REPOST: 6 Money 'Truths' Worth Re-Examining

Adhering to some money maxims which aren’t entirely true after all is one of the most common obstacles to achieving financial security. This article for Forbes sheds light into some deep-seated beliefs about money in order to help people improve their financial attitude.

Image Source: blogs-images.forbes.com

Most of our deep-seated beliefs about money, which we may or may not be aware of, are formed during childhood. Or they’re cultural norms we’ve swallowed whole, without even realizing we have.

The problem is, these oft-cited maxims aren’t always true. And believing them can do damage to your bottom line.

So we asked two financial experts for the truth about some of the common beliefs we all love to hold dear.

See which of these six you need to rethink—and which may still hold some truth.

1. The more money I earn, the happier I’ll be.

The first thing our experts pointed out was: How much money you earn doesn’t always correlate with how much you have. “Sometimes people who earn lots of money also spend lots of money. As their salaries go up, so does their standard of living,” says Certified Financial Planner™ Brad Klontz, who is also the co-author of “Mind Over Money.” What matters more is how you manage your money.

And, research shows, more money doesn’t necessarily equate to more happiness either. In fact studies have shown that a $75,000 salary was, for most people, the tipping point on the scales of contentment. “After you reach that amount, making more money won’t substantially improve your quality of life,” says Susan Bradley, a Certified Financial Planner™, and the founder of the Sudden Money Institute.

There is also research to show that what you spend on, specifically, influences your happiness, too. We spoke to a behavioral psychologist from Harvard to discover the types of purchases that really do bring us the most satisfaction.

2. My kids should be my financial priority.

Yes, of course, as a parent, your first responsibility is to make sure your kids are clothed and fed and comfortable, but when it comes to bigger personal finance goals, like saving for your retirement versus their college education, the opposite is actually true.

“You have to take care of yourself first, so you’re able to take care of your kids,” says Klontz. Translation: There are student loans to pay for their college, but there are no loans for your retirement. If you fail to save enough to live on, you could be putting financial pressure on your kids to support you later.

The same logic applies if your kids want material things that you can’t afford, such as designer clothes or expensive birthday parties. “Set boundaries when it comes to finances, so your kids will share your money values,” says Bradley. For instance, if your son wants pricey sneakers, say: “I will pay for this pair of sneakers. If you want a fancy brand, you need to pay the difference.” Or, anytime your child gets a monetary gift, require him or her to save some, give some away and spend some.

3. Debt is always bad.

Sure, there are plenty of debts that are “bad.” Specifically, this is the money you borrow to pay for something other than an asset that’s likely to increase in value. Credit cards are the best example: “If you don’t pay off your credit card each month, you can fall into a terrible trap,” says Klontz.

You also want to avoid being in debt to a friend or family member. “It’s dangerous and could potentially lead to relationship problems,” he says. A form of bad debt that most people find surprising? A car loan. After you buy it, a car’s value doesn’t appreciate. Instead, it’s value goes south.

But there is definitely good debt. This is the money you borrow to pay for something you expect to increase in value over time. “If you are paying student loans that enable you to get a good education and land a job you like that pays well, then it’s a worthwhile investment,” says Klontz, noting that people with bachelor’s degrees tend to make twice as much as those with only high school degrees.

Property is another example: If you hold onto it for long enough, your house will most likely sell for a higher price than the one at which you bought it. And, the profit you make by selling it should make the interest you paid on the loan worthwhile.

4. I should put off my life goals until I can afford them (having kids, going back to school, etc.).

This really depends on your personal financial situation. For example, “If you’re having trouble paying your rent, then it may be smart to hold off on having a child,” says Klontz. Or if you don’t currently have health insurance, it might be wiser to wait until you do.

But, generally speaking, you should be saving up for longer-term money goals so you can create the life you want, without the cost taking you by surprise. In fact, LearnVest experts recommend starting an emergency fund so you’re always covered, and also setting up separate savings accounts to fund your different goals. In the Money Center, you can even set up a priority goal and see how long it will take you to save enough money to reach it.

Sometimes the answer isn’t delaying your dream or going after it—it’s getting creative and doing a mixture of both. “I knew a woman who wanted to travel the world. So she would take a job as a nanny in Europe, work for a month or two at a time, live with a family and save most of the money. And then she’d take a month or two off and travel on her own,” says Bradley.

5. Never rent when you can own.

This attitude plays into the “American Dream,” but “buying a house shouldn’t be a romantic decision—it should be a financial decision,” says Klontz.

The first thing to assess is where your life is headed. Do you plan on being in the same city (or even neighborhood) for the next few years? If not, then owning property isn’t in your immediate future, because, in general, it takes time for property to appreciate. You also need to decide how much you can actually afford.

There are a lot of costs that come with home ownership besides your down payment. One of the most common home-buying mistakes people make is thinking that they’re merely trading a rent payment for a mortgage. You’ll also want to estimate the property taxes and insurance of any property you consider, plus any renovations you’d need to do, then decide if the place is within your reach.

In the end, the biggest mistake isn’t not buying a home—it’s buying too much home for your budget.

6. Money is the root of all evil.

The first thing to realize is that this thought pattern can be detrimental to your financial success. “It’s a limiting belief,” says Bradley.

The truth is, money, on its own, isn’t good or bad, it’s what you do with it that matters. You can certainly point to examples of rich, corrupt people. But you can also point to examples of rich, moral people (Bill Gates comes to mind) and poor, corrupt people.

“Some people think that all rich people are greedy and immoral,” adds Klontz. “As a result, they might subconsciously choose a career path that typically doesn’t lead to extreme wealth, so they’re not viewed that way. We’ve seen this happen with lottery winners. They come into a lot of money and then become uncomfortable and anxious,” he says.

Remember, money is about choice, and you can use it to reach your goals, whether, to you, that means having a fat savings account so you never have to worry, donating to causes you believe in, or leaving it to your grandkids some day.

Matt Sapaula encourages people to stop following faulty financial aphorisms but, instead, embrace the concept of being "Money Smart,” a process that creates pathways to financial independence through discipline and education. Click here to learn more about a Money Smart way to financial security.

REPOST: Avoid Awkward Money Moments With These 10 Tips

Do you feel uncomfortable splitting the bill with your lunch buddy? Forbes provides these following tips to avoid awkwardness in everyday interactions involving money.

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We like to believe that friendship and finance have nothing to do with each other. But in reality, unmitigated economic differences can cause awkwardness in the best of circumstances, and resentment in the worst. Whether you make more than your firends or less, there are steps you can take to soften the blow of common interactions surrounding money.

Image Source: www.forbes.com

Splitting The Bill

If you have more: If your meal costs more, pay as if you had separate bills. Or, “ if the restaurant happens to be a little fancier, I say, ‘This is my treat, you’ll get it next time,’ and I’ll make sure that next time we get lunch at a cute diner around the corner from your office. So I cover the bill when it tends to be more and you cover it when it tends to be less,” says Jodi R. R. Smith, founder of Mannersmith Etiquette Consulting.

If you have less: "You really want to be conscious of what kind of restaurant it is you are going to before you go so there aren’t any unpleasant surprises," says Thomas P. Farley, a speaker on issues of modern manners at WhatMannersMost.com. "If your pocketbook can’s sustain that I would suggests an alternative." Smith also suggests asking the wait staff for separate bills. If you ask before they have started entering orders most restaurants will be happy to comply – split bills generally lead to better tips.

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Gifts For Each Other

If you have more: "Buy exactly what you want to buy and what is within your budget to buy,” says Lizzie Post, co-author of Emily Posts's Etiquette 18th Edition. Just because you have more to spend doesn't mean you must get something lavish. On the other hand, gifts aren't reciprocal, so don’t shy away from being generous if you really want your friend to have a certain item.

If you have less: "A gift exchange is not a barter," points out Farley. "You should give what you can give and what you feel is not going to put you in a financial strain." Do your best to show what the frienship means to you at whatever level you can. Smith notes that as the gift giver you get to decide on the budget. Be thoughtful but know you are not obligated to match every dollar that was spent on you.

Matt Sapaula is a recognized financial coach who guides clients in taking charge of their finances and spreads innovative financial knowledge to the masses through various media channels. Start planning your finances here.

REPOST: Money management: 8 traps one must avoid

This article from Financial Express talks about some of the common mistakes people make when managing personal finances.

Many people restrict their personal financial planning to saving, purchasing insurance and investing safe bank deposits or other such schemes. While this is recommended as the basic measure for managing personal finances, doing it without foresight and planning will limit the results and you may end up not achieving the same level of financial independence that you were seeking. There are a few common personal finance blunders that many commit at the onset of their financial planning phase which can be avoided by making a few basic principles that govern our income and expenses.

A few basic rules you would do well to follow while making your investment decisions.  Image Source: www.financialexpress.com

No fixed budget plan

If someone who has never held an account of their personal expenses were to write down all their expenses for the month, they would be in for some shock at the number facing them. The shock would not be a result of how much money they have spent but of how many unnecessary expenses they have incurred and how many places they could cut expenses in. The famous investor Warren Buffet says that our income must be deducted into amount for savings, amount for investing and finally amount for spending. Create a monthly budget plan and try adhering to it till it becomes a practice.

Investing to make quick money

Investment is not gambling and must not be treated as such. If you have made quick money from your investments, do not expect it to be the rule. Often, these quick return schemes turn out to be duds and many a big investor has lost his fortune in their chase of these quick-rich schemes. Investments must be planned as per the personal and financial goals of an individual and the amount of risk they are capable of bearing.
Balancing liquidity, investment

Though investments are essential for financial growth, there is a limit to how much a person can invest. Investment must always come after savings because no matter how secure an investment is, there is an element of risk involved and returns cannot always be guaranteed. Liquidity is essential to act as a buffer against investment risks as well as unforeseen calamities such as loss of job, accident or death, etc.

Impulse shopping

Not just women, but men are also victims of impulse shopping. Clothes, shoes and bags are women’s vice, while men lose control over collectibles, gadgets and sporting articles. Impulse shopping also includes the number of times we eat or drink out when there is no occasion for the same. These are spur of the moment decisions that we treat as a one-time expense but which occur frequently or in such large amount that they end up denting one’s bank balance.

Lack of diversity in portfolio

Diversity in investment portfolio is the main mantra of success and the biggest buffer against a downward trend of any single investment. It is important to diversify one’s investment portfolio to earn the best returns from the various investment avenues. All investments are subject to market risks as well as different maturity periods.

No emergency funds

As a rule of thumb, the emergency fund must be six months’ salary; so that even in case of emergencies, there is a fallback option to maintain one’s standard of living.

Emergencies can also be change of job or city which involves large expense, and also include medical expenses which have to be incurred till the insurance claim amount arrives.

Renting an accommodation and not buying one

It is not surprising how many people prefer renting accommodation over buying one for various reasons. The most common excuse given is that they are not yet ready to bear the responsibility of investing in a property or to commit to a long-term loan plan. They do not realise that the amount they are paying for rent and deposit, if channelised towards paying EMIs would turn into an investment and offer security in the future.

Children unaware about basic money concepts

A mistake indulgent parents make is not educating their children about basic money concepts. Children learn how to manage money from their parents by observing their expenditure patterns. It is important to inculcate the value of savings and thrift in children from a very young age. Every demand from their end can be treated as a prize which they can win by performing a task so that they understand the value of earning.
Sound financial planning is the key to a happy life mainly because financial stability gives us the confidence to undertake any new venture and to meet our personal goals. Money management must be a habit, not an inconsistent effort.

Matt Sapaula, the Money Smart Guy, is a radio personality and financial adviser who aims to inform the public of new wealth management strategies, methods of cutting back on debt and expenses, and increasing overall cash flow. Visit his website to learn more about his work.

REPOST: I.M.F. Shifts Its Approach to Bailouts

Investors, bankers, and financial analysts predict that the International Monetary Fund’s proposed tough approach on bond investors could adversely affect the still-volatile credit markets in Europe.

David Lipton, first deputy managing director of the I.M.F., which has met
resistance to its plan. | Image source: nytimes.com

The International Monetary Fund, convinced that Europe erred in forcing debtor countries like Greece and Portugal to bear nearly all the pain of recovery on their own, is pushing hard for a plan that would impose upfront losses on bondholders the next time a country in the euro area requests a bailout.

Scarred by its role in misjudging the depth of the Greek recession and rebuffed in its attempt to get European governments to write down their Greek loans, the I.M.F. is advocating a more aggressive approach to debt restructuring to try to ease the rigors of German-style austerity.

But the proposal — which is still being hashed out behind the scenes by top economists and lawyers at the fund — is encountering stiff resistance, not just from the powerful global banking lobby, but also from European policy makers, and more recently, the United States government, which is the I.M.F.’s largest financial contributor.

Indeed, despite tough talk on both sides of the Atlantic about making bond investors share the cost of bailouts with taxpayers, the world’s largest economies seem to have accepted the dire warnings advanced by investors and bankers that the I.M.F.’s proposed new approach would badly roil still-fragile credit markets in Europe.

“The fund has been bruised and abused,” said Susan Schadler, a former I.M.F. economist and the author of a recent paper that argues the fund broke its own rules in lending to near-bankrupt Greece. “But in the end there is no trade-off between austerity and debt restructuring — you have to do both,” she said.

Germany is leading the opposition. Policy makers in Berlin and Frankfurt see the Greek debt restructuring in 2012 as a one-off. And they regard any deviation from their core principle — that debilitating debt is to be reduced almost solely via the hard medicine of spending cuts and tax increases — as an escape from fiscal responsibility.

The I.M.F.’s debt plan has been endorsed by the body’s top leadership, including the first deputy managing director David Lipton, a widely respected former Treasury official. The initiative is seen by a number of outside sovereign-debt experts as the best of a range of admittedly tough choices in responding to future debt crises.

But the pushback against the proposal, which has caught I.M.F. officials off guard, has delayed a planned introduction early next year, with any blueprint now not expected to be presented to the fund’s executive board until June, at the earliest.

The fund declined to make any executives involved in the project available for comment.

At the root of the issue is the long-simmering dispute between Europe and the I.M.F. over who should pay the bill the next time a country in Europe needs a bailout: taxpayers and workers, or bankers and investors.

These tensions were on full display during the I.M.F. meetings in Washington this fall, when Jörg Asmussen, the powerful German representative on the European Central Bank’s executive committee, explained why Germany vetoed the fund’s idea that some of Greece’s debt, most of it now held by Europe, should be written down.

“The fund is talking about other people’s money,” Mr. Asmussen, cracking a thin smile, said at a German-sponsored policy forum.

In some ways, the clash is a function of whose money is at stake.

With Europe on the hook for around 340 billion euros ($460 billion) in loans to bailed-out countries in the euro area, compared to €79 billion for the I.M.F., it is not surprising that Mr. Asmussen and his sponsors in the German finance ministry have responded to the I.M.F.’s push for others to accept losses on existing debt by saying, in effect, you first.

That could never happen given that the I.M.F.’s status as a preferred creditor — meaning its loans get paid back before those of any other lender — is perhaps global finance’s most sacred writ.

The proposal recalls an earlier era when the fund was the dominant lender to flailing economies in Asia and Latin America, rather than the junior partner it is today in Europe. In that respect, the initiative is being seen by some I.M.F. watchers as a sly move by the fund to reposition itself as a leader and not a follower the next time there is a bailout in Europe.

“Countries at risk may simply reject even talking to the I.M.F., for fear of spooking investors,” said Douglas A. Rediker, a former investment banker and onetime member of the fund’s executive board now at the Peterson Institute in Washington. “In an effort to remain central, in Europe at least, the I.M.F. could find itself the odd man out.”

According to recent data from the European Central Bank, euro area countries have €6.4 trillion in government bonds outstanding, 70 percent of annual economic activity in the currency zone.

Matt Sapaula is a renowned financial coach lauded for his updated and innovative methods and instruments in educating consumers about wise financial decisions. Click here to learn how he empowers consumers through various financial strategies.

REPOST: New Tools for Nest Eggs

Work your way to a financially sound and comfortable retirement with the help of these financial tools listed by the Wall Street Journal.

Image Source: wsj.com

The right tools can make investing for retirement easier, by helping you manage the details of particular investments or by managing your entire portfolio. Here's a look at some services that do just that.

Annuity Review ( annuityreview.com )

Millions of new and would-be retirees find themselves holding—and trying to decipher—variable annuities. Annuity Review analyzes variable-annuity contracts (and any supplemental riders) and explains, in plain English, how your annuity works and how to get the most out of it.

The service does well at helping buyers understand the basics of their annuity contracts, such as investment restrictions and the impact of excess withdrawals. It was developed by Mark Cortazzo, a senior partner at Macro Consulting Group, a financial-advisory firm in Parsippany, N.J.

"They have been able to point out things about my clients' annuity contracts that I…would not have been able to figure out, even after scouring the prospectus for 10 hours," says Dana Anspach, the founder of Sensible Money LLC, a registered investment adviser in Scottsdale, Ariz.

Cost: $199 for an analysis of as many as three contracts. Each additional contract is $49.

Wealthfront (wealthfront.com)

Wealthfront Inc.'s software-driven investment management "basically replicates what the larger registered investment advisers do with their rebalancing/trading software," saysMichael Kitces, publisher of the Kitces Report and director of research at Pinnacle Advisory Group, a wealth-management firm in Columbia, Md.

Wealthfront, whose chief investment officer is Burton Malkiel, author of "A Random Walk Down Wall Street," will craft a diversified, low-cost portfolio for you and rebalance your investments automatically as necessary. If your account is $100,000 or more, the service also will help you harvest tax losses—that is, use your investment losses to offset taxes due on investment gains and income.

Wealthfront, in Palo Alto, Calif., uses only exchange-traded funds when managing your money, not individual securities or mutual funds.

Cost: None for the first $10,000 of assets under management. On amounts over $10,000, a monthly advisory fee is charged, based on an annual rate of 0.25% of your assets. There are also fees embedded in the ETFs the service buys for your portfolio.

Betterment (betterment.com)

Betterment LLC, like Wealthfront, offers low-cost portfolio-management services. And it can help transfer your retirement savings from a 401(k) or other accounts into an individual retirement account in as little as 60 seconds.

The New York-based registered investment adviser has a team of representatives who can help answer questions about IRA rollovers. And if need be, a rep will "join a call with [your] existing provider" to smooth the process, says Joe Ziemer, Betterment's communications manager.

There are no fees or minimum balances for the IRA rollover service, but the account that's created will be subject to Betterment's regular fees. Like Wealthfront, Betterment uses only exchange-traded funds when building your portfolio.

Cost: A management fee of 0.15% to 0.35% annually, depending on your balance, plus the ETFs' fees.

Matt Sapaula is a seasoned financial coach known in the industry as the Money Smart Guy. Go to this website to learn about his unique approach to entrepreneurship and financial literacy.

REPOST: Why Many Young People Need More Money Management Education

The article below discusses the significance of financial discipline in helping students resist financial pressures and get by with economic realities.

Image Source: livingmoneysmart.com

Financial education is something that can benefit everyone, no matter how young. Once a person enters the workforce, they may have to deal with difficult decisions that they would be better prepared for if they learned how to manage money early on.

Close to half of those in their teenage years are not well-educated about financial discipline, a report for TCF Bank conducted by the Opinion Research Corporation noted. Nearly 30 percent of those who were 17 years old explained that they didn’t think they would have the tools necessary to manage finances properly when they left high school.

This could be worrisome to many people, as it can be difficult to get finances right without the proper level of guidance and education on the matter.

“Every high school student, and every adult, should have a firm understanding of money management,” said Tom Jasper, vice chairman of TCF Bank. “This survey demonstrates the urgent need to give young people the tools to better manage their personal finances in order to set them up for a brighter, more successful future. We believe that the more informed people are about money management, the more it benefits them and the communities in which they live.”

Student loans an issue for many Americans

This lack of financial knowledge could put some young people at a disadvantage once they obtain a higher education degree, especially if they are trying to manage everyday bills with student loans. This could call for a revamped financial strategy from these people.

Approximately 17 percent of Americans are dealing with student loans they have yet to pay off, according to a report from FindLaw.com. The majority of the group who had loans still have to pay off less than $25,000, while more than 5 percent explained their debt was upwards of $50,000.

“As the cost of a college education has risen, so has the number of graduates carrying a substantial amount of student loan debt,” said Stephanie Rahlfs, attorney-editor at FindLaw.com. “Ideally, students use their degrees to land well-paying jobs and quickly pay off their loans. But job markets are cyclical and careers don’t always go according to plan. Student loans can be a big financial burden, but there are various options available to those who are unable to repay their loans.”

Less than half of those polled explained they were able to pay off their loans in full, the report added.

Matt Sapaula is a financial coach, author, and media personality. Visit this website to learn how he helps clients attain financial security through wealth-building strategies and tools.

Too many tax refunds: The signs and symptoms of intaxification

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As the saying goes, the only certainties in life are death and taxes, and paying one’s dues to the country is among the duties any citizen must make. Paying too many taxes is common, and many citizens have found that they can save a pretty penny by getting tax refunds. But while paying too much tax than is legally required is bad, looking forward to tax refunds is a misguided and unhelpful habit that does nothing to help bolster one’s finances.

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The informal term for the euphoric feeling a person gets from receiving a tax refund is called intaxification, which is described by Investopedia as “somewhat misguided” because tax refunds are given due to an excess amount a taxpayer paid during the previous year. This is likened as an interest-free loan given to the government and paid back yearly.

Image Source: i.investopedia.com

Many agree that this practice is not a good way to save and earn money as it indicates that the person is still paying a higher amount of taxes than necessary. Instead, it is recommended that the taxes paid every paycheck should be reduced through tax breaks. Talking to an experienced tax advisor or HR Department representative on matters pertaining to gradual reduction of tax burden is a key step to improving one’s financial situation.

Waiting for tax refunds is a futile and unhealthy practice that does nothing to improve one’s financial standing. While taxes are inevitable, the burden they present to the taxpayer can be lightened gradually over time.

Financial expert, media personality, and keynote speaker Matt Sapaula is committed to helping the average person save up and generate wealth. Visit this website for more on personal financial planning.