Inverted yield curve: How it predicts financial disaster

The inverted yield curve is a graph that shows that younger treasury bond yields are yielding more interest than older ones.

And it’s TERRIFYING for financial pundits all over the world. It’s a graph that could mean the difference between a thriving bull market or the downswing of a bear market. AND it’s been known to throw entire economies into a state of abject terror and chaos.

Want to see what it looks like? Okay. Don’t say I didn’t warn you …

(Source: Britannica)

Pictured: An actual financial pundit’s reaction to an inverted yield curve.

While it might not seem like much at first glance, the inverted yield curve is actually the bellwether for an economic recession. You know, that thing that happened in 2008 that was kind of a huge deal?

Luckily, the inverted yield curve is a rare occurrence … BUT it’s useful to know what it means and how to spot one when it happens.

Why? Simple: You don’t want to get swept up in the herd mentality of one, and being able to recognize when it happens is the first step in preventing yourself from making bad decisions based on what everyone else is doing.  

So let’s take a look at the inverted yield curve, how it happens, and what it means for you and your finances.

What is an inverted yield curve?

To understand what an inverted yield curve is, you must first understand one of the most basic financial asset classes out there: Bonds.

A bond is like an IOU given to you by a bank. When you lend the bank money, they’ll give you back that same amount at a later time along with a fixed amount of interest.

For example, if you bought a two-year bond for $100 with a 2% annual return on it, that means you’ll get $104.04 back after two years (this accounts for compounding). 

Yes, that’s a low return rate. However, bonds have a number of benefits that justify the small rate of return:

• They’re an extremely stable investment. This is especially true when it comes to government bonds. The only way you can lose your money with them is if the government defaulted on its loans — which the U.S. government has never done.
• They’re guaranteed to have a return. This means that you’ll know exactly how much you’re getting on your ROI when you purchase a bond.
• Longer investments yield higher returns. The longer you’re willing to wait on your bond typically means that you’re going to have higher return rates. I say typically because there are exceptions to this (Hint: It has to do with what we’re talking about right now).

And when people refer to inverted yield curves, they’re typically referring to the yields on U.S. Treasury bonds, or bonds guaranteed to investors by the U.S. government.

BONUS: If you want even more information on investment basics, check out Ramit’s video on the hierarchy of investments. Don’t be thrown off by the potato quality of the video — the advice is timeless.

A yield curve graph shows the returns of those bonds (i.e., the yield) based on maturity, or how old the bond is.

A typical one looks like this:

Notice how it curves? That’s why it’s called a yield curve. (Source: money-zine.com)

The above is a normal yield curve. It shows that older bonds have higher interest rates and will yield more than younger ones.

On the other hand, an “inverted” yield curve looks like this:

This occurs when the curve inverts or goes the other way. It shows that younger bonds (i.e., bonds that are two years or less) yield more in interest than older ones. This shows the lack of investor confidence in older bonds and is a good indicator that a recession is incoming (more on that soon).

You can find the daily fund rate straight from the U.S. Department of Treasury itself here and chart it out here (you’ll need Flash).

But a yield curve doesn’t invert on its own. Let’s take a look at a few elements that are needed for an inverted yield curve to occur.

How does an inverted yield curve happen?

Humans are more motivated by a fear of loss than anything else. This is a psychological phenomenon called “loss aversion.” When the possibility of loss comes up, we get scared. We remember the things we’ve lost more acutely than what we’ve gained (just ask any gambler). When we’re scared we tend to make weird decisions like selling off all of our investments due to a dip in the markets or splitting up the group in a haunted house so the murderer can pick you off one by one.

Typical investors. (Source: Fanpop)

When it comes to a recession, many investors will start to invest in long-term U.S. Treasury bonds as it approaches — since they know that the interest rates on other assets like stocks will soon drop.

As more and more people begin to buy long-term bonds, however, the Federal Reserve responds by lowering the yield rates for those securities. And since people aren’t buying a lot of short-term U.S. Treasury bonds, the Fed will make those yields higher to attract investors. To recap:

• Bonds are considered safe.
• People who are not confident in the market will move more money into bonds.
• With more people investing in bonds, their return rate goes down.

This is basic supply and demand. The less people want a bond, the more financial institutions like the Fed are going to make that bond appealing to investors.

A great example of a yield curve inverting occurred before the 2008 housing market crisis in December 2005 — almost three years before the crash. The Fed raised the federal fund rate to 4.25% due to a number of factors. Mainly, they were aware that there was a growing price bubble within certain assets like housing, and they were concerned that low interest rates were causing this.

So when the fund rate was raised to 4.25% in 2005, it caused the two-year U.S. Treasury bond to yield 4.4% while the longer term seven-year bond only yielded 4.39%. Soon the curve began to invert more and more as the recession began approaching and investors continued to invest more heavily into longer-term bonds.    

Eventually, the United States found itself thrown into a recession after the housing market crash roughly two years later.

Note: The inverted yield curve wasn’t the cause of the recession but rather a symptom of it. Think of the inverted yield curve as a cough or fever in a greater sickness.

The last seven recessions the country has seen were preceded by an inverted yield curve — and many experts agree that another inversion of the yield curve could be on its way.

While the inverted yield curve is a great indication that there’s a recession and a subsequent bear market is on the way, what does that mean for you? What should a typical non–Wall Street, every-person do when you see a headline like this?

(Source: South China Morning Post)

How an inverted yield curve affects YOU

First, the good news: Inverted yield curves don’t last forever. In fact, the last one lasted until the summer of 2007 when it flattened out and began to revert back to its normal stasis.

An inverted yield curve isn’t without consequence to you and could affect you in a number of different ways depending on your financial situation.

For example, if you’re a long-term investor and have money tied up in long-term bonds, you’re going to see interest rates for those bonds go lower than short-term ones. This can be alarming to any investor trying to plan for the future, since you’re earning less due to falling interest rates.

Also, if you purchased a home with an adjustable rate mortgage, there’s a good chance your interest rate schedule is predicated on the current short-term bond interest rate. That means that it’ll mirror bond interest rates when they fall and grow. So if those rates are high, you’re going to end up paying more in interest.

(Pro-tip: Ramit suggests you get a fixed-rate mortgage to prevent situations like this from occurring.)

What should you do when an inverted yield curve happens?

Whenever it comes to recessions, depressions, random Facebook friends asking you to join their MLM schemes, or any other outside negative force on your life, always remember one thing:

Focus on the things you can control, and let go of the things you can’t.

And one thing that you can control to help you get ready if the inverted yield curve ever happens is creating an emergency fund.

This is money you save away for financial disasters like medical emergencies, auto or home repairs, and, you guessed it, an inverted yield curve signaling a financial recession.

If you’re ever in a situation where you lose your income or you run into a huge financial emergency, it’s nice to have a safety net that you can fall back on.

I’ve written all about emergency funds before, so I won’t go into too much detail. But the basics are simple:

• Calculate three to six months of expenses. If you get laid off due to a recession, it’s going to take some time to find another job. That’s why you need to have your living expenses taken care of. This includes things like rent, mortgage payments, car payments, utilities, and groceries.
• Use a sub-savings account. A sub-savings account is a smaller account you create along with your normal savings account that’s set aside for specific goals. By using a sub-savings account, you’re much more likely to set aside money for your emergency fund due to psychology. Read more about it on my article on sub-saving accounts here.
• Automate your finances. This is my system for investing, saving, and spending automatically. When you receive your paycheck, your money goes to exactly where it needs to go.

To help you automate your savings and build a fund to protect you against the inverted yield curve, we want to offer you something: The Ultimate Guide to Personal Finance.

Along with learning how to automate your finances, you’ll also get tactics on how to:

• Master your 401k: Take advantage of free money offered to you by your company … and get rich while doing it.
• Manage Roth IRAs: Start saving for retirement in a worthwhile long-term investment account.
• Spend the money you have — guilt-free: By leveraging the systems in this book, you’ll learn exactly how you’ll be able to save money to spend without the guilt.

The things you’ll learn in this Ultimate Guide will set you up for financial success way more than worrying about an inverted yield curve.

Enter your info below and get on your way to living a Rich Life today.

Inverted yield curve: How it predicts financial disaster is a post from: I Will Teach You To Be Rich.

from I Will Teach You To Be Rich https://ift.tt/2CHEet6
#money #finance #investing #becomerich

What is personal finance? 4 pillars for limitless wealth

Your personal finances are incredibly important. That’s because what you do now for your personal finances not only impacts your life today but also has far reaching impacts into your future.

But … what is personal finance really? What does that look for you? And how can you best set yourself up for financial success in the future?

Also why am I the one talking to you about any of this?

Hi, I’m New York Times best-selling author Ramit Sethi. More than a decade ago, I wrote a book on personal finance called I Will Teach You To Be Rich, based off of the website you’re on right now. I’ve helped millions of people build systems that helped them earn more, invest for the future, and spend their money guilt-free without the BS.

Now, I want to help you do the same — and that starts with understanding what exactly personal finance is.

Personal finance definition

Personal finance encompasses everything about the way you manage your money.

As the name implies, your personal finance is unique to you. That means it has nothing to do with the economy. It also means what your buddies, coworkers, family members, and whoever else do is going to look very different from what you end up doing.

And at the end of the day, personal finance boils down to you and the way you approach your financial pillars.

What are the financial pillars? I’m glad you asked. The four biggest pillars of personal finance are:

• Saving. How you keep your money.
• Investing. How you let your money grow.
• Earning. How you make more money.
• Spending. How you use your money to purchase things.

Let’s break down each pillar now and see how you should be approaching each.

Financial pillar #1: Saving

This pillar encompasses all of the actions and tactics you take in order to save money.

It also happens to be the system people mess up all. The. TIME.

You probably have heard of saving “advice” like:

• Cut out lattes
• Keep a budget
• Don’t eat out and cook your own food
• Collect your spare change in a jar

While this advice might make sense at first, it’s not that great.

Actually, it’s worse than not great. It can be downright harmful if you rely on these as your only methods of saving money.

Plus, you could end up like this weirdo:

Financial “advice” like “keep a budget” and “cut out lattes” to save money doesn’t work because it solely relies on human willpower. And human willpower is limited. That means we only have so much of it we can devote to one action before it runs out.

So when we have to do things like give up lattes and check our budget spreadsheets every day, we overexert our willpower and end up giving up our goal of saving money entirely.

When that happens, it can look something like this:

Instead, you shouldn’t feel guilty about enjoying the things you love. You should be able to save money without relying on your willpower. To do that, you just need the right savings systems. Check out my article below to help you get started.

FURTHER READING: 8 smart ways to save money

Financial pillar #2: Investing

Investing is the single most important thing you can do today to ensure your financial success in the future.

It’s like that old adage: The best time to plant a tree was 100 years ago. The second best time is now.

That’s why you need to invest as early and often as possible for your success.

Don’t believe me? There’s more than 100 years of evidence in the stock market that shows investing is crucial to your financial future.

When it comes to your personal finances, though, what should you invest in?

I’m glad you asked …

Investment #1: 401k

Your 401k is a powerful investment plan offered by most employers.

Here’s how it works: Your employer will offer you a 401k plan with a variety of investment options. These investment options will likely be split up by how aggressive the plans are. The more aggressive the plan is, the more risk is involved — but you also stand to earn more when you invest.

You employer will also offer something called a match. This is a certain percentage of your income that your employer will match you dollar-for-dollar when you invest.

For example, let’s say you earn $3,000 / month and your employer offers a 5% match. If you invest $150 / month (5% of $3,000), your employer will give you $150 to match.

That’s right. It’s free money from your employer.

The money you invest is pre-tax as well, which means that your money will grow and compound even more until you take it out at retirement age of 59 ½.

So if your employer offers a 401k, I suggest putting in at least enough money to get the full employer match.

NOTE: As of 2018, you can contribute up to $18,500 / year.

This ensures you’re taking full advantage of what is essentially free money from your employer. That match is POWERFUL and can double your money over the course of your working life:

Investment #2: Roth IRA

Your Roth IRA is another tax-advantaged retirement plan. There are three big differences with this plan though:

1. It is a personal investment account. That means your employer won’t supply it for you and you won’t be getting a match from anyone.
2. The max contribution is $5,500 / year. You won’t be able to invest and earn nearly as much as a 401k account.
3. You contribute after-tax income but you pay no taxes on it when you withdraw it — which gives you an even better deal.

Imagine you’re 25 years old and you decide to invest $500 / month in a low-cost, diversified index fund (I know Roth IRA caps at $5,500 but this is just an example). If you do that until you’re 60, how much money do you think you’d have (assuming a 5% return)?

Take a look:

$1,116,612.89.

That’s right. You’d be a millionaire after only investing a few thousand dollars per year.

For more information on both of these accounts, be sure to check out my article on retirement accounts below.

FURTHER READING: The World’s Easiest Guide To Understanding Retirement Accounts

Financial pillar #3: Earning

There’s a limit to how much you can save — but there’s no limit to how much you can earn.

If I wasn’t so afraid of needles and the social implications, I’d get that saying tattooed across my forehead.

The power of earning more is one thing people don’t often realize. Instead of trying to pinch every penny and cut out the things you love in order to save your money, you should focus on making more money so you can spend guilt-free.

When it comes to making money, the two best ways are negotiating a higher salary and starting a side hustle. Let’s take a look at both and see how you can get started.

Negotiate a higher salary

Salary negotiations are a great way to nail a Big Win that helps you earn thousands of dollars more over your lifetime.

Check out how much a $5,000 increase in salary can add up over the years:

When it comes to negotiating salary, you need to remember three things:

1. Know your value. You need to know exactly what you’re contributing to the company AND what you plan on contributing after you get the raise. Only when you can showcase how invaluable you are to your boss can you hope to make the case that you deserve a pay raise. How do you showcase your value? Simple: The Briefcase Technique. Check out my article on the topic for more.
2. Have a number in mind. If you come into the negotiations without a hard number in mind, you’re putting your potential future salary into the hands of your manager. That’s like going grocery shopping not knowing what you want to buy and asking the checkout clerk what you should get. When you figure out a precise number, you can better make the case as to why you deserve it. Don’t know what to ask for? Simply go to Glassdoor or PayScale to see what the range is for your role.
3. Practice, practice, practice. I always say: never shoot your first basket in the NBA. And never go into salary negotiations without having practiced the conversation. Practice with friends or family. Practice in front of a mirror. Record yourself so you can listen and critique yourself later. Your chances of having a successful negotiation go up the more you do it.

For more on this topic, be sure to check out my article on it below.

FURTHER READING: How to negotiate the raise you deserve in 3 months

Start a side hustle

I love side hustles. They’re my all-time favorite way to earn more money while working a 9-to-5.

Side hustles are very flexible. That means you can work on them in your free time once you’re done with work. They’re also good ways to help you do what you love on the side.

The best part: You can scale them however you want. That means how much you earn simply depends on how much you want to work at it.

Chances are you already have all the skills you need to start one too. Think about your talents and hobbies.

Do you:

• Know a language? People will pay you to tutor them in foreign languages.
• Write amazing content? I can’t think of a single business out there who wouldn’t pay top dollar for a great copywriter.
• Develop computer programs and apps just for fun? You can leverage those skills to help other businesses develop websites and apps.

To help you even more, be sure to check out my article on creating a side hustle below.

FURTHER READING: How to find a side hustle idea (plus 42 side hustle ideas you can start today)

Financial pillar #4: Spending

My favorite financial pillar: Spending.

Spending gets a very bad rap. People often point to it for their financial woes and the financial woes of others.

While there are plenty of people who take spending too far, I argue that it’s not spending that’s led to financial downturns — it’s not being conscious with your spending that can lead to unhealthy financial habits.

One of my all-time favorite ways to get started living a Rich LIfe is through a system I call the Conscious Spending Plan. It’s the same system my friend uses to spend more than $21,000 on going out.

I don’t EVER want you to cut out the things you love in order to save money. That defeats the purpose of a Rich Life. With the Conscious Spending Plan, you’ll be able to save money purposefully by avoiding the mindless spending that can come from disorganized finances.

Setting up the system might seem hard — but in the end, it’s all about:

1. Automating your finances.
2. Knowing where your money goes so you’re in complete control of the situation.

To help you do both, I want to give you my 12-minute guide to automating your finances. In it, I break down exactly how you can implement this system today.

Simply put your name and email below and I’ll send the video straight to your inbox.

What is personal finance? 4 pillars for limitless wealth is a post from: I Will Teach You To Be Rich.

from I Will Teach You To Be Rich https://ift.tt/2BFLBD4
#money #finance #investing #becomerich

Saving Money in a TFSA and RRSP On Any Budget

It’s easier than you think to fit saving into any budget. If only because any amount of saving is worth doing even on the tightest of budgets! Many people claim that they can’t save enough for retirement or emergencies because they have too many other financial obligations. The truth is the habit of saving matters [...]

The post Saving Money in a TFSA and RRSP On Any Budget appeared first on Money After Graduation.

from Money After Graduation https://ift.tt/2KDWNDi
#money #finance #investments

Christmas on a budget: How to save money on Christmas gifts (and still have fun)

HO HO HO!

Just like that, the holiday season is upon us!

This year, I intend to do most of my Christmas shopping during a three-week tour of Europe with my cousins. We're deliberately visiting as many Christmas markets as possible, so I hope to find a variety of interesting and unusual gifts for my family and friends. (They need to be small, though. I don't have much space to carry things home.)

While I'm buying new (and possibly expensive) gifts this year, that's not normally my style. I'm a fan of keeping Christmas frugal.

Being a frugal shopper doesn't mean you can't give thoughtful gifts though. In fact, my experience has shown that it's often more fun and rewarding to impose limits on gift-giving. These limits breed creativity and inspiration. “Christmas on a budget” doesn't have to mean “Christmas without fun”.

This article contains some smart ways to save money on Christmas gifts while celebrating the season. (These tips are great for Christmas, for Hanukkah, for Kwanzaa, for Festivus, or for whatever feast you celebrate this time of year.)

It's an amazing frugal Christmas savings spectacular!

What Kids Really Want for Christmas

I have this idea in my head that kids become mercenaries at Christmas, demanding the newest, most popular toys. I'm not sure how I've arrived at this notion because that's certainly not how my brothers and I were when we were younger. Sure, we wanted cool stuff, but we never made demands.

In fact, Dad used to tell the story of how ashamed he was one Christmas when he and Mom were going through a particularly rough patch. They were always poor and struggling with money, but this year was especially bad. They couldn't afford Christmas presents for us three boys. Rather than cry about it, we went through the toys we already had, wrapped them up, and gave them to each other.

I have only a dim memory of this myself, but Dad used to talk about it often.

This bit of personal family history reminds me of Unplug the Christmas Machine by Jo Robinson and Jean Coppock Staeheli. This book urges readers to escape the commercialism of the holiday season, to make it a “joyful, stress-free” time for the family. In a chapter entitled “The Four Things Children Really Want for Christmas”, the authors write:

One concern voiced by most parents is that of shielding their children from the excesses of holiday commercialism. While adults can mute the TV when the ads get annoying, children are defenseless against the onslaught of ads. As early as the age of four or five, they can lose the ability to be delighted by the sights and sounds of Christmas, only to gain a two-month-long obsession with brand-name toys. Suddenly, all they seem to care about is how many presents they will be getting and how many days are left until they unwrap them.

Many parents find it a challenge to create a simple value-centered Christmas in the midst of all the commercial pressure. But the task is made much easier when parents keep in mind the four things that children really want for Christmas.

Robinson and Staeheli argue that children don't really want clothes and toys and games. The four things they actually want are:

• A relaxed and loving time with the family. Children need attention. During the holidays, normal family routines are temporarily set aside for parties, shopping, and special events. It's important to slow down and spend quality time with your kids.
• Realistic expectations about gifts. Kids enjoy looking forward to gifts and then having their expectations met. The key is to manage their expectations. You might try, for example, to educate your children about advertising in an attempt to mitigate its effects.
• An evenly paced holiday season. The modern Christmas season starts months before December 25th, when the first store displays go up, then things end with a bang on Christmas day. The authors suggest beginning the season late in the year. Get out the Christmas music on December 15th, then get the tree on the following weekend. Schedule some low-key family events during Christmas week. Stretch the season to New Years Day.
• Reliable family traditions. When I talk to my friends about what Christmas was like when we were children, it's not the gifts that we remember. We recall the things we did as a family. I remember sleeping next to the tree every Christmas eve, but never being able to catch Santa in the act. I remember seeing the cousins. I remember decorating the trailer house. Your kids will remember the traditions, not the gifts.

Because I don't have kids, I don't have first-hand experience with their expectations around the holidays. Other folks in the GRS community do, though. A reader named PB, for instance, emailed some similar thoughts. She writes:

We keep our children's expectations realistic by following an old tradition — that Santa fills the stockings and only the stockings — nothing under the tree. This limits the size and quantity of gifts. Plus, because they're all relatively sure what they can and cannot wheedle out of parents for tree presents, their expectations are kept in check.

We buy one new outfit for each, usually a special piece of clothing that they really want, and spent only about $100 per child. I also shop all year long and get some real bargains.

We also emphasize doing a lot of things with our church — food delivery to the elderly, singing at nursing homes, and service to others. Our ongoing tradition is a big Christmas eve dinner with lots of friends and then the midnight service, where we all play an instrument or sing in the choir. This is what the kids talk about — not about what they receive.

It seems that the key to keeping kids happy at Christmas is to manage their expectations. But what about exchanging gifts with other adults?

Exchanging Gifts with Adults

Gift-giving among adults can be awkward. If you spend too much on another person, they may feel uncomfortable. Worse — and this has become more common the older I get — what if you give something and the other person doesn't reciprocate? Or they get you something and you give nothing? Again: awkward!

Many people welcome the idea of doing away with gift-giving completely. Some, like my family, establish specific rules.

We've made a tradition of the $5 gift exchange. We give larger gifts to the kids and to my mother, but the rest of us exchange gifts that cost no more than $5. It's become a game to find interesting, thoughtful gifts for just five bucks. (Or to find amusing, tacky gifts for the same amount.)

The first year we did this, the gifts were kind of lame. But with time, we've become more creative. Once in an antique store, I stumbled upon an old photograph that I recognized as depicting some of my sister-in-law's relatives, for example. Other years, I've discovered awesome gifts at garage sales.

Some people practice a variation of this. They do a $100 holiday, where their entire budget for a particular group (family, circle of friends, etc.) is limited to $100, and that money is divided as needed.

Others agree to only give presents to the children in the group. This relieves the adults of the pressure to buy gifts for each other while still allowing the children to experience the magic of Christmas. (Of course it could be argued that this isn't the sort of Christmas magic kids should be learning.)

The goal here isn't to be cheap for the sake of cheapness — it's to give thoughtful presents without breaking the bank. (And, for me, to not participate in the mad rush of consumerism during the holiday season.)

One last important piece of advice: if your family (or circle of friends) agrees to gift-giving guidelines, don't be the person who breaks them. People feel resentful when one person takes it upon herself to give more than the agreed terms. Stay within the rules and have fun.

Christmas Gifts That Don't Cost a Lot of Money

For most people, Christmas gifts mean shopping at the mall. Or Amazon. But it doesn't have to be that way. Many of the best gifts aren't tangible items purchased from a store. Here are a few examples:

• Give the gift of experience. People are likely to forget about the things you give them. They're much more likely to remember gifts of doing. Examples: sky diving, scuba lessons, hot-air balloon rides, cooking school, lunch with a hero, etc.
• Personal gift certificates also make great gifts. In essence, these are gifts of time. Give new parents a gift certificate for a night of baby-sitting so that they can enjoy a night on the town. Are you good with computers? Give your brother-in-law a gift certificate for free computer repairs.
• Similarly, my ex-wife and I used to give each other love coupons. Sounds sappy, I know. But it was nice to be able to come home at the end of the day and redeem a coupon for a dinner out, or for a back rub, or for an evening watching a favorite movie.

My favorite gifts tend to be those that people have made themselves. Homemade gifts demonstrate caring, creativity, and passion. I'm fortunate to have many crafty friends. Every year, I'm delighted to see what they create for Christmas gifts. In the past, I've given or received:

• A hand-assembled collection of gourmet salts, complete with written description of each.
• Ginger snaps.
• Art. (Do you dabble in photography? A framed print of your nephew is a great gift for your sister-in-law.)
• Chocolate-dipped hazelnuts (from a family with a filbert orchard).
• Home-made jams and jellies.
• Flavored liqueur brewed from vodka, sugar, and fresh herbs.

The best-home made gift I've ever received? A couple of years ago, an old friend found a poem I had written for her when we were in high school. It was a silly ode to a teddy bear scribbled on notebook paper. She framed the page and gave me a cheap bear. Believe it or not, that meant a lot to me. (Yet it was, in essence, I gift I had given myself!)

Homemade gifts are fun to produce, and are generally more valued by the recipient. I'd take a plate of PCCCs (plain chocolate-chip cookies) over some plastic gee-gaw any day.

Frugal Christmas Ideas from GRS Readers

This is Get Rich Slowly's thirteenth Christmas. Over the years, GRS readers have shared tons of great tips for saving money during the holidays. Here are a few of my favorites.

First up, Samuel suggests:

Give your favorite things as gifts. Find items you love and use everyday, then share these with others. By giving favorite things, the focus is on sharing things you like rather than how much you spent. For example, my “favorite thing” gift this year is a pizza cutter. It's an unbelievably useful kitchen gadget! We use it to cut up everything, not just pizza. It costs about ten bucks!

Like me, Pam prefers home-made gifts. She thinks it's even more fun when these home-made gifts can be personalized:

Do crafts that require the same basic supplies but still remain customizable to the recipient. Homemade baking mixes are good for this, because with big bags of ingredients you have the bases for several different kinds of baked goods: Aunt Julie can get oatmeal-raisin and Cousin Larry can get peanut-butter chip with a minimum of tweaking and few extra ingredients.

My all-time favorite, though, is marble magnets, which require absolutely minimal supply (florist's gems, silicon glue, a scissor or craft punch, old magazines), offer tons of opportunity for personalization (I do cartoon images for my boyfriend, the letters of their names for my little cousins, and flowers for a garden-crazy friend), look great packaged in tulle or an Altoids tin, and get much, much cheaper when you make them in bulk.

RJ shares another creative way to keep costs down:

Sometimes when my partner and I exchange cards at Christmas, we'll include a cut-out image or two of a really expensive gift that we might have liked to buy, but didn't.

For example, a couple of years, he inserted a pic of a $175 bottle of scotch, but gave me a perfectly wonderful and less costly (~$25) bottle of a different kind of scotch instead. This year I'm giving him a matchbook from a very expensive restaurant in town, though our holiday dinner will actually be at a friend's house. It's our jesting way of reminding each other of the shopping insanity at this time of year, and it helps us appreciate what we do get for the little money we spend.

By now, you probably know that buying experiences tends to make people happier than buying stuff. Does the same concept apply to gifts? Angie thinks it might. She writes:

My husband and I have a tradition of giving each other experiences for Christmas, rather than more stuff. This doesn't always end up being the cheapest route, but it does keep our house from being cluttered up with extraneous stuff.

For instance, my husband had always wanted to try blowing glass. An art glass studio opened up a few blocks from our house, and last year at Christmastime they held workshops where you could blow your own glass ornament. I gifted him two sequential half-hour workshops, at $25 apiece — once so he could “get the hang of it”, and the second so he could better use his new skills. (He's that kinda guy.)

He came home with two beautiful ornaments he made himself, and he absolutely raved about how much fun he'd had. I saw essentially identical blown-glass ornaments at the local art gallery for about $20 apiece. For a $10 premium, I fulfilled his longheld wish and gave him a really awesome memory. Now that's a bargain!

Finally, Amberlynn says that the best gifts don't have to cost anything at all:

My family draws names with a $20 limit, but we're phasing that out for something even better. We're writing a chapter of our family history each year. We pick a topic, and each family member will write about it. One person plays “editor”, collecting the stories together for Christmas.

We've written about our favorite Christmas (seven differing perspectives on the same year), the house we grew up in, and this year we're writing about how we met our spouse. Last year, my Mom sent out her first draft of her entire life history. This gift costs nothing. It does take a little time if you want to contribute quality. It will, however, carry a lasting value unmatched by any tangible gifts we've exchanged, or even experiential gifts!

Frugality doesn't take the joy out of Christmas. In many ways, it adds to it. It's a great feeling to find a perfect gift for only five bucks. Besides, when I think back to Christmases past, it's not the gifts I remember, but the time spent with friends and family.

The post Christmas on a budget: How to save money on Christmas gifts (and still have fun) appeared first on Get Rich Slowly.

from Get Rich Slowly https://ift.tt/2FF57nk

Choosing The Right Home & Auto Insurance

Choosing the right home & auto insurance doesn’t seem like something that would be easy, but now it is. In fact, you can even get your coverage online. Insurance is one of those things you need to buy but hope you never have to use. If you do end up using your insurance, it means something [...]

The post Choosing The Right Home & Auto Insurance appeared first on Money After Graduation.

from Money After Graduation https://ift.tt/2Rj4rWl
#money #finance #investments

An amazing Black Friday sale on popular audiobooks

I met a GRS reader named T.J. for happy hour last week. As we sipped our beer, we chatted about money and videogames and our personal struggles with ADHD. We also discovered we have a shared love for audiobooks.

T.J. listens to audiobooks as he drives from client to client. I used to consume audiobooks during my commute to work at the box factory. In recent years, I've found that audiobooks are an effective way to cope with my insomnia. No joke: Every night — all night — I listen to audiobooks. (Plus, I still like to listen to them during long drives.)

Here's a shocking stat: I listen to nearly 3000 hours of audiobooks every year. (As a point of reference, if you work a full-time job, you probably work about 2000 hours each year.)

    

Because I consume so much audio material, I have a strange problem. I run out of things to listen to. I've audited my favorite books — True Grit, The Lord of the Rings, the Aubrey/Maturin series — many times over by now. I constantly crave new titles…but I'm unwilling to pay full price to purchase them.

Well, this weekend — until 11:59 Pacific on Monday evening — Audible is having a huge sale on 473 popular audiobooks. Prices range from $4.95 to $6.95. (And because Amazon now owns Audible, it's possible to purchase directly from the parent company.)

As I sorted through the list to find new titles for myself, it occurred to me that many of these books might be of interest to GRS readers. I compiled a subset of 36 audiobooks, which I've sorted into four categories below. (Or you can visit Audible to view every title included in the sale.)

Note: If I've marked a book with a , that means I own the audio version myself. If I've marked a book with a , that means I recommend it highly. (Cry, the Beloved Country is one of my all-time favorite books, for instance, and the audio version is fantastic.)

Audiobooks About Money

First up, here are nine books that are explicitly about money and money management. I'm not sure how something like The Intelligent Investor translates to audio, but there's no doubt it's considered a personal-finance classic in print form. You Need a Budget is good in audio, though, and The Wealthy Barber should be too.

• Buffett: The Making of an American Capitalist by Roger Lowenstein [$4.95]
• Influence by Robert Cialdini [$5.95]
• The Intelligent Investor by Benjamin Graham [$6.95]
• The Personal MBA by Josh Kaufman [$5.95]
• The Power of Broke by Daymond John [$4.95]
• A Random Walk Down Wall Street by Burton Malkiel [$5.95]
• Rich Dad Poor Dad by Robert Kiyosaki [$4.95]
• The Wealthy Barber by David Chilton [$4.95]
• You Need a Budget by Jesse Mecham [$4.95]

Audiobooks About Self-Improvement

Here are nine books that aren't about personal finance, but are about personal development. All the same, some — such as The Life-Changing Magic of Tidying Up — can have a powerful, indirect impact on your pocketbook.

• Breaking the Habit of Being Yourself by Joe Dispenza [$4.95]
• Find Your Why by Simon Sinek [$4.95]
• High Performance Habits by Brendon Burchard [$5.95]
• The Life-Changing Magic of Tidying Up by Marie Kondo [$4.95]
• Made to Stick by Chip Heath and Dan Heath [$4.95]
• The Willpower Instinct by Kelly McGonigal [$4.95]
• You Are a Badass by Jen Sincero [$4.95]
• The 10x Rule by Grant Cardone [$4.95]
• 48 Laws of Power by Robert Greene [$6.95]

The Great Courses

As much as I love audiobooks, I love The Great Courses even more. Over the past twenty years, I've listened to dozens of these “classes” and have enjoyed nearly all of them. I'm pleased that Audible (and Amazon) now offer these for sale because they're much cheaper than buying directly from The Teaching Company.

• The American Civil War from The Great Courses [$6.95]
• Critical Business Skills for Success from The Great Courses [$6.95]
• Great Mythologies of the World from The Great Courses [$6.95]
• Money Management Skills from The Great Courses [$4.95]
• The Other Side of History: Daily Life in the Ancient World from The Great Courses [$6.95]
• Practicing Mindfulness: An Introduction to Meditation from The Great Courses [$5.95]
• Scientific Secrets for Raising Kids Who Thrive from The Great Courses [$5.95]
• The Story of Human Language from The Great Courses [$6.95]
• Understanding the Mysteries of Human Behavior from The Great Courses [$5.95]

Other Books of Note

Most of this weekend's Audible sale is focused on popular fiction and non-fiction, of course. Here are six books I've audited and enjoyed, plus three new titles I picked up this morning. (I'm looking forward to Shogun. It gets great reviews!)

• The Amazing Adventures of Kavalier & Clay by Michael Chabon [$6.95]
• Cry, the Beloved Country by Alan Paton [$4.95]
• David Copperfield by Charles Dickens [$4.95]
• The Hobbit by J.R.R. Tolkien [$5.95]
• Leviathan Wakes by James S.A. Corey [$6.95]
• The Remains of the Day by Kazuo Ishiguro [$4.95]
• The Selfish Gene by Richard Dawkins [$6.95]
• Shogun by James Clavell [$6.95]
• The Six Wives of Henry VIII by Alison Weir [$6.95]

Most years, I deliberately do not encourage folks to participate in Black Friday madness. I'm a strong believer in Buy Nothing Day. This year, I'm making an exception. But only for this sale. I'm happy to promote self-education!

The post An amazing Black Friday sale on popular audiobooks appeared first on Get Rich Slowly.

from Get Rich Slowly https://ift.tt/2KtNS7g

How long to keep your documents

I have a lot of pet peeves.

• Old “friends” from high school asking me to join their MLM scheme.
• Millionaires lecturing millennials about how they shouldn’t buy avocado toast to save money.
• People who say that real estate is the smartest investment (spoiler: it’s not).

One of my biggest pet peeves: Banks and businesses that send you junk mail.

Whenever I go to my mailbox and it’s filled with promotional material, I just want to send the mail right back to them. In fact, I switched my car insurance a while ago because they just wouldn’t stop sending me mail three times a week! Ridiculous.

It’s especially ridiculous when it comes to banks. And with all the documents you get from them, it’s hard to know what to throw away and what to keep.

That’s why I want to go into what documents you should be holding onto and for how long.

How long to keep documents

Here are my frameworks for how long you should hold onto certain documents, and more importantly, why you should hold onto them.

• Keep forever
• Keep 7+ years
• Keep for 3 – 7 years
• Keep for 1 year
• Throw away immediately

Later, I’ll go into good ways you can keep them safe.

Keep forever

These are the documents you’re going to want to hold onto for your entire life — or just about.

They can be split up into two different areas:

#1. Identifying / Vital information
Identifying and vital information documents are ones that’ll identify you as, well, you. They include the following:

• Passport
• Birth certificate
• Marriage certificate
• Death certificate
• Social Security card
• Government-issued ID cards

If you need it to verify your identity, you need to keep it and keep it safe at all times. If you lose it, you risk becoming a victim of identity theft and losing a lot of money.

Not to mention, you’ll also have to enter through an overly bureaucratic process to get these documents back — which you always want to avoid.

#2. Taxes / Financial information
These are things related to finances, taxes, and your estate. They include the following:

• Wills
• Tax returns (electronic or hard copy)
• Tax payment history
• Life insurance policy
• Defined-benefit plan
• Inheritance records
• Legal filings
• Bank account information (routing numbers, account numbers, passwords, etc.)

Morbid rule-of-thumb: If your loved one needs to access it after you die, you’re going to want to hold onto it.

Later, we’ll give you good ways to keep these things safe for as long as possible. For now, let’s move onto our next section of documents …

Keep for 7+ years

If you have any loans you are paying off, you’re going to want to hold onto all documentation regarding them until they are paid off. This depends entirely on your financial situation and ability to pay off your loan. These documents include things like your mortgage, car loan, and student loans.

Speaking of car loans, you’re also going to want to keep your car titles until you sell them. As before, this is going to depend entirely on your financial situation (though I recommend keeping a car for at least 10 years).

Other useful information to hold onto for the long term but not quite forever are documents relating to your investments. Including stocks, bonds, CDs, and mutual funds. Hold onto your purchase confirmations of those funds until you sell them.

Keep for 3 – 7 years

The documents you should hold onto for at least seven years all have to do with taxes.

Surprise. I know.

The Internal Revenue Service (IRS) suggests that you keep records that can verify your tax information for three to seven years.

From the IRS:

“The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.”

The period of limitations refers to the time you can go back and make a claim to your tax return or the IRS can apply additional taxes.

The IRS also includes recommendations for how long you should hold onto supporting tax documents in relation to their statute of limitations:

• Keep records for 3 years if you claim credit or refund after you filed your tax return.
• Keep records for 6 years if you forgot to report income that you should have reported and it’s more than 25% of the gross income reported on your return.
• Keep records for 7 years if you claimed a loss on “worthless securities or bad debt deduction.”
• Keep records indefinitely if you didn’t file a tax return or if you filed a fraudulent tax return.

If that’s confusing, just know that you should hold onto any document that supports the information provided on your tax return for three to seven years. This includes:

• Bank statements
• Brokerage statements
• W-2 forms
• 1099 forms
• Bills from dependent care
• Property tax information
• Charity donation receipts

Keep for one year (or less)

This section is going to contain a lot more of your month-to-month billing statements. They include:

• Bank statements
• Credit card statements
• Pay stubs
• Water bill
• Electric bill
• Gas bill
• Internet bills
• Phone bills
• Receipts

When it comes to the bills and credit card statements, hold onto them for one month after you receive them just in case there’s a discrepancy you need to address with the billing company.

You should also hold onto your receipts each month to make sure your credit and debit card statements are correct. Afterward, file it away in the trash.

When it comes to your bank and payment information, though, you’re going to want to hold them for at least a year as they’ll come in handy when tax season arrives. Once that year is done, though, feel free to throw them away — which brings us to …

Throw away

Rev up your shredder because it’s time to throw all the following documents away:

• Pre-approved credit cards
• Refinancing
• Loan consolidation
• Coupons
• Catalogs
• Publishers Clearing House offers
• Store promotions

This is everything non-essential to your financial health and just exists to clutter your mailbox and make your mail person annoyed with you.

How to store (and destroy) your documents

For your important identification and financial information contained in the “Keep forever” section, you should store them somewhere they can exist safely long term. Here are a few suggestions:

• Safety deposit box. Your local bank or credit union should have safety deposit boxes available to rent. Fees can range anywhere from $20 to several hundred dollars a year depending on the size of the box and its location.
• Personal safe. You can also keep your documents in a sturdy, fireproof safe. Consider hiring a contractor or doing some DIY work to hide the safe to ensure further protection from thieves.
• Protected electronic file. For bank and estate information, you could also opt to keep those documents in a password encrypted file on a backed up network. This will keep it safe from things that can bring down physical documents like fire and water damage.

For documents that aren’t as vital to your identity and financial health, such as tax records and credit card statements, you can simply store them in a filing folder or a drawer in your home. Most anywhere works as long as you know where it is and can access it easily.

When it comes to protecting your identity and finances, there aren’t as many investments better than a good cross-cut shredder. Use it once you’re finished with the documents to protect yourself from identity and monetary theft. That way, you can throw away your documents knowing no one will be able to piece them together.

Keep your financial future safe

Knowing how long to keep documents is a crucial step to making sure your personal finances are in order — but it’s only one part of it. You also need to make sure you have a system in place that hedges against the downtimes while also earning you money.

That’s why I want to offer you my Free Insider’s Kit. This is a collection of the best resources I have on personal finance drawn from more than a decade teaching people how to save, invest, and earn their money.

In it, you’ll find my systems on how to build a financial system, invest, and save for any purchase passively, and how to create income streams to give you a limitless earning potential.

Just enter your name and email below and I’ll send it straight to your inbox.

How long to keep your documents is a post from: I Will Teach You To Be Rich.

from I Will Teach You To Be Rich https://ift.tt/2R78wwn
#money #finance #investing #becomerich

Tangerine Money-Back Credit Card Review

Tangerine Bank is a digital bank that has been around for eons as far as online banks go. I’ve been banking with them for more than a decade, starting when they were still known as ING Direct. Tangerine is still my primary bank, so when they introduced a credit card I was one of the [...]

The post Tangerine Money-Back Credit Card Review appeared first on Money After Graduation.

from Money After Graduation https://ift.tt/2zjRm8b
#money #finance #investments

How I Survive on Less Than $1,000 per month in Toronto

I’m a university student in Canada’s most expensive city: Toronto. The realities of student life and the costs of living in this city seem impossible to reconcile, but I actually manage to survive on less than $1,000 per month in Toronto. Before we dive into how to tighten your budget as much as possible, I [...]

The post How I Survive on Less Than $1,000 per month in Toronto appeared first on Money After Graduation.

from Money After Graduation https://ift.tt/2PGRQze
#money #finance #investments

Your financial family tree: What our parents teach us about money

Last weekend, Kim and I flew to Utah for a reunion with friends from the 2016 chautauqua in Ecuador. While in Salt Lake City, we met up with Jesse Mecham (the founder of You Need a Budget), visited Utah Olympic Park, and attended a Sunday morning performance of the Mormon Tabernacle Choir.

Our group also spent an entire afternoon at the Mormon Family History Library, where we explored our genealogy. Not everyone was enthused about researching their family tree at first, but eventually even those who thought the exercise would be lame found themselves wrapped in it. It's fun — and enlightening — to unravel the threads of time and discover who your ancestors were and where they came from.

Flying home from Salt Lake City, I got to thinking about how our family trees don't just influence our genetics. We inherit more than physical features from those who came before us. We also inherit culture and psychology and values. And yes, we inherit financial habits from our parents and grandparents.

Each of us has a financial family tree.

My Financial Family Tree

I write often about our money blueprints, the set of subconscious “scripts” that define our behaviors and attitudes toward money. Society at large — our friends, co-workers, the mass media — plays a role in writing these scripts, but most of our money blueprints are inherited from our family — especially our parents.

In a way, it's as if our money blueprints are a product of our financial family trees. Our grandparents passed their feelings about money to their children, and these children instilled their habits and attitudes into us.

When I look at my own relationship with money, it's easy to see how my present actions and attitudes — even at nearly fifty years old! — were inherited from my parents.

Here are a few examples:

• My parents raised three boys in an 800-square-foot trailer house. My parents had 800 square feet for the entire family. The Portland condo that Kim and I sold last year was 1600 square feet. She and I had 800 square feet per person. But I don't need a big, fancy house. I'd be happy — might be happier, in fact — hunkered down in a single-wide trailer somewhere on a couple of acres.
• Likewise, I don't need fancy cars. Growing up, I don't think my parents ever had a new car. We had old beaters that went by names like “Dirty Red” and “Dirty White”. Now, as an adult, I'm perfectly content to drive a 15-year-old Mini Cooper. I rarely feel the urge to own a new vehicle.
• I inherited a similar attitude toward clothing. My father dressed like a farmer. My mother did her best to look nice, but on a budget. She bought clothes for us boys off close-out racks and at thrift stores. Although I do put some thought into quality and style nowadays, for most of my life I've been more interested in function not fashion.

Because of my meager origins, I'm willing to tolerate and accept certain things that others won't. I'm never frightened that I might end up poor because I've already been poor and have survived the experience. In some ways, my financial family tree set me up for success.

That said, my financial family tree also set me up for failure. I inherited some destructive habits.

• My father was a master of compulsive spending — especially on big-ticket items that he couldn't truly afford. He bought computers. He bought sailboats. He bought airplanes. He bought stereo equipment. Some of my fondest memories are hanging out with dad for hours while he shopped for something he shouldn't buy. Unsurprisingly, I've struggled with compulsive spending most of my adult life.
• My mother wasn't a compulsive spender in the same way my father was. Instead, she was something of a hoarder. She tended to buy more than we actually needed: more food, more clothes, more household supplies. This tendency became especially pronounced after dad died. When we moved mom to assisted living in 2011, her house house was packed with excess groceries and supplies. From mom, I've inherited a tendency to accumulate too much Stuff.
• My parents never saved. They were always living on their last five dollars. If they had money, they spend it. If they'd had credit cards, they would have maxed them out. When I left home, I too lived paycheck to paycheck, no matter how good my salary was. (And I did get into trouble with credit cards.)

Not all of my money habits came from my parents. Many did, it's true, but I've developed new habits of my own. I've also “inherited” habits from my long-term relationships with Kris and Kim. (Kris and Kim have remarkably similar money habits, by the way.)

Your Financial Family Tree

When I returned from Utah, I emailed family members to ask them what sorts of habits they'd inherited from their parents. My cousin Duane replied:

My dad had a huge impact on my relationship with money. He drilled holes through nickels rather than pay six cents for stainless steel washers. This was extreme and he did it more to be funny, but really illustrates how cheap he was. He strongly influenced my views of money. That's why I'm a cheap bastard.

My dad didn't feel he deserved money. Perhaps because he didn't like it. I have also felt I don't deserve money. I always give things away or sell them too cheaply.

I also asked members of the Get Rich Slowly group on Facebook about their financial family trees.

The answers — both in the group and via private message — were fascinating. For instance, Angela wrote:

Both of my parents worked as bankers when they were younger, so they talked openly about money when I was growing up and checked in with each other regularly regarding finances. I didn't realize how unusual that was until I was married and that was not the case with my husband and his family.

My dad was also self-employed, so they had to pay for many things out of pocket, like doctor's visits and dental. So my dad would barter for services. I grew up knowing that bartering is a possibility…

I really value the transparent attitude regarding money that they passed down to me.

Luke, too, learned the value of talking about money openly — but as a reaction to what his parents did not do:

My parents never talked openly about money, their situation, their goals. They both tried their hand at managing the house and both succeeded and failed in different ways, but it lead to a lot of fighting because they were never on the same page.

My wife and I are completely open and honest about how we spend, what are goals are, and how we will get there together. If I die tomorrow, she will know how to manage our money when I’m gone.

Rebecca's parents weren't transparent about money when she was younger. Now, though, they regret that.

I was raised that talking about money was in very poor taste. You never asked what people made, etc. That came from my dad's side of the family.

My mom didn't have much growing up and was very frugal (washing and reusing all the plastic wrap kind of thing). But my mom loves to “splurge” on things, so money was used to treat yourself, a definite reward system. I definitely fall into that trap, an engrained emotional response to treat myself.

My dad now says his biggest parenting mistake was to not to talk to us and educate us about money, saving and investing.

Some people come from families that had money and knew how to handle it. For example, Stephen's grandparents retired early back before the FIRE movement was a even a thing:

I only recently put two and two together and realized that my grandparents on my dad's side saved aggressively – invested the savings – and retired early – the early version of FIRE…

They influenced me greatly with their wisdom. I was advised by my grandmother that when it came to my diet, I should consider everything in moderation including moderation. My grandfather advised me to never carry debt, and if I had any to pay it off as soon as possible which I tried to follow, and my grandfather would often have BBC current affair programs on which I would watch with him.

But you don't have to be raised with money to learn good habits. Laronda's parents were poor but still set a good example.

My mom grew up dirt-poor as the twelfth of thirteen children in Appalachia. I learned to be resourceful from her. She can up-cycle, mend, and re-purpose with the best of them. She's a wonderful from-scratch cook and is able to turn inexpensive ingredients into tasty dinners. (I'm feeding my own family her stewed beans and cornbread this evening.)

My dad grew up slightly better off but I don't get the impression his family discussed finances much. He taught my brothers and I how to do basic home and auto repairs and gave me an outfitted tool box when I left home.

Growing up, we never discussed money or how to manage it. My brothers and I knew money was a tense, to-be-generally-avoided topic, and we knew not to ask for things.

I've graduated to the middle class and use many of my parents' frugal methods like scratch-cooking, mending and DIY home repairs, but I consciously choose to talk about money frequently with my own spouse and with my three children. I'm hoping my kids are better equipped with money management knowledge and skills when they strike out on their own than I was, but I also hope they benefit from their grandparents' gifts of resourcefulness and general competence in the face of any household challenge.

Finally, here's a story from a reader named Frank:

Neither of my parents had any real financial literacy. My grandmother was my real parent, and she taught me everything I know about money.

As a child, she escaped a war-torn country. She got married. She and her husband had a farm, but he killed himself after all of their chickens died. My grandmother was left to raise two kids alone.

Somehow, she scraped together enough to buy a hotel. She sold it and built a bigger hotel. She sold that and split the money with with my mother. But mom spent it all because she didn't appreciate the work and investment that had gone into building the fortune. Meanwhile, my grandmother quadrupled her half of the wealth.

I'm terrified to be my parents. I've tried to learn from my grandmother. The best thing she taught me was to live well below my means. I'm doing that and busting my ass to make my money grow.

Other members of the Get Rich Slowly FB group pointed me to longer articles they've written about this subject. At Choose FI, Chad shared what his parents taught him about financial independence. Fritz Gilbert from Retirement Manifesto has written about 18 lessons he learned from his dad. And Frogdancer Jones' parents taught her to approach retirement from a position of strength.

Finally, Tom Drake from Maple Money (my new collaborator here at GRS) told me: “My parents were always spenders, which led me to be a spender. However, seeing how that affected them in retirement has helped me realize the importance of reducing my spending to be able to save for the future.”

Final Thoughts

Although I can't recall having read any academic studies on the subject, I'm convinced that we do inherit money blueprints from our financial family tree. Your basic money habits are a product of what you learned from your parents and grandparents.

In some cases, these blueprints are a reaction against how your family behaved. Most of the time, however, you mimic what you saw when you were young.

The good news is that you're not doomed follow in your family's footsteps. Although these money scripts are deeply-ingrained and will always linger in the back of your mind, you have the knowledge and ability to create better habits, to draw a new, improved money blueprint.

From experience, I can tell you that the transformation takes time. It won't happen overnight. But with enough patience and effort, you can change your frame of mind. You can become a money boss and produce a new branch on your financial family tree.

Related reading: If, like me, you're fascinated by the idea of money blueprints and financial family trees, you might like this article on writing your financial autobiography.

The post Your financial family tree: What our parents teach us about money appeared first on Get Rich Slowly.

from Get Rich Slowly https://ift.tt/2S2FHRQ

Don’t be broke: 5 wealth mindsets for a Rich Life

If you’re broke, things that people consider minor purchases can be a massive undertaking for you:

• Going out for meals and to bars
• Paying utility bills or rent
• Filling up your car with gas
• Heading to the movies
• Going on vacations

Luckily, there is hope. In fact, building wealth can be easy, and dare I say it, fun, with just a few systems.

However, all those systems won’t matter if you don’t change your mindset.

The power of mindset

If you’re broke, I have news for you: It’s okay. I’m not going to sit here and pontificate about how you should have “bought fewer lattes” and opened “more savings accounts.”

You know why? Because that’s not going to do anything, since it’s nothing you haven’t heard a million times before.

Instead, I want to take a look at the hardest part of building a Rich Life: Changing your mindset.

And that starts with addressing “Invisible Scripts” — the unspoken “truths” we tell ourselves that are so deeply ingrained in our psyche and culture that we don’t even realize they’re there.

Some examples:

• “After high school, I have to go to college”
• “After college, I have to find a job at a company”
• “After I find a job, I have to get married”
• “After I get married, I have to have 2.5 kids and buy a house with a white picket fence”

Sound familiar? If you give it some thought, I bet you can come up with some Invisible Scripts you’ve been following too.

“I was born poor so I’m always going to be poor.”

“A person like me could never earn six figures a year.”

“My parents never went to college and they turned out fine. Why should I go?”

I get it. This might be hard to hear — especially if you’re working multiple jobs and are struggling to make ends meet to keep up with your bills and rent. However, I want you to reframe: It’s actually liberating once you recognize your Invisible Scripts and realize you don’t have to follow them.

Don’t be broke — do these 5 things instead

Here are the five mindset shifts that you can employ today that’ll help you get on your way to a Rich Life.

They are:

1. Focus on what you can control
2. Adopt a growth mentality
3. Spend consciously
4. Focus on the Big Wins
5. Earn more money

Let’s jump in.

Mindset #1: Focus on what you can control

You should always focus on what you can control and ignore all the rest.

When I was born, it became abundantly clear I would never play in the NBA. Fine.

On the other hand, it was clear I would dominate the shit out of my classmates in spelling bees. Also fine.

Then there were gray areas, like starting a business, controlling my personal finances, becoming more fit, and learning to be better in dating. I had to learn those skills and work really, really hard. And guess what? I became successful at those things.

Focusing on what you can control while ignoring what you can’t is what separates the successful people from everyone else.

For example, an unsuccessful person blames their financial problems on things out of their control, like the economy, politicians, and the hiring market.

However, a successful person ignores all of that and takes action. They start a business, work at negotiating a raise, and automate their finances so they can invest easily.

Instead of giving up at the first sign of failure and finding comfort in complaining, a successful person rises up to the occasion. They’re not content with being a passenger in life. They want to be the captain of their own destiny.

Here are a few good articles that’ll help you focus on the things that you can control to build wealth:

• The Ultimate Guide to Getting a Raise and Boosting Your Salary
• How to automate your personal finances
• Investing for beginners
• How we’re manipulated to rant about stuff

Mindset #2: Adopt a growth mindset

Do you have a growth mindset or a scarcity mindset? This question is important because it’s what separates the successful from the unsuccessful.

A scarcity mindset is believing that there’s a finite amount you can earn. It’s thinking that you only have so much money and you don’t want anyone else to touch it.

On the other side of that coin is a growth mindset. That’s the concept of believing that there’s no limit to how much you can earn, grow, and challenge yourself.

Seriously. There’s no limit to this.

Let’s take a look at an example …

Popular personal finance “advice” includes a lot of cutting back to save. That means cutting back on lattes, cutting back on eating out, and cutting back on all the other things that make life worth living (I’m only half joking here).

While cutting certain things out to save is important (more on that in a bit), there’s a limit to how much you can save. Say you’re working a job that gives you $30,000 / year. That means each month you earn about $2,500 in take-home pay.

After rent, you might have $2,000 left. After utilities, you have $1,800. After groceries, you have $1,600 left.

That $1,600 is all that’s left for the month — and all that’s left for you to save. That’s your ceiling. Do you think you’re going to save that entire $1,600? If you’re like the vast majority of people, the answer is a resounding no.

However, say you negotiate a single $5,000 raise at that job. When properly invested and diversified over 20 years, that can turn into a LOT of money. In fact, if you invested that $5,000 over 20 years earning 6% interest, you can grow your money to more than $16,000.

The best part: That money grows even BIGGER the more you invest.

Instead of worrying about what you already have, tell yourself: “I can grow more, I can learn more, and I can create more value for myself and others.”

For more on developing a growth mindset, check out my resources below:

• This is the mindset you need to be rich
• Welcome to the age of abundance

Mindset #3: Let go of spending guilt

POP QUIZ: Do you know how much you have available to spend this month?

Even better question: Do you know how much you spent in the past month?

If you don’t, that’s okay — we’re going to change that. Because being conscious of how much you have to spend is crucial to building wealth. It allows you to spend your money on the things you love, guilt-free.

There’s a difference between people who consciously spend on things they love — even if they’re expensive — and people who simply buy whatever they want and deal with the consequences later.

In fact, it’s entirely okay to spend lavishly on expensive things, as long as you do so consciously and invest/save at the same time. To make sure you’re really being conscious about your spending, you need to spend on the things you love — while ignoring everything else.  

To do that, I’m going to tell you the story of two friends of mine. At first glance, they couldn’t seem more different, but if you look closely, you’ll see that they’re both spending on what they truly love and living a Rich Life because of it.

Conscious Spending case study #1: She spends $5,000 / year on shoes
I have a friend who LOVES shoes.

Not just any shoes either. I’m talking about high-end footwear that costs at least $300 a pair.

Oh, and she buys about 15 pairs each year.

I can hear some of you screaming now, “WTF THAT’S ABSURD! WHAT A WASTE OF MONEY!”

On the surface, that does seem like a lot. But what you don’t know is she makes a healthy six-figure salary, has a roommate, and eats for free because of work.

Her 401k and other investment accounts are fully funded. She’s also saving her money for all of her savings goals like vacations.

On top of that, she’s ruthless about cutting out the things she doesn’t care about. That means avoiding new tech gadgets, gym memberships, or eating out. She also lives in a tiny room in a small apartment because she doesn’t care about having a fancy place.

After planning for her long-term and short-term goals, she has money left over on the thing she does care about: Her shoes.

Conscious Spending case study #2: The nonprofit worker
You don’t have to be making six figures to live a Rich Life.

I had a friend who worked at a nonprofit in San Francisco. She was making about $40,000 / year — but was saving $6,000 / year …

… IN SAN FRANCISCO.

How does she do it? Simple: She’s conscious of her spending.

She cooks at home, shares rent in a small apartment, and is reimbursed for her driving by her office.

When she’s invited out to eat, she checks to see if she can afford it. If not, she politely declines. But when she does go out, she never feels guilty about spending because she knows she can afford it. Yet it’s not enough to save money on just rent and food. She also chooses to save aggressively, maxing out her Roth IRA and putting aside extra money for traveling. Each month, that money is the first to be automatically transferred out.

Talking to her, you would never know that she saves more than most Americans. But in reality, she’s chosen to put her investing and saving priorities first.

To help you be more conscious with your spending, here are a few of my best articles on the topic:

• How to use the Envelope System to save and spend
• How to save cash
• Conscious spending: How my friend spends $21,000/year on going out

Mindset #4: The Big Wins are more important

There are just a few Big Wins in life where — if you simply get them right — you almost never have to worry about the small things. If you can focus on these seven Big Wins, rather than 50 little things, you can have an insurmountable edge in life.

Here are the seven wins I suggest you tackle ASAP:

1. Automate your finances
2. Start investing early
3. Improve your credit score
4. Land your Dream Job
5. Negotiate a raise
6. Make money on the side (more on this later)
7. Negotiate your rent

These wins will help you infinitely more than the minutiae of cutting out $2 on a latte ever will.

Don’t believe me? Let’s break down exactly how much a $2 latte will actually save you.

If you save $2/day by making coffee at home, you’ll save about $62/month. At the end of the year, that’ll equal to around $700/year. Not bad … right?

Probably not. $2/day isn’t a significant enough amount that you’ll actually “see” the savings at the end of the month. And unless you’re physically putting aside $2 every single day, you’re probably not going to invest it.

Let’s say instead you decide to negotiate your rent, like some of my readers have. You could end up saving hundreds of dollars per month. Here’s a story from one of my readers, who did just that:

“My lease renewal was coming up and the rates around where I live were going up at a phenomenal rate too … I wanted to stay at a lower apartment fee or the same. Initially, the leasing office turned down my request.

However, when I mentioned that I’d be willing to sign a lease for 12 months — they went ahead and reduced my rent by $200 a month. The year has barely started and thanks to you I was able to save $2400 for this year!”

That’s just one Big Win too. Once you nail all the others, you’ll start to see the foundations of your Rich Life start to take shape in a very big way.

Mindset #5: Earning more on the side is better than trying to save more

Remember what I said in the section about the growth mindset: There’s a limit to how much you can save — but there’s no limit to how much you can earn.

And while you can earn more by negotiating a raise or securing a higher paying job, I don’t think there’s a better way to earn more money than by starting a side hustle.

These are businesses and money-making operations you have on the side along with your normal 9-to-5 job. And they’re fantastic because they’re:

• Easily scalable, which means you can earn as much or as little as you want
• Flexible, which means you can work on them in tandem with another job
• Good ways to do what you love, which means you’ll get to combine your passion AND making money

There are a TON of different ways you can earn money via a side hustle too. Here’s my article on 42 ways to make money via a side hustle for more. But the best way is for you to leverage a skill you already have.

We all have knowledge and talents that we can easily leverage for a side hustle. Think about it. Do you:

• Know a language? People will pay you to tutor them in foreign languages.
• Write amazing content? I can’t think of a single business out there who wouldn’t pay top dollar for a great copywriter.
• Develop computer programs and apps just for fun? You can leverage those skills to help other businesses develop websites and apps.

To help you even more, be sure to check out my Ultimate Guide to Making Money.

BONUS: Master your personal finances with VIP access

It can be confusing if you’re new to the world of personal finance and have no idea how to get started.

That’s why I’m excited to offer you something for free. I have an offer: My Ultimate Guide to Personal Finance.

In it, you’ll learn how to:

• Master your 401k: Take advantage of free money offered to you by your company … and get rich while doing it.
• Manage Roth IRAs: Start saving for retirement in a worthwhile long-term investment account.
• Automate your expenses: Take advantage of the wonderful magic of automation and make investing pain-free.

With this guide, you’ll be well on your way to living a Rich Life. And you don’t need any fancy get-rich-quick schemes or snake oil or other BS “solutions.” All you need is determination and the right systems put in place to help you get the most out of your financial situation and not have to worry about living “frugally” (aka sacrificing the things you love).

Enter your info below and receive my FREE bonus video on how to reduce debt today.

Don’t be broke: 5 wealth mindsets for a Rich Life is a post from: I Will Teach You To Be Rich.

from I Will Teach You To Be Rich https://ift.tt/2ToNrzk
#money #finance #investing #becomerich