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Clueless About Personal Finances

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Clueless About Personal Finances
The lack of understanding is itself a deterrent to taking charge of personal finances.
A recent survey of 1,000 Americans proved what the experts have known for a long time: About half the group lacked even basic knowledge of how finances work. The study was commissioned by GuideVine and looked at people in an age group over 30.

Among the findings:

• Half could not describe what a 401(k) is
• Forty-eight percent could not define interest
• Forty-eight percent did not understand the basics of bankruptcy
• Thirty-four percent were unclear on the principles of inflation
• Fifty-five percent said they were lost when it came to a long-term, stable financial plan.
• Thirteen percent said they had as five-year plan for their finances.

Lack of understanding of basic financial facts also created a lack of positive thinking about the future. Thirty percent said they believed they would never be able to own a home and about the same percentage said they could see no positive change in the future.

GuideVine officials said they were not surprised at the figures. They are consistent with other research over a long period of time. The company deals with many clients who are financially illiterate and don’t know where to begin to reverse their situations.

The lack of understanding is itself a deterrent to taking charge of personal finances, said Raghav Sharma, GuideVine CEO. Because people don’t have a clear view of the problem, they don’t feel compelled to act. They postpone positive action and making long-term decisions.

The survey showed that a majority of the respondents – 66 percent – make a budget, 70 percent of that number have a hard time sticking with it.

The most common mistake apparent in the research (51 percent) is failing to save enough. A paucity of emergency saving accounts also was apparent. Accumulating unnecessary debt is another sore point.

The majority (64 percent) said they are reluctant to seek the help of finance counselors, probably because close to half believe that such advisors are not trustworthy. That may be due to the thousands of representatives in the field and the confusing array of qualifications they have. As people age, they tend to have even less confidence in financial advisors, Sharma said. The younger set are more likely to seek information via family and friends and online.

Bach Learned Financial Facts Early

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Bach Learned Financial Facts Early
According to Bach, consistently investing a portion of one’s income, a strategy he calls “paying yourself first,” is the key to building wealth.
Self-made Millionaire David Bach got the best financial advice of his life when he was seven. His Grandmother, Rose Bach, helped him purchase his first stock – in McDonald’s – and taught him some personal finance facts that ruled his life.

What she told him was that “There are three types of people in the world: Those who come to McDonald’s and eat here, as you are now, and spend money; those who work here for minimum wage; and those who invest in the company. The investors get rich.”

“The experience of thinking like an investor at the age of seven changed my whole life,” says Bach, who co-founded AE Wealth Management. Consistently investing a portion of one’s income, a strategy he calls “paying yourself first,” is the key to building wealth.

In his New York Times best-selling book “The Automatic Millionaire, “ Bach shares the secret: “Becoming rich requires nothing more than committing to and sticking with a systematic savings and investment plan. Compound interest should lure would-be investors if nothing else does, he points out. “The sooner you put your money to work, the better.”

He and other experts advise that, rather than trying to pick stocks, you begin with investing in a tax-advantaged retirement account such as a 401(k) or an IRA or Roth IRA. A second step could be looking into index funds, which offer diversity at a low cost and pretty consistently deliver good long-term results.

He advises that if you are hoping to get your kids off on a good path financially, you follow Grandma Rose’s approach. Help them buy a share of stock in a company they know and then continue to encourage them to build on that small beginning. “It will change their outlook on everything” for a lifetime.

Not Buying A Home Is A Mistake

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Not Buying a Home is a Mistake
“The average homeowner to this day is 38 times wealthier than a renter,” David Bach asserts.
The single largest mistake America’s Millennials are making is failing to buy a home, according to millionaire and finance guru David Bach.

Although there is a school of thought that home ownership is the “American nightmare,” Bach holds to his premise that failure to buy a home limits young earners in their quest for financial well-being. “The average homeowner to this day is 38 times wealthier than a renter,” he asserts. “Buying a home is an escalator to wealth.”

Bach, author of “The Automatic Millionaire,” says he bought his first home in San Francisco. It skyrocketed in value. He then moved to New York, purchased another home and again saw a significant increase in value. He now owns a third home.

You have to live somewhere, he reasons, so why not make an investment in something that will pay you back over time? A renter can easily spend half a million dollars in rent over the years and end up with nothing to show for the expenditure.

“Or you can buy a house and spend the same amount paying down a mortgage and in the end wind up owning your own home free and clear.” As an example, he cites the math: $1,500 rent per month over 30 years equals $540,000 – money down the drain, in his opinion.

If you are considering the pros and cons of home ownership, he advises “Start by crunching the numbers. Do the math, starting with the smallest options. When you’re really clear on your goals, start shopping.

Rule of thumb: Make sure your total monthly housing payment doesn’t consume more than 30 percent of your take-home pay. Save for a down payment of at least 10 percent, more if possible. Don’t go overboard. Your first home may not be your dream home, but it is a step toward that end.

Buying a home puts you in the market, and, according to Bach, “You aren’t really in the game of building wealth until you own some real estate.”

Advice From The Money Pros

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Advice From the Money Pros
The best people to learn financial wisdom from are the ones who have succeeded themselves.
The best people to learn financial wisdom from are the ones who have succeeded themselves. These bits of wisdom from some of those in the know are based on their own experiences that led to financial security:

David Bach:

Former vice president of Morgan Stanley and prolific best-selling author in the personal finance genre, Bach has a common-sense approach that focuses on money-management strategies. His own approach to building personal wealth has a strong eco-friendly philosophy. He doesn’t recommend that to everyone, but says it’s something to consider. He believes there is lots of wisdom in the many books, articles, media shows and other sources that are available to those just beginning the process. His own book, “The Automatic Millionaire,” was on the best-seller lists for more than 31 weeks.

Barbara Corcoran:

Well-known for her regular role on TV’s “Shark Tank,” she is considered one of the most successful real estate brokers in the country. Her no-nonsense approach to building personal wealth is in her most recent book, “Shark Tales: How I Turned $1,000 into a million-Dollar Business.” A bit of advice from this experience: don’t listen to friends who take a negative approach to life. Few people adhere to her advice, she says, but she is convinced that you can overcome the odds by following her path to financial success.

Suze Orman:

She’s known for her flamboyant, take-charge approach to financial advice. She doesn’t pull punches or skirt issues. By taking a hard look at what people are doing wrong, she can turn her expertise into good advice. Her many books, aticles, TV specials and other forays into the financial arena, all come back to the same premise: You need to understand the difference between what you want versus what you need. Cutting the fat out of your budget is the beginning of wisdom.

Dave Ramsey:

His syndicated radio show is broadcasted on more than 500 radio stations, and his books “Total Money Makeover” and ”Financial Peace” have influenced thousands of people seeking financial security. He also holds forth on Fox Business Network. His focus is on financial discipline, and he gives it to his followers straight – to the point they may feel he is yelling at them. It’s what people need to stay on track, he says.

Ali Velshi:

Anchoring CNN’s World Business Today and as the network’s chief business correspondent has made him familiar to millions of Americans interested in improving their personal finances. His focus is on how to build wealth, implement successful budgeting practices and understand the economy. His media appearances and writings have a straightforward and reputable approach and he is best known for his coverage of national and international financial crises and telling consumers how best to dig themselves out of debt.

Five Money Mistakes To Avoid

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Money Mistakes to Avoid
You must make room in your budget for savings or you will be scrambling for money when you need it most.
Putting Off Investing

The stock market is on a roll, but too many Americans are not benefiting from the gains. Bankrate data shows that fewer than half – 46 percent – of American adults have money invested and even fewer, only 18 percent, of the youngest adults are involved in the market.

Failing to invest because of fear of losing money is shortsighted, the experts advise. Time has proven that a well-balanced portfolio will always produce a net gain. Compound interest is at stake, so investing as early as possible is the best approach.

Now is the time to make the jump if you a beginning investor. If you are more experienced, it may be time to accept a little more risk.

Have a Rainy Day Fund

Things happen. Those who are smart money managers anticipate them and will be prepared. When the car breaks down or your family experiences a medical emergency, a rainy day fund makes the difference between an inconvenience and a disaster. The gurus suggest a cushion of savings that would take you through three to six months of emergency financing. That’s on the conservative side and more is nicer. Having to take out loans or dip into other reserves can set your personal finance plans back for a long time.

Pay Off Debt

Mortgages and student loans can be an annoying reality, but there is no way around them but through them. There are different schools of thought as to how to approach debt – pay off the largest first or pay off the smaller ones first. The Harvard Business Review in a recent article suggests paying off the ones with the highest interest first. Credit cards have notoriously high interest rates, so should be your first targets.

Request a Pay Raise

Last year, only 48 percent of Americans got a pay raise, often simply because they didn’t ask for one. Failing to make a bid for higher wages could cost you lost income over your career. Go to the boss armed with proof that you are worth what he is paying you, plus some, and then be prepared to keep looking at the job market if no raise is forthcoming.

Don’t Spend Too Much

If there is any one truism in personal finances that can’t be argued with, it is the one that says you can’t save anything if you spend it all. Eric Roberge, a certified financial planner and founder of “Beyond Your Hammock” compared spending everything you make to driving a race car at 200 mph with a warped wheel. It simply can’t do anything but lead to trouble. You must make room in your budget for savings or you will be scrambling for money when you need it most. Learn to live below your means.