to pay money in exchange for the products and services we need to survive. However, spending literally reverses your incoming cash flow and sends your money right back into the economy. Therefore, it’s important to be mindful of what you’re spending money on. Spending too much frivolously can zero out even the largest of paychecks. This is how it is possible for someone who makes $100,000 a year and spends to have a lower net worth than someone who makes $50,000 and saves.

Holding ensures that you keep the money of yours that’s flowing in. If you are using a savings account, you could be earning interest, but this is primarily a practice that keeps your money from flowing back out and allows you to start building your net worth. Holding onto your money is important for not only starting to build wealth, but also being able to have cash available for unexpected expenses. If you are not ready to invest, but are being conscious of spending, holding and opening a savings account is an option.

Investing your income can actually generate additional returns, thus giving you more incoming cash flow and thereby starting the cycle over again. This is called making your money work for you. Investing comes in many forms—owning stock, property, loaning money, and more. Some avenues result in more routine income, others will result in delayed income. For example, if you buy a share of stock and the stock price then goes up and you sell it, that’s instant income. Conversely, if you loan money to a start-up in exchange for equity and/or royalties, that money is less guaranteed and may not immediately result in income.

September 10, 2018

Tackling Debt

Debt doesn’t have to ruin your financial health!  There are ways for you to manage your debt, meet your other financial goals, and still enjoy your income.  How? Make a plan!

1. Figure out what you owe.  The first step in tackling debt is figuring out what you owe.  Take an inventory of all of your loans and bills and list them out with amount and interest rate owed.  From there, you have two options—you can look to consolidate your debt or you can start paying using the “snowball” method. In consolidating your debt, you only have to pay towards one source without having to keep up with the list of debts that you owe.  Consolidating also helps to improve your debt-to-income ratio, which is used as an indicator of your overall financial health.  The caveat of consolidating your debt is making sure that you do secure a lower interest rate and that you continue to pay as much as your can per month instead of the minimum payment.  Why?  When consolidating debt, your new loan will usually give you a lower interest rate accompanied by more time to pay it off—meaning you still could be paying more overtime if you pay the minimum. Using the “snowball” method is also an option if you like to “check the box” on lists.  Start with the loans that have the highest interest rates and work your way down.  Additionally, the satisfaction you’ll get from being able to see your progress can be a motivator to keep going!

2. Contact your credit card company and try to negotiate a lower interest rate.  Lower interest rates keep you from spending more than you have to towards a debt and can save you hundreds or thousands of dollars per year.  If your credit score has improved, or you have more of a credit history now than when you first opened the account, then this may be a good option for you.

3. Use any money you have left over at the end of the month as well as any extra income to pay towards debt.  Once you spend according to your budget, any miscellaneous or disposable income you have left over should go towards your debt.  Because of the interest you have to pay, you often end up paying much more than the original amount you borrowed.  For this reason, it is important to eradicate debt as quickly as possible.  While it may not be as fun to spend your bonus or any extra money on debt, it will be worth it in the long run. 

July 15, 2018

Sample Budget

Please feel free to download our sample budget below to get you started on your budgeting journey.  We sincerely hope this helps and feel free to email us with questions about the file.

May 28, 2018

1 in 5 relationships end due to financial pressure.  

Financial compatibility is important in a relationship and understanding each other’s financial goals is vital in not falling victim to financial pressures.  Communication is key!  While the depth of financial conversations will vary at different stages of dating, here are a few to consider:

Share your ideas of financial freedom.  What does financial freedom mean to you? Is having disposable income a goal or are you okay with living to a budget?  Does maintaining a zero-debt balance equate to financial freedom or are loan payments not a big deal?  Do you want to leave a legacy of generational wealth or have just enough to enjoy through retirement?  Nobody can answer these questions but the two of you.  There are no wrong answers, it is a matter of what you all agree with and what you’re willing to compromise.

Describe your saving/spending philosophies.  If you had an extra $200 a month, what would you do with it?  Spend it, save 50%, or save it?  Do you agree on the importance of saving money for later or do you prefer to enjoy now?  Not everyone wants to save for their “future self.” Some people like to live in the moment.  If you disagree, think about what that would look like for the two of you in the future.

Communicate your monthly expenses.  Sure there are common monthly expenses like rent and utilities, but what about student loans? Car payments?  Are you willing to be with someone with years of loan payments ahead of them?  Will being with someone who tends to max out his or her credit card bother you?  Think about what you’re willing to take on financially as a partner.

Decide on a common goal and practice saving together.  Maybe you both want to visit Australia next year.  Make a common goal of saving towards the trip to get insight on your individual savings philosophies.  Save together and keep each other updated on your progress.  This could also lead to being more mindful about spending on dining out and buying gifts.  

Share your current credit scores.  This will give you both insight on where you stand financially today.  Should you get married in the future, your partner's credit and/or debt will impact yours.  Taking on poor credit as someone with good or excellent credit is no small feat!  

None of these conversations or answers have to be deal breakers!  It is a matter of communication and expectation.  Understand who you are with and what type of financial lifestyle that can result in.  Finances are a huge part of life and it’s helpful to be with someone whose financial philosophies align with yours. 

May 13, 2018

Opinion: Building wealth and maintaining a healthy financial lifestyle comes more from behavior than financial literacy.

What use is your financial knowledge if you don’t have the discipline, support, or environment to implement it? You can know better, but if you don’t do better, your financial situation won’t change! Self-made millionaires say changing their behavior was the first step in going from broke to rich—here are three quick ways to make a change.

Take a look at who you’re around.  Having an accountability partner or at least friends who understand and/or respect your financial goals is key. In the era of social media, it’s hard not to be influenced by FOMO (fear of missing out) or the spending habits of peers you see on your timeline.  Choose your friends wisely.  If you know you’re saving up for a down payment or want to start an investment account, have people around you who will support that.

Alter your surroundings.  What are you around? What are your triggers? If ordering takeout from your Seamless app is a habit of yours—move the app to another place on your phone to make you think twice before mindlessly clicking into it.  That extra effort you have to make to go spend might keep you from doing it.  For example, I used to be able to see Saks Fifth Avenue from my window at work.  Admittedly, there was very little keeping me from skipping across the street on payday. When I accepted my new role, I had the option of switching buildings—and I did. Granted, I was only minimally motivated by getting away from Fifth Avenue, but my spending habits certainly changed after I made the move because shopping was no longer a skip away. 

Start small.  You don’t have to go from “hundredaire” to millionaire in a day.  If your morning latte at Starbucks is $5 and the office coffee is free, try only going to Starbucks twice a week instead of everyday.  Instead of brunching every weekend, go every other week.  No need to try and quit your habits cold turkey—acknowledge them, alter your way of thinking, and create a plan of action.  Whether it’s changing your Eat24 password, planning to take public transportation instead of Uber-ing at the last minute, or packing your lunch instead of buying, implementing new habits and changing your behavior will help you to build the wealth you desire. 

May 6, 2018

Checking your credit report will NOT lower your score.  There is a difference between when you check your own credit score and when a lender or card company checks it.  Yes, a “hard inquiry,” which is when your credit report is pulled by a potential lender, can have an effect on your overall credit score.  However, a “soft inquiry,” which is when you view your own credit score does not have an impact on your score.  There is also a difference between your credit score and your credit report.  Your full credit report is available for you to view for free once a year by law from each of the three major credit-reporting agencies – Equifax, Experian and Transunion, but your 3-digit credit score can be viewed at any time from a variety of sources including your bank and sites like freecreditscore.com.

Next, it is good to have activity on your credit card, but activity does not mean leaving a balance at the end of the pay cycle.  Building “good credit” means that you are showing that you are reliable in paying back loaned money.  Therefore, it is good to pay off your balance every month.  Establishing strong credit is partially about the use of your credit card, but paying it off in full at the end of each billing cycle is what’s key to maintaining or bettering your score. Carrying a balance can increase your debt to credit ratio and actually lower your credit score.

Your age and income do not directly impact your score.  It is not your age and income that impacts your credit score, but rather the length of your credit history.  The credit score of someone who is 25 with 5 years of credit history will be calculated the same as someone who is 65 with 5 years of credit history.  Additionally, your income usually correlates with your ability to pay off debt—and it is paying off debt that impacts your score.  The credit score of someone who makes $100,000 a year, but carries a $10,000 balance could be lower than that of someone who makes $40,000 a year, but pays the balance each month.  Of course, there are other factors that go into the making of a credit score, but don’t let your age or income discourage you from trying to build your way up to an Excellent credit score!

April 8, 2018

Monthly Expenses

Housing, Transportation, and Food

Did you know that, on average, Americans spend 70% of their monthly income on housing, transportation, and food? Looking for ways to save in these 3 areas could be the key to freeing up extra money to invest and save.

First, budgeting is not one size fits all, but there are guidelines that everyone can follow to get started on setting a budget that works for them.  Each month you have your fixed costs (rent/mortgage, car payment, utilities, debt payments), your savings, and your variable expenses.  As a general rule of thumb, try not to exceed 50% for those fixed costs—including housing and transportation.  Food is considered a variable expense.

Back to the stats—the dilemma with spending 70% of monthly income on housing, transportation, and food alone is that it leaves only 30% for other expenses such as debt payments, savings, and taxes.  With 50% of monthly income going towards fixed costs, 20% should go towards savings, and the remaining 30% is for variable expenses.  So how do you go from 70% on housing, transportation, and food to a more conservative 50/20/30 split?

Housing:  Try calculating the percentage of income you spend on rent/mortgage based on your net income, instead of gross.  This will give you a better idea of how much of your take-home income (after taxes and deductions) you can comfortably dedicate to spending on housing.  Cost of living in various cities will have an affect on how comfortable you can be, but there are still ways to save or get more for you money.  If you’re a millennial a few years out of college, consider having a roommate to lower your housing costs.  This way you can split the rent and utilities each month, leaving you more money to save.  If you are Gen X with a family, don’t be tempted to buy more house than you need.  Does each child really need his/her own room and how often do you actually have guests?  Being able to save on house size can free up more money for retirement contributions down the road.  Baby boomers, if you’re empty nesters, consider downsizing.  If you can contribute more towards your 401k each month by saving on your mortgage, then you’ll be grateful for the change down the road.

Transportation: Whether a millennial, Gen X, or baby boomer, transportation costs can add up quickly and be unnecessary.  Do you have access to public transportation in your city?  How about ride-sharing apps like Uber or Lyft?  It might be more cost efficient to Uber to work than pay for a monthly parking pass— and it would certainly cut down on costs if you took the subway or bus a few times a week.  Additionally, don’t put yourself too far into debt over buying your dream or ideal car.  While there can be a lot of social pressure behind choosing the type of car you buy, consider the alternative of being able to save more for retirement or invest more into your portfolios.

Food: Again, an expense that can be challenging for each generation.  Keep track of how much of your monthly income goes towards groceries, dining out, and fast food/delivery.  Making your own meals and taking lunch to work are two quick and easy ways to save more on food expenses.  Also consider any food prep subscriptions you have—if you use them, they could be worth keeping, but if not, then consider saving that money and using it elsewhere.

January 15, 2018

This material is for your information.  The opinions expressed may differ from those with different investment philosophies. This material is for informational purposes only and does not constitute investment or tax advice and it should not be relied on as such.