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Let’s disrupt generational poverty

Everyone has been preaching for years that people need to focus on creating generational wealth for their families. During my time as a financial services practitioner, I’ve read hundreds of articles, research papers, and studies, all of which shed light on the fact that the wealth disparities in the United States continue to widen. So, are people focused on creating wealth or just earning enough to get by? The wealth data I continue to review year after year seriously disappoints me, which prompted me to start The #BuildWealth Movement™

I can see the problem, clear as day. Our society speaks about how this is the land of opportunity, how you can create generational wealth, how you can “live the American dream.” Well, that dream isn’t a reality for millions of people, and it looks more like a nightmare. So, how about this? Let’s focus our attention on how we can disrupt generational poverty™.

Disrupting generational poverty isn’t something that my Movement can do alone. I’m just one person who is working to change the way people THINK and FEEL about money. During any interactions with individuals or groups, I feel that I’m doing my part to help disrupt generational poverty simply because I’m an expert. I’m giving really good advice. What people decide to do with that advice is up to them.

The way people THINK and FEEL about money causes you to do one of two things, make a decision or not make a decision. Notice that I didn’t say good decision or bad decision. Every decision you make has consequences one way or another. But, the thoughts and emotions around money play out in our everyday lives, sometimes to the detriment of future generations. Let me give you a few examples to drive home this point. I’ve had someone (actually, multiple people) say the following to me:

“My parents didn’t leave me anything, and I don’t plan on doing that for my kids. They’ll figure it out.”

“I had to work two jobs and I took out loans for college. I want my kids to learn the value of hard work.”

“I make good money, but I still feel like I’m living check to check.”

“Growing up, talking about money was always considered “grown folks” business.”

“My bank isn’t paying me much in interest, but if I put my money in the stock market, I could lose it all tomorrow.”

Now, how do you think hearing things like this makes me feel? In my earlier years as a financial planner, I used to get upset. Over time, I used such remarks as fuel to my fire, continued to work my plan, and ensured that people never EVER say such a thing like that again. 

I also realized that many people don’t have examples within their families or community of what wealth looks like. It just doesn’t seem to be obtainable. Think about the kids who grow up in the hood. They idolize drug dealers, gang-bangers, professional athletes, or entertainers. Why? Because that’s all they see or hear the people talking about in their hood. If that kid is lucky enough to get some exposure to the outside world, they’ll most certainly aspire to do something different.

The same thing happens to adults. Many of us have been deemed successful by our peers or family because we have a fancy job title, nice car, and a house. You “appear” to be successful, but when you begin to delve into your financial situation, you realize the ugly truth. The job stresses you out, and you always fantasize about your dream job, but you’ve got bills, so those dreams get put on the back burner. You have a massive student loan balance, and you feel like it’s going to take decades to pay it off, if ever. The car is nice, but you have a huge car payment each month, and the car’s maintenance is a cash drain. The house, maybe it’s a decent spot, but you’ve got that mortgage and other expenditures coming out of your bank accounts just to maintain the place. Now, you’re left trying to figure out how to invest for retirement, paying for more life insurance, or saving money for a child or your children’s college education. Then you might be considering making an investment into more real estate, building an emergency fund, making sure your credit stays above a 720, meeting with an attorney to get your wills and trusts done, or maybe even starting a business. 

Whew!! That’s a lot huh?

No wonder people can’t disrupt generational poverty. There just isn’t enough time in the day (so “they” say) or enough money coming into our bank accounts to handle all of this stuff. If you don’t personally know someone taking care of business, you don’t believe it’s possible. And, if nobody in your family or community is living the life you dream about, then YOU MUST BE THE FIRST! 

Here’s my strategy on how we can all disrupt generational poverty. I am going to keep it as simple as possible. Experience has taught me that more people can adopt simple, as opposed to complicated. So, here it goes!

  1. Write down the financial goals you want to accomplish. Be sure to segment them out based on time – – short-term (less than one year), intermediate-term (1 year – 5 years), and long-term (5 years+). 
  2. Take inventory every quarter; the best tool to do this is called a balance sheet. If you need one, send an email to info@ready2buildwealth.com and write “Balance Sheet” in the subject line.
  3. Do a budget; I don’t care if you use pen/paper, an app, or some fancy software. Pick a budgeting strategy you can commit to doing.
  4. Strive to get all your credit scores above 720
  5. Have a FULL understanding and leverage ALL employer-sponsored benefits
  6. Get PLENTY of life insurance; If you’re single, you should get some. And, the coverage you have through your job isn’t enough, or it’s only enough while you still have employment with that company. Life insurance from your job is rarely portable.
  7. Invest for retirement outside of what your job offers. (If your budget allows)
  8. Have a non-retirement based investment account (If your budget allows)
  9. Buy real estate 
  10. Have good tax person
  11. Start saving/investing for your child’s college education right after their birth; (Everyone gets an 18-year head start, so what are you waiting for?)
  12. Have a good estate planning attorney
  13. Review and update your plan WHENEVER you have a life-altering event.
  14. Start an investment club with your family or friends
  15. Read this book called The #BUILDWEALTH Challenge: 8 Challenges to change the way you THINK and FEEL about money

Imagine if everyone followed these 15 steps. Of course, there are probably more things I could’ve listed, but this list is pretty solid. I even feel confident enough to guarantee that we could disrupt generational poverty for sure if everyone followed those 15 steps. But, I know people will make the conscious decision to do something different, even though I’ve given them the “cheat-code.” 

Where do we go from here? Well, I need your help in spreading the word. I will not be able to disrupt generational poverty all by my lonesome. It’s going to take an army. I have many ideas on how to address this issue of generational poverty, and if you’re open to having a conversation and helping me out on this quest, shoot me a note to info@ready2buildwealth.com, and in the subject line, write “Let’s Work.” 

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The Project 100 recap

I had this crazy idea that I acted on as 2019 concluded. I wanted to kick off 2020 with a challenge and not some fitness or dieting challenge. I wanted a challenge that would focus on spreading financial literacy to the masses. I decided that I would attempt to conduct 100 free financial planning workshops. I would focus specifically on non-profit organizations, and I figured some for-profit entities would come along (and perhaps even pay me). Either way, I had a number, and I was going to focus on hitting it.

I determined that non-profit organizations would be a great target because they generally don’t provide (or have the budget) to conduct comprehensive financial literacy training for their staff. Yes, I realize some non-profit organizations have a huge bankroll, but I know that many non-profits don’t. Not only did I want to assist the staff, but I also wanted to extend the effort to any people in the community that the organization served. I had one stipulation, for any session that I was going to conduct, I required (20) people to attend. I assumed that it wouldn’t be hard for twenty people to gather and talk about money. I mean, so many people complain and are upset about the wealth disparities in this country, so people should flock to a free financial planning session. Right?

I knew doing this challenge alone would be silly, so I reached out to my Urban Financial Services Coalition – SF Bay Area Chapter (UFSC) family and explained the challenge. They were onboard and specified that I do something unique just for them. We decided on doing a Project 100 session every 2nd and 4th Wednesday virtually. This way, I could open up this opportunity to anyone across the world who had an internet connection. And, since I had all these Wednesday’s, this would give people ample chances to attend at some point. I would do something different for these virtual sessions since I was in full control. I set a deadline for getting the twenty people. Since the event was happening Wednesday nights, I put a deadline for registrations. The deadline was always at 6:30p PT on the Monday prior. If I got the twenty, the session happened. If I didn’t, the session wouldn’t happen. Since this was a free effort, I wanted people to help promote it because I knew that I alone wouldn’t always be able to muster up the twenty. Plus, if ten people registered and brought one other person, that would get us to twenty. Easy right?

So, here are the final numbers from the Project 100:

Number of sessions conducted – 54

Number of people impacted (attendees) – 892

At first glance, yes, I failed miserably. The goal was to conduct 100 sessions, and I fell short by 46. So, if I were in school, a grade of 54% would be an F. Luckily for me, this isn’t school, and despite this grade, I looked at this project as a huge success. 

Success #1: This Project forced me to create a marketing plan and stick to it. Part of that plan was putting together a short video clip where I laid out “my ask.” I recorded a short video stating (1) the purpose of my effort and (2) encouraged people to register for one of those Wednesday sessions or schedule a time to discuss the details of speaking at their organization. I posted this video EVERY…SINGLE…DAY on Instagram, LinkedIn, and Facebook. I dialed things back in November, but I went “hard in the paint” for ten straight months!

Success #2: Some people couldn’t believe what I was attempting to accomplish and thought it was quite admirable. They repeatedly asked how else could they support me, so I sent them the link to purchase copies of my book The #BUILDWEALH Challenge – 8 Challenges to change the way you THINK and FEEL about money.

Success #3: I kept showing up on people’s social media feed so much throughout the year, that I landed new clients and customers due to my marketing efforts. (They opted to skip my workshop and just wanted to get down to work. I love people like that!)

Success #4: I made connections with leaders of organizations that I probably would have never had the pleasure of meeting. These leaders have taken it upon themselves to do this incredible work within their respective communities, and now I can say I have a personal connection with them. 

Success #5: I helped almost 900 people begin their journey to becoming a financial rockstar or enhance their current financial plans.

Despite the awesomeness this project produced, it also served as a valuable learning experience. The things I took away from this project will definitely shape future efforts for The #BuildWealth Movement™.

Learning #1: People don’t value free financial planning information.

Learning #2: More people commented on my videos about how much my hair grew over 2020. (As a result of the pandemic, I didn’t spend much time in the barbershop during the year) Many of those same people never attended a session.

Learning #3: Even when you’re a credible person who is adequately licensed and has over a decade-plus experience within the industry, people will still think you’re a snake oil salesperson if you’re giving something away for free. 

Learning #4: People will get to work on their financial plan when THEY are good and ready. Many people registered for multiple sessions throughout the year and never attended. I guess they think waiting is the answer to their financial struggles. (Insert slapping yourself in the face emoji)

Learning #5: I have a gift. That gift lies in my ability to break down the complexities of financial planning in a way that is easy to digest. I also sprinkle in a bit of humor, which always goes over well with any audience. And lastly, the activity that I conducted during those 1-hour sessions blew people’s minds! (Multiple people gave me that feedback after the sessions)

I thoroughly enjoyed this Project 100 experience. I haven’t the slightest clue what wild ideas my brain will draw up next, but I know that I will act on it when it happens. Plus, I feel really good inside because I was able to impact so many lives. I may not always get validation from people after a session, but I know that my message was and is being shared with hundreds of people that I’ll probably never have the chance to meet. That’s why I do what I do.

I’ll conclude with this. Suppose your organization (not-for-profit or for-profit) is looking for a dynamic speaker who can assist you with your financial education efforts. In that case, I’d love to connect and take you through the workshop that so many experienced in 2020. Just send your request to info@ready2buildwealth.com.

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Buy Term and Invest the difference

Many people struggle over which type of life insurance makes the most sense for their situation, term insurance or permanent insurance. The difference between the two comes down to cost. Some experts will question why you should pay for an expensive permanent policy when you could buy term (which is way more affordable). With the savings, you could invest in a mutual fund, annuity, stocks, bonds, or other investment vehicles. The idea is that investing that “difference” (premium savings) would replace or exceed the cash value accumulation of permanent insurance.

If you decide if this strategy is right for you, you need to consider what best suits YOUR objectives and circumstances seriously. Think about this:

  • You may not have the discipline to invest the difference.
  • Suppose you need to renew or reapply for your term policy. In that case, the cost may become prohibitive as you get older or develop health problems.
  • If health problems occur, you could become uninsurable and not even purchase term insurance when renewing your policy.
  • The difference between your term insurance premium and the amount of the premium for your permanent insurance is substantial. It would be best if you had the discipline to invest the difference and invest early. You will need to make up for the dramatic increase in term insurance costs at later ages.
  • The investment you choose may not perform as you hoped.

Please make sure to weigh your knowledge about your habits carefully. Also, be sure to review the benefits, risks, product features, and any current or future charges associated with any insurance and investment product before deciding how to address your particular needs. When in doubt, schedule time with a professional because they can help you sort through all your options and ultimately make the decision that will be in your best interest.

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All IRA’s Are Not Created Equally

The individual retirement account (known as the IRA) was created to allow people to stash away money for retirement on a tax-favorable basis. There is a variety of IRA’s; some are specifically for individuals and others serve business owners. From banks to mutual fund companies to brokerage firms, numerous financial institutions will allow you to open such an account. Most people might not be aware of this but there is a huge difference between a bank IRA and a brokerage IRA.

Bank IRA’s are a great place to put your retirement dollars if you are looking for safety and security. Such accounts will utilize certificates of deposits (CD’s) or other safe options like money market funds to invest your dollars. You can be assured that by having your money here, you will not lose a cent. Plus, having your funds placed there allows them to be protected by the Federal Deposit Insurance Corporation (FDIC). Some banks may offer riskier options, like mutual funds (which are not covered by the FDIC), but the safe options are primarily what you will typically see. This doesn’t seem like a big deal on the surface; however, playing it too safe with your retirement dollars could hurt you in the long run. By their very nature, banking solutions are low-yielding; thus, this will subject you to purchasing power (your dollar today won’t be worth much in the future) risk over time due to inflation. IRA’s were designed to be utilized as a long-term financial instrument, which means it isn’t wise to use CDs or money markets (which are more geared towards short-term goals) to fund your retirement. A bank IRA makes perfect sense if you are within a couple of years of retirement because you can’t afford to be too risky only since you don’t have enough time to make up any losses. Or, if you don’t have the appetite to take any substantial risk with your money, this option is also appropriate.

The brokerage IRA enables you to purchase securities… stocks, bonds, mutual funds, exchange-traded funds (ETF’s), etc. However, by purchasing securities, you are adding more risk to the equation. Unlike the bank IRA, you could lose some of your initial investment and you will see your account balance fluctuate over time. This usually scares people but have you ever thought about your retirement account in this manner. What if retirement is 10/20/30 years away, and the market is down and as a result, so is your account balance. If you’re not at retirement age, meaning you do not need these funds, then you have only “lost” on paper. Why exactly are you worried? Most people don’t have an excellent response to that; thus, we need to change the way we think about short-term news concerning our long-term accounts.

No one individual has control over the stock market, but over the long-haul, having money in the stock market can be extremely rewarding for your brokerage IRA. The neat thing about the brokerage IRA is that you can invest in a money market type of fund, along with the other riskier solutions. The one thing you want to avoid is having a brokerage IRA open and ONLY having money market funds within it. This happens quite often because people will rollover funds from an old 401k or 403b and the money will sit in a money market fund (which is the default), not being invested. Or, they will open a brokerage IRA, fund it, and never make a decision on what to invest in. Take full advantage of all your options within the brokerage IRA.

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5 Timeless Financial Tips

Most people would agree that discussing your finances can be extremely challenging. The biggest hurdle that plagues us – – getting started. Like anything else, when it comes to beginning your journey to financial glory, you must set a goal. Once the goal is set, now it’s time to take action.

Of course, there are no “one-size fits all” type of approach, and no matter where you are in your life, you may need to address one or all of the following as it applies to your financial game plan:

(1) Create a spending plan (also known as the budget).

How much do you earn? How much do you spend? How much are your bills each month? How much do you save/invest? Try your best to stick to a spending plan each month and have someone hold you accountable when you do not stick to it. Please do not beat yourself up if you don’t stick to it each month because it’s hard to change your spending habits overnight. Grade yourself on a 3-month basis because if you can manage this over an extended period, then guess what, you’ve created a brand new habit! And if the conventional way of “budgeting” doesn’t work for you, consider an alternate strategy, like the 50/20/30 plan.

(2) Pay off credit card debt.

We all know that credit card companies make money off the interest they charge on your account. Here are a couple of tips: 1) Stop spending money that you don’t have; 2) Pay off the card with the highest interest rate; 3) Consider paying off the smaller balance (this will give you the emotional jolt to continue to fight against the larger balance) 4) If possible, pay more than the minimum payment each month. 5) Try the debt-snowball technique

(3) Build an emergency fund.

Make sure to have between 3-6 months worth of living expenses saved at all times. Or for those over-achievers, considering having 9 months to 1 year’s worth. This may be a challenge, but you will never be upset with yourself for saving money when an actual emergency pops up.

(4) Determine personal insurance needs.

Many people may be uninsured or under-insured, which could prove detrimental to your overall financial game plan if the unexpected happens. Consider your situation and see if life insurance and disability income insurance provided by your employer will sufficiently cover your needs. If need be, consider owning personal insurance outside of what is offered through your job. Please note, if you change jobs or lose your job, you will typically lose those employer-provided benefits because the employer is paying the premiums; thus, you don’t “own” the policy. Personal policies can help ensure that you’re protected, no matter where you work or what happens with your job situation. Also, your age and health play a HUGE role in how an insurance company will set the price of their policy, so please keep that in mind.

(5) Begin/review your retirement plan.

We all work extremely hard, but what do we have to show for all our years of service? Many companies are doing away with pension plans; thus, the responsibility of putting money away for retirement falls on our shoulders. Take advantage of your employer-sponsored retirement plans like a 401(k) or 403(b) because these plans allow you to invest monies tax-deferred. An excellent benefit of these plans is that they take money out of your check before getting paid. There are also ways to save for retirement outside of an employer-sponsored plan. Consider opening an IRA (traditional or Roth) or a brokerage account. An annuity or life insurance contract could also be an option. If you decide to save for retirement outside of your employer-sponsored plan, consult with a financial professional. You’ll need to be aware of contribution limits, tax treatment, and how the accounts work.

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You Need A Financial Planner

Financial planners were put on this earth for one reason, to help people get and keep their financial houses in order. But so many people avoid financial planners. Why, exactly is that? Are you one of those people who think you’re better off on your own? Perhaps. Are you the person who says you don’t make enough money; therefore, there’s no need for you to meet with one? Or maybe you’re the person who says, “I don’t want someone all up in my business.” Whatever your reason, you should seriously consider having a conversation with a financial planner because the data doesn’t lie! As a society, we are seriously failing at financial planning.

If you have some time, research this piece that the National Association of Personal Financial Advisors published in 2012. The findings are quite disturbing. In that piece, they reference an organization, the National Foundation for Credit Counseling, which conducts an annual consumer financial literacy survey. Take a look at their survey in 2013 and 2014. It should come as no surprise, but the numbers continue to be extremely disappointing year after year. And, if you’re wondering how things are going today, not much has changed. On the flip side, this should encourage any financial planner to continue to reach out to and follow up with their clients, ask those tough questions, and challenge their clients to be better financial stewards.

Financial planning shouldn’t be something that we fear, but something we should embrace. If you are someone who doesn’t have a plan, you need one. If you’re someone who already has a plan, maybe you’re overdue for a review. No matter your situation, having a financial game plan will most certainly guarantee you financial independence (however you define it) at some point in your life. And just like that adage says, if you fail to plan, you plan to fail.

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Understanding Your Benefits is Important

When you get a job, your employer may have informed you that you will be receiving some additional benefits aside from a paycheck. Some of the most important benefits a company may offer come by way of insurance. For this article, I want to focus on life and disability insurance. Determining what insurance benefits you select will depend on your unique situation. Keep in mind; employers may give you numerous insurance options to choose from, while others may offer the bare minimum. Nevertheless, read through the entire benefits packet that they give you!

Most people are well aware of the importance of health insurance, but not so much when it comes to life and disability insurance. Here’s a recommendation; take some time to determine how much life and disability insurance you need. The life insurance offered through your employer is the cheapest that you will find, typically because your employer is fronting most, if not all, of the premium payments for you. You will generally find that they may offer flat rates of coverage at varying cost to you, or they may have it where you’re entitled to an amount equal to one or two times your salary. If what they are offering isn’t enough, consult an insurance agent to determine how much additional coverage you need to fill your gap. Having adequate life insurance is of the utmost importance. Suppose your household has two wage earners and one passes away, or the breadwinner of your family was no longer here. In that case, the remaining family members would most certainly appreciate having money for the final expenses and maintaining their current lifestyle. The grieving phase will be challenging enough, but adding financial troubles into the mix makes things that much tougher on your family.

When it comes to disability insurance, the same rules apply. Your employer is fronting most, if not all, of the premium payments for you. Many of us don’t see the value of having disability coverage, but here’s some food for thought. If you were seriously sick or injured and unable to work, how would you pay your bills? If you answered that question by saying you have an adequate amount of emergency funds (3-6 months worth of expenses) saved, then you may be okay. If you don’t have such an amount, then disability coverage becomes your savior. Essentially, it enables you to maintain your current lifestyle. What happens for most people is that they fail to have the all-important emergency fund, which results in them having to tap other resources like their investment or retirement accounts or credit cards. None of those sources should be utilized if at all possible. Your employer may only offer short-term disability or a combination of short and long-term disability coverage. 

Remember, read your benefits packet because this is something you need to know. Again, just like with life insurance, if what your company offers isn’t enough, consult an insurance agent to determine how much additional coverage you need to fill your gap. [Just so you know, you will never be able to get 100% disability coverage, primarily because if you could get 100% of your earnings without working, you would never go back to work.]

Having a firm grasp of your insurance offerings through work is critical. There may be gaps within your overall insurance plan, and you need to make sure they are filled. Insurance is THE foundation of a financial plan. If you are not adequately protected, you are putting your investment and retirement accounts in serious jeopardy. Think of it this way, if you were going to build a house, would you start on the second floor? Of course not!! You set the foundation, which allows you to build the remainder of the house. There have been numerous studies conducted about the staggering number of under-insured people in this country. Please don’t let this be you. If you don’t care about insurance studies, ask a family member or close friend if they or someone they know has been negatively impacted by having an inadequate amount of insurance, then you will understand.

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When is the Best Time to Invest

Having served as a financial service professional my entire career and I am repeatedly asked two questions: “When is a good time to invest?” and “Where’s a good place to put my money?”

I struggled tremendously with my response when I was a novice, but now that I’m a seasoned pro, it’s straightforward. I would always get tripped up on trying to sound smart or talk long enough to assure the person I knew what I was talking about. As I’ve matured, responding is so much easier. My answer to the first question, NOW! Today is a great day to invest (in something), and tomorrow will be too! My response to the second question, please take a look at exhibit A.

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Now, both of your questions have been answered, so you can move forward and start investing. But wait, just giving you a simple answer isn’t enough. I know you will have some follow-up questions, and now comes the pivotal point in this exchange.

You’ve got two options:

1. Schedule a time with the professional and dig a little deeper about what you’re trying to accomplish with the money you want to invest. PLEASE keep this in mind…this meeting might cost you money. A financial service professional also has a family, bills, goals, etc. They are running a business. Just ask yourself, would you be okay working every month and not getting paid? If someone is offering free assistance, it will generally be limited in scope because whatever you are discussing could have been found/read on the internet. Thus, you need to decide if it’s worth you paying someone to help you get it done. If you are concerned after someone quotes you a price, make sure to shop around a bit (but not too long) to see what else the market is offering. Keep in mind, if you are paying someone, chances are you are serious and will follow through on things since you’ve put some “skin” in the game. Generally, people don’t truly value free advice; thus, they rarely take action after receiving it. You know yourself, so the decision is up to you.

2. Use one of the many do-it-yourself platforms that various financial institutions offer. With this option, you will be required to do your research and decide what you want to invest in. All of the platforms are extremely user-friendly, so you shouldn’t have any issues if you are tech-savvy.

You are now equipped with a few options to help you start (or reviewing) your investment plan. Once you have made a decision on which option, you have to act promptly. PLEASE do your best to avoid the awful disease called “paralysis by analysis.” The stock market doesn’t care how long it’s going to take for you to make a decision; you just need to do it. I would seriously hate for you to miss out on an opportunity because you’re still “thinking” about what to do.

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Taking Inventory

Getting your financial house in order is a goal that most people set for themselves. Of course, not everyone will get things in order at the same stage in life. Like anything else, most people will do things when they are ready, not when some financial professional tells them to do so. Or they will decide to take action as a response to a life event. Here are a few examples.

Let’s say you have a friend (who has young children and a spouse) that passes away unexpectedly. After witnessing that, you decide to get serious about having adequate life insurance to protect your family. Or you have a co-worker who is getting well into their golden years but still HAS to work because they didn’t save/invest appropriately for retirement. Only then do you decide to start taking retirement planning seriously.

No matter your excuse or fear around financial planning, you must take it step by step. You have to crawl before you can walk, and you must walk before you can run.

Completing a personal balance sheet is the “crawl” step that everyone should take. This document, which you can find pretty much anywhere on the Internet, is easy to complete. It’s going to require you to list everything you own (assets) and everything you owe (liabilities). With some basic math (assets – liabilities), you will be able to determine your net worth.

Taking this “inventory” enables you to focus on where you need to start related to your financial plan. Plus, as you continue to move forward with your financial plan, this can serve as your barometer of financial fitness. The goal is to continue to grow your assets while decreasing your liabilities.

Some experts will recommend that you update your balance sheet once a year. However, if you are the type that needs more frequent feedback, perhaps you should consider updating your balance sheet quarterly or twice a year.

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The Spare Change Experiment

I would like to share a story about why it doesn’t make much sense to keep all of your money in a bank account. Disclaimer: Having a bank account is essential. As a rule of thumb, having 3-6 months of savings (6-12 months is even better) in a bank or credit union is appropriate, but anything over that doesn’t make much sense.

During a previous job, I was an avid commuter. Every weekday I would take the train to and from work. On several occasions, I would notice that there was always spare change on the ground while passing through the turnstiles at the station. Pennies were the most plentiful, but I found $1 coins and even paper money even on a few occasions. If I had to pay for an additional fare or replace my train ticket, I would typically find spare change near the machine. What started as a simple observation turned into an obsession. Each day as I passed through the train stations, my eyes were transfixed on the ground, scanning for any signs of free money. My addiction took an even bigger turn because, after a week of doing this, I set up an excel spreadsheet to track my earnings. This adventure went on for nearly two whole years!

So what exactly is the point of my experiment? During the first year, I collected nearly $30 (this total excluded the paper money found) off the ground at the train stations. I’m sure you may have been thinking this while reading this article; yes, I carried hand sanitizer in my bag. That year, my bank only paid me $15 in interest from my savings account. The previous year my bank only paid $13 in interest from that same savings account.

Now the recommendation isn’t to become some spare change scavenger while you’re out in public. Still, from one (seemingly silly) experiment, I accumulated more money than what my financial institution was paying in interest for the past two years. This makes a very compelling argument for those people who are afraid of investing. Investing your money in the stock market or some other investment vehicle allows your money to work a little bit harder for you. Yes, the stock market can be a frightening place (when you don’t understand it), but if you look at any historical data about the stock market, you will see some magical things that have happened over the long haul. And yes, if you analyze the stock market in specific time frames, it would scare the boogie man. However, investing is an excellent thing that everyone should do, and the longer time horizon you have for investing, the better.

Lastly, I heard many people express that there isn’t any risk when your money is in the bank. However, keeping all of your money in the bank makes you highly susceptible to purchasing power (inflation) risk. Just so you don’t forget, when it comes to financial products, whether it’s banking or investing in the stock market, risk is ALWAYS involved.