Month: May 2021

Even if you’re already trying to save and cut down on living expenses, you’d be surprised about how many more ways you can save money at home. If your mission is to keep another dollar in the bank for a little longer, there’s always something else you can do.

There are small changes you can make at home in your day to day activities that can help you save money and cut down on your living expenses.

Take a look at some of the most effective changes that others often overlook:

1. 1. 1. Recycle and Re-use. Of course, there are the obvious things like water bottles and other plastic containers, which in some cases offer rebates when you return them. However, have you considered recycling household cleaning equipment, for example? Items like traditional brooms and mops are:
         • • More efficient because of how sturdy they are in design
           • Much cheaper than the disposable alternatives
           • More convenient because they can be used time and time again
      2. Use coupons. Instead of paying full price for things you buy at the grocery store, you can easily see some good savings by using coupons for some of your regularly used products. While saving 50 cents or a dollar might not readily seem like anything significant to you, you’d be surprised how quickly those savings add up at the end of each month!
         
         
      3. Conserve electricity. Electricity is obviously a key expense that we just cannot avoid. However, have you ever thought about switching out your bulbs to energy-saving alternatives and turning off everything electrical when not in use? Why not give it a try and even add candles to the mix?
         • • Electronic equipment, like computers, use electricity even when switched off. To really save money, unplug them when you’re not actively using them.
           • You may think that it won’t make much difference because things like light bulbs don’t use up much electricity anyway, but you’ll be pleasantly surprised at how much savings you’ll see on your energy bill.
           • Your significant other will definitely appreciate the “mood” you’re setting with romantic scented candles that beat out loud incandescent bulbs any day!
      4. Eliminate waste. Let’s face it: human nature will prompt us to purchase more things than we actually need when we realize we have more money to spend. However, by only purchasing what you need, you eliminate wasting your money. Many times, in stocking up on groceries and other products, plenty ends up being wasted.
         • • Avoid wastage at home by purchasing just what you need each time.
           • Use just enough of what you’ve bought so it lasts twice as long.
      5. Car pool. One of the most talked about – yet infrequently used – ways of cutting living expenses on a day to day basis is car pooling. If there are other parents in your community who take their kids to school, why not:
         • • Make an arrangement for both families to car pool every day?
           • Save a few bucks by cutting down on your daily gas consumption?
           • Put those gas savings to even better use?

These tips are merely scratching the surface of ways you can cut living expenses on a day-to-day basis. If you take a good look around your home, you’ll probably find another five or six ways you can save money every day.

It’s much easier that you might think! And look at it this way: the extra money you save from changing habits can be put into some kind of interest yielding account that can earn for you at the same time!

It’s not the things you don’t know, but rather the incorrect things you believe, that cause many of the real challenges in life. A few errors in your thinking can be a detriment to your finances. Enhancing your understanding of money and personal finances is an effective way to get on the path to prosperity.

Avoid these money myths:

1. 1. 1. Income equals wealth. People that make more have a tendency to spend more. Lottery winners are notorious for losing everything. Many of the families that earn over $1 million per year manage to outspend their income. You can earn a very high income and still live paycheck to paycheck.
         • • Wealth is what’s left over after you’re done spending. The more money you’re able to invest in appreciating and income-producing assets, the more you can expect your wealth to grow. A high income provides opportunity. It doesn’t provide a guarantee.
             
             
      2. More money equals more happiness / Money has nothing to do with happiness. Studies have consistently shown that more income results in greater levels of happiness to a point. The break-even mark appears to be $75,000 per year.
         • • If you’re earning less than $75,000, you can expect your feelings of happiness to increase with a greater income.
           • If you’re already earning that much or more, more money isn’t going to make you feel any better.
      3. Wills are for rich people. Everyone with children or assets needs a will. Unless you want the courts to decide who will raise your children and receive your assets, you need a will. A simple will is only a few hundred dollars. You might even be able to do it yourself for less.
         
         
      4. Owning is better than renting. From a financial viewpoint, it depends. Mortgage interest is deductible, but it’s still a significant expense. Home ownership also includes property taxes and maintenance. The upside is the potential for appreciation and a place to call your own. Crunch the numbers and decide for yourself.
         • • Renting is generally advantageous in the short-term.
      5. Quality and price go hand-in-hand. There are many examples of this statement being false. Generic drugs are identical to the brand name version and cost much less. Companies price goods and services in order to maximize profit. That means the perceived value affects pricing, not the actual value.
         • • Many items are priced to accommodate expensive marketing campaigns. The Beats headphones so popular with teenagers are considered by experts to be only worth half the common retail price. In this case, you’re not paying extra for higher quality.
      6. An index fund never wins. Over time, index funds outperform the majority of managed funds. More often than not, the lower expenses and turnover rate of an index fund are more important than a professional stock-picker. Take advantage of the ability to match market returns for very little expense.
         
         
      7. You should never have a credit card. Credit cards are a wonderful invention if used properly. However, credit cards also provide a means to spend money you don’t have. This can be a challenge or a godsend, depending on the circumstances. Credit cards can also help (or damage) your credit.

Are your erroneous beliefs limiting your financial growth? Consider all of your money beliefs and question if they might be incorrect, too. Having accurate beliefs enhances decision-making and results. Avoid buying into the myths.

Just as there are habits that will make you rich, there are others that will make you poor. Habits aren’t always easy to break, but when you see the damage caused by these common practices, you’ll be motivated to get them out of your life!

Here are seven common money habits that can prevent positive progress:

1. 1. Not having a budget. Everyone needs a budget, even if they’re making a million dollars a year. Spending money is easy, no matter how much you have. If you don’t set some parameters, things can get out of control in a hurry.
      • • Sit down with all your monthly bills and set up a simple budget. Keep the little stuff in mind, too, like coffees before work or snacks at the gas station. Those small expenses can really add up.
          
          
   2. Carrying credit card balances. No one can consistently invest well enough to offset credit card interest. Take a look at your last statement to see just how much your credit card is costing you. Depending on your interest rate and balance, it can easily be thousands of dollars a year.
      
      
   3. Not setting up an IRA. Time truly is money. Get your IRA set up as soon as possible and put some money in it. The funds you’ll have at retirement are heavily dependent on when you get started. And IRAs are wonderful retirement tools. Fund yours as fully as you can each year and watch your retirement grow.
      
      
   4. Not saving. If you pay everyone else first every month, there never seems to be anything left over to save. Pay yourself first, and then pay your bills with what’s left. Many employers can have earnings automatically deducted from your paycheck and put into a separate account. Save some money every month.
      
      
   5. Buying new cars. A new car loses an enormous amount of value in a very short period of time. Look into certified used cars that are only a couple of years old. Frequently, you’ll be able to find a car at half the cost of a new one, with minimal wear and tear. These cars usually have warranties, too.
      
      
   6. Letting the small stuff get out control. Take a close, honest look at how much the small stuff is hurting your bottom line. How much are you spending on fancy coffee in the morning? Do you go out to lunch every day? How about snacks? Magazines? A soda at the convenience store? Look at your bank statement to see what’s really going on.
      • • Small leaks can sink ships. Fix your leaks before they get out of hand.
          
          
   7. Not taking advantage of your employer’s matching contributions. If your employer will match you 401k contributions, you’re leaving a lot of money on the table. Many employers will match 3-5%. Think about how much that really is, and then consider the effect of compounding interest. Over time, the money they give you becomes worth a lot!
      • • Employer contributions should be viewed as free money, because that’s exactly what they are. Would you pass on money that someone handed you on the street, with no strings attached?

As you read through the list above, think about your own money situation. Consider which habits are having a negative impact in your life and resolve to eliminate them immediately. Accumulating wealth can take time, so it’s important to start as soon as you can. Fight these bad habits with everything you’ve got, and watch your monetary success grow year after year.

One of the keys to saving successfully for the future is putting our extra cash where it can do the most good. Unfortunately, the natural tendency when we receive a raise is to spend it. It’s easy to allow your lifestyle to creep beyond your needs or even beyond your means. This phenomenon is called lifestyle creep.

When we get a raise, most of us end up upgrading our lives in little ways. We get the better cable package or cell phone plan. Maybe we upgrade our car, hire a weekly housecleaning service, or take nicer vacations. This can be detrimental to your financial future.

Consider these tips to counteract the tendency toward lifestyle creep:

1. 1. Drop one luxury from your life and put the money toward your 401(k). Is that magazine subscription really worth it, or are you three issues behind because you won’t make the time to read?
      
      
   2. Track your expenses. There are many ways to do this. You can use your debit card for everything and use your bank’s online tools to see where your money is going. There are also several websites, such as Mint.com, that perform a similar function. You can also resort to limiting yourself to paying with cash. Find a system that works for you.
      • • Are you getting good value for your money? Is the $200 spent each month on restaurant meals worth it? Is the $150 per month for fancy coffee worth it? Find a few expenses that don’t contribute to whatever is important to you. Save that money!
          
          
   3. Track your savings. In a similar fashion, keep track of every dollar you save. How are you doing? Congratulate yourself when you see progress. Imagine how much you’ll enjoy your retirement down the road.
      
      
   4. Create a budget. Armed with your expenses and savings numbers, create a sensible budget that you can follow. Revisit the budget each month and determine if it still makes sense.
      
      
   5. Compare your lifestyle and expenses to a year ago. Then do the same, only go back five years this time. How have things changed? Are the upgrades to your life worth the expense? How would your life look in 10, 20, or even 30 years from now if you saved that money instead?
      
      
   6. Make a list of how lifestyle creep will affect you in the long-term. It’s easy to view life with a short-term mindset. But that leads to making decisions that are beneficial in the short-term. These decisions are often poor in the long-term.
      • • Make a list of the negative things that could happen if you don’t cut back and save more aggressively.
          
          
   7. Make a list of your debts. Put them all down on paper so you can view them all at once. Are you utilizing your income wisely? Would some of the money you’re spending be better spent on reducing your debts? How will your future be affected?
      
      
   8. Intelligently apply the money you’ve recaptured. Ideally, any available funds will be spent on debt or savings. If you’re applying money toward your debt, start with the highest interest debt. If you’re saving money, ensure you’re putting it in the best possible place.

Lifestyle creep can be challenging to recognize. A brand new bass boat in the driveway is easy to spot, but going out to dinner a few more times each month is less obvious. Lifestyle creep can create challenging financial circumstances in the future. Make an effort to apply any additional income toward debt or savings. You’ll be grateful down the road.

A lack of financial resources is a significant cause of stress. There are many factors that contribute to a small bank account. The most basic cause is outspending your income. No one can spend more than they make indefinitely. Sooner or later, the money runs out.

Several mistakes contribute to financial challenges. Luckily, a few changes in habits can get your finances back in the black.

Do you make these errors?

1. 1. Neglect to pay yourself first. One cause of being broke is the failure to save consistently. Many make the mistake of paying everyone else first with the intention of saving whatever is left over. There’s never anything left over with this strategy. Pay yourself first and then worry about your bills.
      
      
   2. No emergency fund. Without an emergency fund, your finances can take a serious tumble. You’ll be forced to use credit cards, dip into your retirement accounts, or skip paying some of your bills in order to pay for the surprise expense. All are serious setbacks to your finances.
      
      
   3. Fail to consider the long-term ramification of your choices. People that overspend are often focused on their short-term pleasure. Make financial decisions with a long-term focus and you’ll find your wealth growing year by year.
       
   4. Lack the necessary knowledge. Math, science, and English might be required in high school, but a personal finance class is rarely required. Unless your parents were financially responsible and took the time to share their wisdom, you’re on your own. Buy a few books or research online and begin to educate yourself.
      
      
   5. Avoid using a budget. Even millionaires can go broke without a budget. Sit down and create a reasonable budget that allows you to save at least 10% of your net pay.
      
      
   6. Spend money on “wants” instead of needs. We’d all like a sports car or a 70” TV, but these aren’t responsible purchases for most of us. Try spending your money on a stock, bond, or mutual fund. Most assets lose money quickly. As much as possible, limit your spending to needs rather than wants.
      
      
   7. You’re stuck. If you’re in a challenging financial situation, it’s easy to feel hopeless and stuck. Taking action becomes difficult. Getting yourself out of a financial hole can take time, but it’s doable. Get help from an expert if you need to.
      
      
   8. Overspend on your housing and transportation. It’s easy to make the mistake of purchasing as much home as your finances will allow. The same goes for that new car. However, it’s important to keep these expenses under control.
      
      
   9. Excessive use of credit. Using debt to purchase a home or pay for college can be a reasonable use of debt. Most other uses are toxic to your finances. You ultimately have to pay for an item or service, plus interest, when you use debt to make the purchase. Dealing with debt is like running against the wind. It makes everything harder.
      
      
   10. Spend more than you make. This is the core reason for a lack of wealth. You can never run out of money if you spend less than you make. Our society encourages unnecessary expenditures. Have the discipline to spend less that you earn.

Being broke is common. The only way to avoid being broke is to save regularly and spend less than you earn. Begin today to save at least 1% of your paycheck. Resolve not to use your credit cards. Keep increasing the amount you save each month and look to the future. You can live a life of financial abundance.

Financing a home is a decision that will most likely affect your budget over the next thirty years. Many homeowners focus on finding the right property or comparing different types of loans, but pay very little attention to which lender they borrow from.

Choosing the right mortgage provider can help you save money and avoid any stress that could be caused by poor customer service or billing errors.

There are a few things to be aware of if you are looking for a mortgage:

1. 1. Some real estate agencies work with lenders. This option might seem convenient at first, but it’s important to understand that the lender and the real estate agency benefit from working together and might not provide you with the best financing option.
      
      
   2. There are many affordable online mortgage providers. These services claim they can offer lower fees and rates because they save money by operating online. Rather than just believing their statements on face value, consider mortgage providers with regular, physical locations as well. Plus, it’s a good idea to see if they have good customer service.
      
      
   3. Some companies are actually mortgage brokers and not mortgage providers. Pay attention to how a company describes its services and look at the terms of the loan you’re interested in to find out whom you’re actually borrowing money from.

Do not fill out an application until you know more about the reputation of a mortgage provider.

Follow these steps to find a reliable lender:

1. 1. Ask friends, relatives, or your coworkers for a referral if you know someone who recently financed a home. You can also get referrals from realtors, accountants, attorneys, and other professionals.
      
      
   2. Check the local Chamber of Commerce and Better Business Bureau. This is a good way to find out about complaints filed against a lender.
      
      
   3. Look for online reviews. Try to find reviews from several sources to get a more accurate idea of the quality of the services offered.
      
      
   4. Read the lender’s official website. A reliable mortgage provider should have a detailed mission statement, a list of the services offered, contact information, and a history of their company.
      
      
   5. Call the mortgage providers you’re interested in. Ask them a few questions about their loans and policies. A reliable lender will take the time to answer all your questions without pressuring you into applying for a mortgage. They will ask questions about your finances and your ability to make monthly payments to help you select the best financing option.

The best way to compare mortgage providers and loans is to ask for a Good Faith Estimate. This document provides you with all the relevant information about the loan you’re interested in, including the interest rate, credit check fees, closing costs, property insurance rates, taxes, attorney fees, and the amount of your monthly payments.

Taxes and insurance are usually the same from one lender to another, but comparing interest rates and other fees will help you find a financing option that is a good match for your budget. A reliable lender will provide you with this document right away.

Select a lender that offers a loan that will help you meet your financial goals. For example, you might like a financing option that makes it possible to have your home paid off within a certain number of years. You could also look for a loan with monthly payments that don’t exceed a specific amount.

Once you’ve found financing options that match your goals, focus on comparing the reputation of the lender and the quality of their customer service. Taking the time to compare lenders is important, since borrowing from an unreliable company could result in additional costs and a lot of stress in your future.

Behavioral finance biases are untrue preconceived notions regarding current or potential investments that can seriously limit your investing success. It’s not easy to recognize that you have these biases and changing your beliefs can be a challenging task.

However, it’s worth the time and effort to learn to put your biases aside when making investing decisions. This way, your investment choices can be based on effective research and an understanding of the true risk of the investment.

Use these tips to make wise investment decisions by removing the beliefs that are limiting you:

1. 1. Recognize if biases are affecting your perspective. Recognizing the issue is always the first and most necessary step.
      
      
   2. Consider the situation in which the bias occurred. Do you want to know a great way to become extremely successful? Try not to repeat your mistakes.
      • • Avoid making the same mistakes again by fully recognizing and analyzing the situation in which they occurred.
        • We tend to behave the same ways in the same situations until we make a concerted effort to change.
          
          
   3. Realize the harm the bias caused. Consider what the bias has cost you in the past. What likely result would you incur if you continued to operate under the same belief?
      • • Understand the negative consequences of allowing behavioral finance biases to continue to taint your decisions.
          
          
   4. Decide how you can do better the next time. What do you need to change? How can you prevent the same error from happening again?
      • • Develop a plan that will allow you to work around your natural tendencies.
        • These tendencies are simply a result of human nature.
        • Be diligent in order to do better the next time around.
          
          
   5. Create a new routine. Make a new routine that will eliminate your bias. Develop a series of questions that will make it clear if you’re being affected by a bias. Questions are a great way to change your focus.
      • • For example, if you are challenged by Herd Behavior (always going along with the crowd), ask yourself why you’re interested in a new investment. Do you really understand the investment? Would you still invest if it weren’t so popular?
          
          
   6. Think about the advantages of not being influenced by the biases. You’ve considered the negative consequences of keeping the biases. Now, consider the advantage of changing your perspective.
      • • New behaviors are easier to implement if the advantages of changing are clear.
          
          
   7. Continuously monitor your thoughts and decisions regarding your finances. Diligence is the key. Always review your decisions to see how they’re affecting your investments.
      • • Behaviors and thought patterns can take time to change, and some may be harder to stop than others.
        • Monitor yourself and you’ll surely overcome these biases.
          
          
   8. Continue to work through this process. Continuous working on overcoming these biases is a great way to keep you from backsliding. It’s okay to ask yourself, “How can I do even better the next time?”
      • • Remember that you can always get better with everything that you do.
        • Avoid becoming satisfied too easily.

Removing behavioral finance biases is something that should be undertaken by nearly all investors. The quality of your investments is directly correlated with the quality of your decision-making. The various biases simply reduce the quality of your decision-making and negatively impact your investment outcomes.

Take the time to learn more about behavioral finance biases and monitor your approach to your investments. Change your approach if necessary. You’ll be rewarded with better returns and greater success.