FinMasters

7 Best Sites for Free Online Courses

Wed, 19 Jan 2022 13:00:29 +0200

Education can help you build new skills and earn valuable new credentials. Formal education is often very expensive, but affordable and even free alternatives are available online. Here’s a sampling of the best education sites for free online courses.

You can take many college courses for free online. Major universities such as Harvard and MIT allow you to “audit” their classes, meaning take them for free. You can also take free online courses from sites that offer free courses in addition to their paid ones.

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Boom Review: A New Way to Pay (and Report) Rent

Tue, 18 Jan 2022 13:00:29 +0200

Boom is an app-based rent payment system that offers rent an easy, inexpensive way to report rent payments to all three credit bureaus. Find out how it works in this Boom review!

Building credit isn’t easy. You need credit to build credit, and you can’t get credit without meeting credit score requirements. There are lots of credit-building products out there, but many of them require you to take on debt, buy things you don’t need, or pay steep fees.

Rent reporting services allow renters to report what is usually their largest monthly expense to the credit bureaus. The downside is that most rent reporting companies charge significant amounts for their services. Boom cuts the cost of rent reporting dramatically while offering other valuable services, all in a convenient app format.

In This Review:

Electric Vehicle Stocks In 2022: Will the Growth Continue?

Mon, 17 Jan 2022 13:00:00 +0200

The rise of electric vehicle stocks was one of the leading investment stories in 2021. What’s in store for EV stocks in 2022?

Dominant EV manufacturer Tesla (NASDAQ: TSLA) gained 50% from an already lofty valuation as it smashed through production targets and established itself as a solidly profitable car maker with an industry-leading margin.

Newcomers Lucid (NASDAQ: LCID) and Rivian (NASDAQ: RIVN) made dramatic entrances. Lucid went public through a SPAC in July, starting trading at around $26 and closing out the year at close to $40 after soaring to over $55 in November. Rivian staged a high profile IPO On Nov. 28, starting trading at $78 and pushing over $170 before closing out the year over $103.

EV stocks got a huge amount of investor attention, but they also displayed a high degree of volatility and raised questions about their extreme valuations. Can these speculative darlings stabilize and generate sustained growth? Are investors buying the right stocks?

Let’s take a closer look.

In this post:

What’s The Worst Financial Advice You’ve Ever Received?

Wed, 12 Jan 2022 13:00:42 +0200

Financial advice is all around us. We get it from relatives, friends, social media, pundits, and talking heads on traditional media, and many other places. Some of it may be good, much of it – especially if it’s not based on a thorough knowledge of your finances – probably isn’t. But what’s the worst financial advice you’ve ever received?

We asked a mixed group of people, ranging from financial professionals to business people to ordinary folks, what the worst financial advice they ever received was. Some of the responses may be familiar: bad advice has a way of coming back!

What They Said

As usual, some items appeared more than once. We tried to avoid duplication in the responses, but here are some of the subjects that were most often discussed.

Investment: several responses said the worst advice they got was to avoid investing because of risk. Several others said their worst advice encouraged risky investments.
Credit cards: Some respondents were advised to avoid credit cards completely, others were encouraged to use them and even to carry a balance on them.
Retirement: several responses stated that the worst advice they got was to put off retirement saving until they were older.
Cars: some responses said the advice to buy a new car was the worst they got, citing rapid depreciation. Others said that they were advised to buy a used car, and were buried in repair bills.

These responses may be inconsistent, but that doesn’t mean they’re wrong. The differences show us two things.

Extreme advice is often bad. “Avoid investing completely” and “make risky investments” can both be bad advice for people who are better off in the middle.
Good advice for one person can be bad for another. For a disciplined, responsible individual “avoid credit cards” could be bad advice. For a shopping addict, “use credit cards” could be equally bad advice.

Some advice is just bad. Telling someone that making only minimum payments on their credit cards will help their credit is wrong and expensive.

More often, though, advice is bad because it doesn’t suit a person’s needs and situations. Whenever you get advice, recognize that even if the person giving it is knowledgeable, they may not know your situation and your needs.

Let’s look at the worst financial advice that our panel received.

What’s the Worst Financial Advice You’ve Ever Gotten?

Here’s what our panel had to say.

Dr. Dan Pallesen
Chief of Financial Behavior, Financial Adviser
Keystone Wealth Partners

“Any Retirement Plan Will Do”

The worst piece of financial advice I’ve ever received was when I started my first job after graduate school. I got a job as a psychologist in a federal prison. I was led to believe that as long as I was contributing to a retirement account, that was enough.

With this in mind, I selected the default retirement option. The problem was that the default option was the most conservative fund and I was in my late 20s. I didn’t know any better and stayed invested in that conservative fund for about 7 years. Had I known that it makes more sense for a 20-to-30-something to be invested more aggressively, I would have.

I have since run a time value of money calculation to see how much money I lost assuming I will work until my mid-60s and I lost over $500,000 from that seemingly small mistake!

It makes more sense for a 20-to-30-something to be invested more aggressively.

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Dr. Dan Pallesen is a financial psychologist and he is passionate about helping others live their best lives. He is a licensed clinical psychologist and financial advisor whose focus is in the field of Positive Psychology and Behavioral Finance. Dr. Dan’s approach with people is to focus on strengths and bring clarity to the issues of purpose and meaning in their lives. He has worked in many settings including counseling centers, private practice, military clinics, and even federal prisons. Dr. Dan currently serves as the Chief of Investor Behavior at Keystone Wealth Partners. He also hosts a weekly podcast, The Behavioral Wealth Podcast where he discusses the behaviors people use to tap into their ability to achieve wealth, health, and happiness.

Lyle Solomon
Principal Attorney
Oak View Law Group

“Use a Payday Loan”

The worst financial advice I have ever received is to borrow a payday loan to cover short-term expenses because they are easily available and do not require a credit check.

Several years ago, I was going through financial problems, and to make things worse, my car broke down. I did not have the money to pay for the repair. One of my clients suggested that I borrow a payday loan.

I was tempted. Payday loans are credited into the bank account within 24 hours.

I took the bait, applied for the payday loan, and received the money. I repaired my car within a few days, but my financial situation became worse.

Payday loan interest rates are very high. The APR on my payday loan was around 350%. Each month I paid a hefty interest on the loan, but it was never enough. Payday loan companies keep charging you until your bank account gets depleted, and you are imposed overdraft fees. They take automatic authorization from borrowers at the time of issuing the loan and then start debiting money from their bank account every fortnight. That’s the biggest problem.

Even after several negotiations with the payday loan company, It took me several months to get out of debt. So I had to cancel the ACH authorization and settle the debt.

The worst financial advice I have ever received is to borrow a payday loan to cover short-term expenses.

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Lyle Solomon has significant expertise in legal research and writing with extensive litigation experience. He has been licensed with the state bar of California since 2003. He graduated from the University of the Pacific, McGeorge School of Law, Sacramento, California, in 1998 and currently works in Rocklin, California.

Nick Bormann, Ph.D, CFPⓇ
Financial Planner and Investment Advisor
Bormann Wealth Management

“You Can Afford to Take Chances”

Granted the benefit of compound interest, the young should be especially careful about putting their savings to good use.

This bad advice has a kernel of truth because conventional wisdom is that early in life you might have more money in stocks or equity index funds and little or none in bonds, prioritizing investment growth over stability. However, regardless of age, everyone should keep in mind that not all risks are favorable ones. We wouldn’t advise a young person to play the lottery simply because they have time to recover from the loss; unfortunately, there are many investments out there that act like more complex versions of lottery tickets. Many longshots are not good bets!

A young investor might be able to tolerate higher volatility if they won’t need to spend their nest egg soon. However, being thoughtful about investment choices may let them benefit from a lifetime of compounded returns, instead of taking a short, wild ride back to square one.

Many longshots are not good bets!

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Nick Bormann grew up in Spokane, WA, and completed a B.S. in Economics at Gonzaga University, and then M.A. and Ph.D. degrees in Economics at George Mason University. His doctoral dissertation studied corporate strategies for managing risks from financial regulation, and that same focus extends into his current practice, helping to manage both the risks and opportunities life can throw at you.

Caleb Reed
Founder
TheDollarBudget

“Make Only Minimum Payments”

The worst piece of financial advice I have ever received was when I was young and just started building my credit score.

Someone told me that I should only make minimum payments on my credit cards each month to build my score.

While making timely payments each month is super important to build your credit score, it’s way better to pay off your balances in full each month if you can. If you carry a balance on your credit cards, you will end up with high APR charges, which will only grow larger each month due to compound interest.

Paying off your balances in full each month will also have just as much of a positive impact on your score as simply making timely payments will, if not more.

If you carry a balance on your credit cards, you will end up with high APR charges.

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Caleb Reed is a self-taught personal finance expert and founder of TheDollarBudget. My credit score is 787 and I’m also debt-free. I have been featured in media outlets like The Penny Hoarder, GoBankingRates, CreditCards.com, Yahoo Finance, and more.

Chris Panteli
Owner
LifeUpswing

“Don’t Invest in Stocks”

Do not invest in stocks. I received this advice from my dad, and it caused me to stay away from the stock market for 15 years. That was a very costly mistake.

The stock market has averaged 12% per year since 1950, and the average investor has earned only 6% per year, after inflation. That’s a difference of 6% per year – 1% per month. Take 1% per month and compound it monthly at 12% per year, and your money will double in 12 months. That’s a million dollars in 15 years!

I don’t care what you do with your money, but if you aren’t investing in the stock market, you’re making a big mistake.

If you aren't investing in the stock market, you're making a big mistake.

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Chris Panteli is a small business owner, finance and investment expert, and founder of LifeUpswing.com He has a Degree in Economics from the University of Liverpool and has been featured in The New York Times, Forbes, Go Banking Rates, and CreditCards.com.

Alex Mastin
CEO and Founder
Homegrounds

“Get A Credit Card Early”

I hate to say it, but the worst financial advice I’ve ever received came from my mother. When I was 15, she told me to get a credit card and start building my credit history. It was smart advice — just not for me.

Tempting as it might be to see your first credit card as a ticket to an exciting life of buying what you want without having to save up for it, there’s a dark side: sky-high interest rates, late fees, and other charges that can put you in debt before you even know it. In fact, those who don’t need credit are best off getting one credit card at most and using it only when they can pay off their balance in full and on time every month.

Forget about shopping with a credit card until you’re 20 or 21 years old. While you need a Visa or MasterCard for certain things like renting an apartment and booking plane tickets, it’s smarter to get your feet wet with a no-fee debit card that limits how much you can spend (and thus how much damage you can do). Once you’re an adult, pick one or two types of debt — student loans or a mortgage, for example — and stick to them.

Forget about shopping with a credit card until you're 20 or 21 years old.

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Alex Mastin is CEO and Founder of Homegrounds, a community of passionate coffee hobbyists, baristas, and travelers who research, test and share knowledge in the home barista market.

Todd Christensen
Education Manager
Debt Reduction Services, Inc.

“File For Bankruptcy”

My Roommate recommended that I file for bankruptcy.

I was a college student with a maxed-out credit card that had a $2,000 limit. I had missed several monthly payments and been hit with about $100 of late payment fees. I also owed $50 or so to my credit union for writing checks when I had insufficient funds in my account, and I had taken out a couple of payday loans.

Here’s where the bad advice comes in. My finance major roommate, rather than recommending some budget education or counseling, suggested I would probably have to file for bankruptcy. Fortunately, even though I admired and generally trusted my roommate’s opinions, I did not follow that advice. Bankruptcy should be the last resort for those struggling with debt, not the first.

I would have benefited from a free meeting with a credit counselor if, for no other reason, than to put together a personal budget.

Bankruptcy should be the last resort for those struggling with debt, not the first.

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Todd R. Christensen MIM, MA, is Education Manager at Money Fit by DRS, Inc, a nationwide nonprofit financial wellness and credit counseling agency. Todd develops educational programs and produces materials that teach personal financial skills and responsibilities to all ages. He’s facilitated nearly two thousand workshops since 2004 on the fundamentals of effective money management & based his book, Everyday Money for Everyday People, on the discussions, tips, stories, and ideas shared by the tens of thousands of individuals and couples in attendance.

Tana Williams
Founder
Debt Free Forties

“It’s OK to Cosign a Loan”

The worst piece of financial advice I’ve ever received was from a friend. They suggested that it’s ok to cosign on someone’s loan to help them out. While I love my family and friends and would do anything to help them, it would have to be a dire situation for me to consider cosigning a loan.

The stress of someone you love potentially leaving you on the hook for paying back the loan wouldn’t be worth it. Also, if they default on the loan, it can ruin your credit. When your credit score drops, it will affect everything from getting hired for a new job to raising the cost of your insurance.

All of this doesn’t mean you can’t help your friends or family. I would much rather give them a monetary gift to keep than to co-mingle finances like that. Or, if I can’t financially help, find another way to support them and help them with their situation.

It would have to be a dire situation for me to consider cosigning a loan.

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Tana Williams is a personal finance blogger at https://debtfreeforties.com. She has personally paid off over $27,000 in 17 months and been featured on various sites, including The College Investor, Bankrate, Mint.com, Making Sense of Cents, and many more.

Mary Kate D’Souza
Chief Legal Officer
Gentreo

“You Don’t Need a Will if You’re Married”

As an attorney, I’ve heard all sorts of bad information that clients pick up from talking with their friends. One of the worst was when a client told me only because he was married he didn’t need a will, He assumed that everything would just go to his wife. Not having an updated estate plan, including a will, costs more money; emotional stress and can have unintended consequences. In this case, the wife would have received less than ten percent of his assets.

Not having an updated estate plan, including a will, costs more money.

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Mary Kate D’Souza is an attorney with over 20 years of experience in estate planning, elder law, and probate litigation. She has witnessed first-hand the emotional and financial devastation wrought on families by a failure to plan.

Roger Senpai

The Senpai Blog

“Don’t Invest in Stocks”

When I was younger and living in a lower-income neighborhood, I had many people tell me to not “play the stock markets.” To them, the stock market was like “gambling” and you’ll just lose your money if you try to put your money into it.

So for the longest time, I had it drilled in my head that investing in stocks was automatically a bad thing. But as I grew up, I realized how wrong that belief was. While it’s true that you could lose money while putting your money into stocks, it certainly isn’t like gambling because when you do your research, you can choose stocks that involve far less risk and reward than playing a game of slot machines at the casino. Ironically, not putting your money into any investment vehicle is losing money; that $20,000 in your regular savings account won’t be $20,000, 20 to 30 years now due to inflation.

So that was the worst financial advice I’ve ever got, and it took me a long time to change that fear and belief.

Not putting your money into any investment vehicle is losing money.

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Roger Senpai has been a cosplayer and writer for over 10 years now. He has attended many conventions and worked with other cosplayers and photographers. So you can bet on The Senpai Blog, you’ll be getting the best cosplay content!

Scott Alan Turner, CFP®
Owner, Founder
Rock Star Financial

“Buy as Much House as the Bank Will Let You”

The worst piece of advice I ever got was from an old boss, who told me to buy as much house as the bank will let you. Well, it turns out the bank will let people borrow way more money than they can afford. Banks don’t factor in if new homeowners/borrowers like to eat or go on vacation.

I put 5% down on a home and had a massive debt hanging over my head. I ended up selling my car and buying a junker so I could put more money towards my mortgage payment.

The worst piece of advice I ever got was from an old boss, who told me to buy as much house as the bank will let you.

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Scott Alan Turner, CFP® is a former money moron who became a self-made millionaire at age 35. Now he helps families and DIY investors get clarity and confidence on how to achieve financial independence and retire early.

Jacqueline Gilchrist
Founder
Mom Money Map

“Only Use Cash, Not Credit Cards”

The worst financial advice I’ve ever received is that you should only use cash and not use credit cards to pay your bills.

I think this is bad financial advice because it depends on how you use credit cards.

If you don’t pay off your credit cards fully and on time, you shouldn’t be using credit cards. You could damage your credit and get into major debt as credit cards have high interest payments. If you do pay off your credit cards regularly, using credit cards can be very beneficial. Depending on the credit card, you could get cash or rewards. You could get hundreds of dollars worth of bonuses just for signing up.

If you do pay off your credit cards regularly, using credit cards can be very beneficial.

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Jacqueline Gilchrist is the founder of Mom Money Map, a resource treasuring time and money. She uses her MBA, BComm, and corporate strategic planning experience to help people manage their finances so they can achieve their financial goals.

Christina Russo
Creative Director
The Kitchen Community

“Don’t Hire a Web Designer”

When Cassie, the Managing Director, and my business partner first came up with the idea of The Kitchen Community and asked me to join her, I told her something that a friend had told me a couple of weeks previously. And that was, if you’re ever going to build a website don’t hire a web designer, you can do it yourself for a tenth of what they’d charge you to do it.

On paper that seemed like good advice, but in the real world when we launched our barely designed site that wasn’t optimized correctly, we barely pulled in any traffic for the first four months. We realized that what we’d “saved” monetarily, we’d lost in time and so hired a designer to redo the site and started to actually make some money, which meant that The Kitchen Community paid for itself, and its designer in the first month after it was relaunched. Don’t follow the same financial advice that I did, do things the right way and hire a professional. You’ll be glad you did, and after finally seeing the financial light, I know I am.

Do things the right way and hire a professional. You’ll be glad you did.

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Christina Russo is the Creative Director of the Kitchen Community, a respected digital culinary hub that focuses on food, health, cooking, and wellness. A PR specialist with over a decade of experience in the industry, Christina has managed to combine both of the major loves of her life, cooking and media relations in her professional role as an indispensable part of the Kitchen Community team.

Sarah Jameson
Marketing Director
Green Building Elements

“Buy New Cars”

Buy new cars because they’ll last longer.

A new car comes with a long warranty and is expected to last at least 100,000 miles — and typically much longer. You can drive a new automobile for a decade or more, which is many years longer than you can get from many old cars. Shouldn’t everyone just go out and get a new car? Several years ago, a neighbour of my parents gave me this piece of wisdom. The issue is that the majority of a car’s depreciation occurs during the first few years of ownership. Every four years, an automobile loses 50% of its worth, according to a good, very rough rule of thumb. Let’s say an automobile costs $25,000 brand new. That same car would cost you $12,500 in four years. It would cost you $6,250 after eight years. You’re barely over $3,000 after twelve years.

Here’s some sound advice: buy late-model used autos. You won’t receive nearly as long a lifespan as you would with a new automobile, but you’ll save so much money on the purchase that the shorter lifespan is more than compensated for.

Every four years, an automobile loses 50% of its worth, according to a good, very rough rule of thumb.

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Sarah Jameson holds an MBA in Digital Marketing Strategy from the University of Connecticut and a Bachelor’s Degree in Construction Management from Central Connecticut State University. Sarah is passionate about building a better tomorrow with green technologies and construction practices.

Matt Weidle
Business Development Manager
Buyer’s Guide

“Renting is a Waste of Money”

When you pay rent, the money you pay just goes into the landlord’s pocket. Isn’t that a complete waste of money? Many people advised me to get a mortgage practically immediately after graduating from college in order to avoid wasting money on rent.

Why it’s incorrect: Homeowners “throw away” a lot of money as well. When you own a home, mortgage insurance, property taxes, homeowners insurance, homeowners association fees, and home and property upkeep charges all vanish into thin air. These expenses nearly always add up to substantially more than the rent for a comparable house.

Another issue is that a mortgage can be a delicate balance beam to navigate. A house is difficult to liquidate — you can’t just go to the bank and sell it and have cash in your hand right once — so if something goes wrong, you may be in a serious bind if you have a hefty mortgage. There is the possibility of an increase in the value of your home while you are a homeowner, but this will not compensate for the difference between your monthly costs in a rental and your monthly costs in a mortgage unless the housing market is absolutely hotter than fire or you have a very small mortgage compared to the value of the house.

A mortgage can be a delicate balance beam to navigate.

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Matt Weidle is Business Development Manager of Buyer’s Guide. At Buyer’s Guide, we are committed to bringing the best products and services to our audience and customers through our data-driven reviews.

Janet Patterson
VP of Marketing
Highway Title Loans

“Don’t Pay Your Phone Bill”

The worst piece of financial advice I ever received was from a friend. He told me that I didn’t really have to pay my phone bill at all. Instead, I should just move to another carrier and let the first company cut me off.

What this friend failed to mention are the bigger consequences of changing providers. Your phone bill can end up in collections. This severely damages one’s credit score. Additionally, doing things like opening accounts or renting an apartment can be difficult. You’ll even end up paying higher interest charges on any loans or credit that you use.

Switching phone providers is not financially damaging; it’s also very impractical. Can you imagine having to jump from one carrier to another almost every other month? It’s a huge hassle that no one should have to worry about.

Your phone bill can end up in collections. This severely damages one's credit score.

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Janet Patterson is a Loan and Finance Expert at Highway Title Loans. She has worked in the financial service industry for over a decade, with 7 years of experience in the title loan industry.

Cathy Mills
Director of Strategy
Net Influencer

“Follow Your Instincts”

This is definitely something that we’ve chatted about a number of times here at Net Influencer.

The worst financial advice I have ever received is “implement any financial strategy by going with your instinct, regardless of the market, trends, and customer feedback”. In any area of life, it is important to analyze the objectives, costs, advantages, and disadvantages of an idea. Following your instinct in many cases can help you, but in reality, there are many more elements that you must take into account for everything.

For this reason, it is important to listen to your instinct but also to take into account many other variables before making any financial decision.

Listen to your instinct but also take into account many other variables before making any financial decision.

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Cathy Mills has led many dynamic teams that aim to achieve business objectives through creative and effective strategies. In addition to Marketing Strategy and Sales, she has experience with Human Resources, eCommerce, and Mental Health.

Chara Yadav
Press Director
AskAnyDifference

“Never Buy a New Car”

When I was nineteen years old my uncle told me that you should never buy a new car, as second-hand cars were just as good and as they had already been “run in”, they were ready for whatever any driver and their individual automotive habits could throw at them. In hindsight, I don’t know why I listened to him, as he’d never so much as lifted a hammer, let alone a wrench in his life.

I did listen to him though and bought a second-hand car which cost me almost as much in repairs in the first two years that I drove it as a new car would have done. It was the first and only time that I’ve bought a second-hand car and the last time I ever listened to my uncle.

I bought a second-hand car which cost me almost as much in repairs in the first two years that I drove it as a new car would have done.

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Chara Yadav has been a media professional since graduating with an honors degree in Journalism. She is currently the press officer for AskAnyDifference, a site that explores and explains the differences and similarities between the mundane and the extraordinary.

Let’s Sum That Up

These illustrate the point we made at the start of the article: some of the worst financial advice advice is just plain bad, other advice may be good for someone else but terrible for you.

We all get financial advice. Some of it is general, some of it is aimed specifically at us. It may come from people who carry all kinds of credentials or people who have none. No matter who it comes from, we should never just follow it.

Any time you get advice, look at it critically. Does it make sense? If it does make sense, does it make sense for your unique personality and financial situation? Does the person giving it even understand your needs and constraints?

Critical examination, research, and looking for a second (or third) opinion can help us avoid the pitfalls of the worst financial advice!

What’s the worst financial advice you’ve ever received? Let us know in the comments below!

The post What’s The Worst Financial Advice You’ve Ever Received? appeared first on FinMasters.

5 Best Unsecured Credit Cards for Bad Credit in 2022

Tue, 11 Jan 2022 13:00:44 +0200

Bad credit can make life difficult. You may struggle to qualify for an unsecured credit card or end up paying sky-high interest rates on loans. Unsecured credit cards for bad credit can help you rebuild your credit score while enjoying the convenience of a credit card. And unlike secured credit cards, they don’t require a security deposit.

Unsecured credit cards for people with subpar credit typically come with high fees, high interest rates, and little spending power. They are not always an attractive option, but sometimes they may be your only option.

To help you make the best choice, we’ve narrowed down the best unsecured credit cards for bad credit. We’ll explore their features and whether or not they’re the best option for rebuilding your credit.

In this post:

Why You Should Never Make the Minimum Payment on a Credit Card

Mon, 10 Jan 2022 13:00:04 +0200

Credit cards are one of the most popular forms of consumer financing. The average American has roughly 3.84 of them taking up space in their wallet, and we used them to complete 27% of all transactions in 2020^{[1, 2]}.

Unfortunately, credit cards are also one of the most expensive forms of consumer financing. They have an average interest rate of 14.54%, while mortgages and car loans sit at just 3.1% and 4.5%, respectively^[3,4]. Many Americans are paying over 20% interest on their credit card debts.

Despite the high costs, 38.5% of Americans let their credit card debts carry over from month to month^[5]. If you’re one of them, here’s why you should never be satisfied with making just your minimum payment.

In this post:

Hard and Soft Inquiries: What Are They and How Do They Affect Your Credit?

Thu, 06 Jan 2022 08:00:00 +0200

Every time someone looks at your credit, an inquiry or “pull” is recorded on your credit report. You have the right to know who is looking at your credit, and both hard and soft inquiries are recorded on your credit report for you to see. It’s important to know which ones affect your credit and what you can learn from them.

If you’ve ever shopped for loans or credit cards online, you’ve probably seen warnings that applying will affect your credit score. This might seem like a problem. If you understand hard and soft inquiries and their impact on your credit score you can minimize the damage.

In this post:

Why Do Stock Traders Lose Money?

Mon, 27 Dec 2021 13:00:49 +0200

The legend of the stock trader who turns pennies into riches is intensely enticing, for obvious reasons. Unfortunately, it often acts like a siren’s song, luring proverbial sailors into jumping ship to chase the dream, only to drown in droves when they hit the water.

That’s the reality of stock trading. It can be incredibly lucrative for the skillful, disciplined, and lucky few, but most people who dive in end up suffering for it. To separate yourself from the crowd, you need to understand why most traders lose money and what the ones who win do differently.

In this post:

17 Financial Tips for New Parents

Thu, 23 Dec 2021 10:30:01 +0200

A new baby is exciting, delightful, tiring, and challenging all at the same time. A new baby also marks a major financial transition, especially if it’s your first. A family presents new challenges in both the short and the long term. These financial tips for new parents should give you a head start.

If you’re expecting a child, you’ll want to think about the financial implications before the big day: you’ll have more than enough on your mind after! If you didn’t plan, don’t despair. There’s time to catch up.

To help the process along, we asked a panel of finance experts for their #1 financial tip for new parents.

What They Said

This was a popular topic: we received responses from 59 people with experience and credentials in financial planning for new families. Unsurprisingly, many of them offered similar suggestions.

Some of the answers were similar, as you might guess. These were some of the most common.

The most common advice was to exercise caution when buying baby “essentials”. A significant percentage of our answers suggested buying only essentials, shopping in thrift stores, and asking friends and relatives about baby goods they’re no longer using.

Several other topics got multiple responses.

Set up a college fund early, so the money has time to grow.
Start saving and investing, if you haven’t already.
Consider additional insurance and estate planning.
Prepare to adjust your budget if you have one, and make one if you don’t.

We’ve omitted some very similar responses, but these pointers should give you a range of ideas to consider as you prepare your finances for your new arrival!

What’s Your #1 Financial Tip For New Parents?

Here’s what our panel of finance experts and businesspeople had to say.

Brian Davis
Founder
SparkRental

Focus On the Basics

It sounds simple, and it is: stick with the fundamentals of personal finance when you become a parent. You don’t need to run around opening new life insurance policies and 529 plans. You do need solid health insurance, an adequate emergency fund, and recurring monthly investments for retirement.

Which are all things you should be doing already.

In particular, a lot of middle- and upper-middle income parents worry about paying for college for their children. While that’s “nice,” it’s not necessary. Retirement is necessary however, and there’s only one way to make sure you don’t run out of money before you die: by saving and investing enough money while you’re young and healthy. If you can’t help your kids as much as you’d like with their college tuition, they have plenty of other ways to pay for college, from scholarships to grants to student loans to work-study and loan forgiveness programs.

Besides, if you really want to, you can always pull contributions out of your Roth IRA tax- and penalty-free to help your kids with tuition.

Set up automated monthly savings and investments through a robo-advisor. Take advantage of tax-sheltered retirement accounts like IRAs and 401(k)s, but also invest through standard taxable brokerage accounts.

Stick with the boring fundamentals. Over time, they’ll build wealth quietly for you in the background.

When you become a parent you should stick with the boring fundamentals of personal finance.

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Brian Davis is the founder of SparkRental.com, where he helps middle-class people replace their salary with passive rental income (i.e. reach financial independence/retire early with real estate). He’s also a weekly personal finance writer for Money Crashers and RETipster, and a relatively new parent.

Jen Panaro
Founder
Honestly Modern

Buy Only What You Need

I think one of the best financial pieces of advice for new parents is to not buy “all the things” (especially buying them new). Babies need very few tangible goods, and store suggestion lists overflow with “necessities” that almost no baby actually needs.

Before buying all the latest goods or adding everything to a registry, see what you can get from friends or secondhand. Ask friends and family who already have kids which items you do not actually need. And then ask for lots of diapers on your registry instead of extra sheet sets or fancy baby gear because new babies definitely need lots of diapers in different sizes.

Financial tips for new parents: See what you can get from friends or secondhand.

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Jen Panaro, the founder and editor of Honestly Modern, is a self-proclaimed composting nerd and an advocate for sustainable living for modern families. She also owns and operates WasteWell, a company that offers residential composting services and educational composting resources. In her spare time, she’s a serial library book borrower, a messy gardener, and a mom of two boys who spends a lot of time in hockey rinks and on baseball fields.

Frank Murillo, CFP®
Partner & Managing Director
Snowden Lane Partners

Get Your Estate Plan in Order

As a new parent myself, my top advice would be to get your estate plan in order. Being a new parent is an extremely hectic time in your life and you’re always playing “catch up.” While you’re busy changing diapers and trying to catch up on sleep, it will be comforting to know that this part of your financial plan has been taken care of.

What to look for? The biggest hurdle I’ve seen from clients is not so much around “who gets what”, but mainly “who gets the baby.” Guardianship of your little one in case neither parent is around is a highly contested topic. You might have a clear idea as to who it should be, but more often than not your partner has a different idea altogether. And therein lies the challenge. Sorting and coming to an agreement on guardianship will take time, so it’s best to start early. Sorting out the money part is easy by comparison.

The good news? You don’t necessarily have to choose a single person. You may know someone who’s a great parent but terrible with money and vice versa. Estate planning can be extremely flexible on these terms and you can select one person to manage the finances and another to provide caretaking services. After that’s squared away, everything else flows from there. A close second? The usual suspect, college funding.

As a new parent myself, my top advice would be to get your estate plan in order.

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Frank Murillo provides financial planning services to senior corporate executives. He writes a blog at www.franktheplanner.com, aimed at simplifying some of the more complex money topics.

Jim Wang
Founder
WalletHacks

Only Buy the Essentials

As a father of four, my best money advice for new parents is that you should only buy the essentials and then wait on everything else until you have a better idea of how you’ll use it. What I mean by this is that you need a car seat and crib, but wait before spending a ton of money on a stroller until you know how often you’ll use it, the conditions and situations, because that will help you decide what kind of stroller to buy and how much to spend.

There is a huge industry that works very hard to make new parents believe they need the most expensive stroller or the best baby carrier or the most complicated diaper bag – but many of those items didn’t exist, or if they did were not nearly as expensive, so you want your needs to dictate what you get.

Also, if possible (and safe), buy second hand or seek out families giving stuff away. You won’t believe how much stuff people give away (especially clothing and toys) once their kids are grown and they’re looking to declutter. Look on Facebook for local groups because there’s always someone giving something away.

As a father of four, my best money advice for new parents is that you should only buy the essentials and then wait on everything else until you have a better idea of how you'll use it.

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Jim Wang is the founder of WalletHacks.com, a personal finance blog that helps young professionals and new families better manage their money to live the life they want.

Andrew Pentis
Higher Education and Personal Finance Expert
Student Loan Hero

Start a 529 Plan

It’s never too late or too early to save for college, and every little bit helps. Whether your child is a newborn or new to college, contributing small amounts to a 529 plan or other savings vehicle can go a long way toward helping pay for higher education.

Fortunately, many states have lowered the minimum required contribution for 529s, so you don’t have to be well off to benefit. The longer the time horizon you have, of course, the better, but contributing as little as $50 a month can help, as 529s and other accounts gain and accrue — and capitalize — interest over time.

Perhaps most importantly, every dollar you save is one less dollar you will have to borrow (and PAY interest on). It might be scary for the non-savvy to get started saving, but this is something you can do on your own and without hiring professional help (though consulting a certified financial expert is always wise). Get over that hump and you’ll be glad you did.

Financial tips for new parents: It's never too late or too early to save for college.

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Andrew Pentis has covered the cost of higher ed and other personal finance topics since 2015. His work has appeared in more than 40 publications: Lifehacker, MarketWatch, U.S. News & World, NBC News, CNBC, Fox Business, Yahoo Finance, and Kiplinger. More recently, Andrew earned his student loan counselor certification from the National Association of Certified Credit Counselors.

Fernanda Novaes
Portfolio Manager
Intercontinental Wealth Advisers

Start Investing

As a mother of a 4-year-old that is now expecting my second child, the best advice I can give is to start investing as soon as possible. How many times have we wondered when we look at our own accounts: “Imagine if I had started to invest when I was younger”?

One thing my family has done is instead of asking for plastic toys that will barely get played with since babies and toddlers usually prefer to play with the box anyway, we ask relatives for cash as gifts and put the money away in an investment account for our children. The small amounts add up quickly, and you can always help with the initial contribution to get it going.

Another important piece of advice is to look immediately into college savings plans. That is another gift that I’ve found relatives, particularly grandparents, like to contribute to.

Instead of asking for toys, we ask relatives for cash as gifts and put the money away in an investment account for our children.

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Fernanda Novaes joined Intercontinental in December of 2012 as a Portfolio Manager after moving to San Antonio from Miami. In Miami, she graduated summa cum laude from Florida International University with a B.B.A. in Finance and a Minor in Economics. In 2021, Fernanda earned a Certificate in Alternative Investments from Harvard Business School Online. She is fluent in Portuguese, Spanish, and French and holds Series 3, 7, 9, 63, and 66 licenses.

Jay Bats
Co-Founder & Developer
ContentBASE

Update Your Insurance

Parents have 31 days to enroll their new child in medical insurance. A “Confirmation of Birth” document is supplied by the hospital and must be provided to your insurance company along with other information. This document is crucial since your child will have at least seven appointments in the first 12 months for immunizations and growth monitoring.

Speak with a life insurance agent to purchase a new policy or renew an existing one, whether you’ve had your first, second, or third child. Also, be sure that both spouses are insured in case of an emergency. For example, if one spouse stays at home and dies suddenly, the remaining spouse may be responsible for paying for child care for several years. A homemaker is an invaluable member of the family who is frequently disregarded since he or she helps the family avoid large costs.

On the insurance front, though, there is some good news. Consider scheduling any medical procedures during the same deductible year if you have been putting off scheduling them. You will most certainly exceed your annual deductible as a result of the costs linked with the new baby. For example, I postponed a minor medical treatment until the year of our child’s birth in order to avoid paying thousands of dollars more.

Financial tips for new parents: Be sure that both spouses are insured in case of an emergency.

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Jay Bats is the Co-Founder & Developer of ContentBASE, which helps business owners attract & engage followers on their social media platforms.

Sunny Lee
CEO and Founder
Good Life Advisors

Prepare For Your New Financial Picture

The #1 financial tip I would give to new parents is to prepare for their new financial picture. Just like anything valuable in life, preparation is the key to success also when it comes to parenthood and finance. As the saying goes, “By failing to prepare, you are preparing to fail.” Unfortunately, we see many new parents fail in this area and suffer greatly regardless of their economic spectrum.

One of the main problems is that many new parents think raising a child is expensive, but most of them never sit down, think about and prepare for how much it may cost from birth until their child goes to college. According to Havenlife (https://havenlife.com/), the average total child-rearing expense in America from birth to age 17 is $233,610. If new parents are planning to have multiple children, the costs can easily double and triple, and it can create detrimental financial troubles and hardships in their family if they are not prepared in advance.

Then, what should new parents prepare first? I will encourage them to start with a financial checklist. The financial checklist for new parents is like a guided navigation system that enables them to arrive at their desired designation. Just like the GPS in the car, this financial checklist can show them a step-by-step process of preparing for a great financial future with and for their children.

Just like anything valuable in life, preparation is the key to success also when it comes to parenthood and finance.

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Sunny Lee is the CEO & Founder of Good Life Advisors and a 9-year MDRT member. Sunny specializes in retirement and estate planning and has a passion for sharing the importance of teaching children financial literacy. She is an author of six books, including two Amazon bestsellers, and resides in Torrance, California with her twin boys.

David Wurst
Owner & Ceo
Webcitz

Organize and Track Your Records

Get paper copies of important documents such as the birth certificate, Social Security card, and immunization record. Order three birth certificates for your newborn: one for you, one for your child later in life, and one for your guardian. The Social Security card for your child will be mailed to you. Also, start keeping track of your child’s immunizations, especially if you need to send him or her to daycare. Place them in a fireproof safe with all of your other important documents.

Finally, keep track of all medical costs prior to and after delivery to ensure you don’t overspend or pay for the same operation twice. Parents are often forced to pay in advance for specific doctors, such as the obstetrics/gynecologist physician, so make sure you get reimbursed if you reach your deductible before the delivery. If you have any issues or questions, call your insurance company before writing a check.

Financial tips for new parents: Keep track of all medical costs prior to and after delivery to ensure you don't overspend or pay for the same operation twice.

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WebCitz, founded in 2004, is a full-service development, marketing, and cybersecurity agency with a steadfast commitment to customer availability, effective communication, and custom solutions. To help stay true to these commitments, WebCitz employs a large onsite team of web developers, digital marketers, and website support experts to provide the best possible customer experience.

Scott Alan Turner
CFP
Rock Star Financial

Start a Custodial Roth IRA

One financial tip for long term wealth building and legacy planning is to start a custodial Roth IRA for children.

Most parents are more concerned about college planning. A Roth IRA when left untouched, has the potential to grow to $1,000,000 in retirement savings for your kids. That can be achieved by contributing $1,000 a year ($83/month) starting at age six until age eighteen. The IRS requires ‘earned income’ to contribute. This can be accomplished by paying kids for household chores or odd jobs, and proper documentation.

Most people would agree $1M in retirement is better than giving kids an allowance. Of course, you can do both.

Financial tips for new parents: Start a custodial Roth IRA for children. $1M in retirement is better than giving kids an allowance.

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Scott Alan Turner is a certified financial planner and personal finance author.

Lauren Cook-McKay
Director of Marketing and Content
Divorce Answers

Go Back to Work

You might think to yourself, “Oh, I should simply remain at home,” as you consider the [expensive] expense of infant care or hiring a nanny. But I would advise against it since taking a three- or five-year break from your job comes at a price.

Also, if the cost of daycare is equal to or greater than a person’s current salary, this may be a short-term issue because a person’s income can climb while the cost of childcare decreases as the child grows older.

I’d also argue that it’s not just about money; it’s also about lifestyle choices. It was simpler for me to work more while my children were younger, and having the freedom to be around them when they were teenagers was more essential to me.

So, if someone wants to keep their job, don’t let the cost of daycare derail them. Consider the long term.

Financial tips for new parents: Taking a three- or five-year break from your job comes at a price.

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Lauren Cook-McKay is Vice President of Marketing & Operations at DivorceAnswers.com. Lauren holds a Master’s in Marriage and Family Therapy (MFT) from the University of San Diego and applies her training in private practice to helping couples struggling in their marriage. She strongly believes there is hope in all marriages and strives to provide therapy to couples that will lead them back towards a loving marriage, or a divorce that brings peace and closure.

Rachael Burns
Founder and Financial Planner
True Worth Financial Planning

Open a College Savings Account

As a financial advisor and a mom of twin toddlers, I am passionate about helping parents save money. I have several tips to contribute:

Open a college savings account soon after your child is born. For holidays and birthdays, encourage family and friends to make a contribution to the account, rather than spending money on disposable toys.

Find some local new parent groups and follow them on social media. You can find other parents offloading secondhand clothes, furniture, and toys that are still in great shape. If you have multiple children needing childcare, consider an in-home nanny.

Daycares generally offer a sibling discount of only 10% off one child’s tuition, but a nanny typically gives a greater discount for additional children. If you have friends or coworkers with similarly aged children, you can set up a nanny share.

Financial tips for new parents: If you have friends or coworkers with similarly aged children, you can set up a nanny share.

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Rachael Burns is a Certified Financial Planner based in Folsom, California. She is the founder of True Worth Financial Planning, which helps newly single women achieve financial independence after divorce or the death of their partner.

Sarah Jameson
Marketing Director
Green Building Elements

Adjust Your Emergency Savings

Growing your family entails increasing your savings as well.

To ensure that your entire family and all of your new costs are covered in the event of unforeseen financial situations, you’ll need to beef up your emergency fund. The amount you should set aside for emergencies will vary depending on your household, but you should start with three to six months’ worth of your most recent spending.

This means that your emergency savings account now reflects the expense of having a kid or another child, rather than the amount you had set aside earlier.

To ensure that your entire family and all of your new costs are covered in the event of unforeseen financial situations, you'll need to beef up your emergency fund.

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Melissa Walsh
CFA, CFP, AIF, Founder
Clarity Financial Design

Expect Extra Expenses

The number one financial tip that I’d give to new parents is to plan for extra expenses in the first year.

Building up a solid cash reserve that can be used for the unexpected can relieve some of the financial anxiety of becoming a parent. You’ll also need to have cash on hand to cover all co-insurance and out-of-pocket medical expenses, as well as added regular expenses like diapers and baby equipment. Having a cash reserve can come in handy for getting the help you need too: babysitters, daycares, and nannies are expensive!

Lastly, we all know that lack of sleep makes it harder to control impulse buying, so a cash reserve can help cover that expensive “miracle sleep solution” you purchased for your little one during a 3 AM wake-up. Having a cash reserve can set you up for success during your first year as a parent and reducing financial pressure can help you sleep better at night… all new parents need that!

Having a cash reserve can set you up for success during your first year as a parent and reducing financial pressure can help you sleep better at night..

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Melissa Walsh, CFA, CFP, AIF, is the Founder of Clarity Financial Design, a female-focused financial planning firm in Winter Park, FL. Melissa’s mission in everything she does is to make a positive difference in the lives of the people she serves. She aims to enthusiastically help her clients to achieve their goals and to be a trusted partner every step of the way.

Gerrid Smith
CMO
Joy Organics

Ask About Parental Leave

While some employers offer excellent parental benefits (including paid leave for moms and dads), the Family and Medical Leave Act (FMLA) guarantees just 12 weeks of unpaid, job-protected leave each year in the United States. Take note that FMLA is not compensated. Thus, unless your firm is wonderful, you’ll need to consider any reduction in work or time off into your early baby budget.

Conduct due diligence upfront to avoid being startled. If your income will be insufficient during parental leave, try to plan ahead and save or prepare for areas where you can cut back during that time period.”

Financial tips for new parents: Consider any reduction in work or time off into your early baby budget.

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Gerrid Smith is Chief Marketing Officer at Joy Organics. He has been quoted on INC.com, Forbes.com, Entrepreneur.com, and CIO.com. His former company, Black Fin, was featured on the 2017 INC 5000 list at #821 and specializes in high-end digital marketing strategies.

Hutch Ashoo
Founder & CEO
Pillar Wealth Management

Prioritize Retirement Savings

My financial advice to new parents is to prioritize retirement savings. In an ideal world, new parents would save for retirement and their child’s college tuition concurrently, but this is not always possible. If forced to pick between college savings and retirement savings, choose retirement.

Provided you have more cash available in the future, and maybe when you advance in your job or receive a raise, you can begin saving for your child’s education later. Earnings from your account can be taken tax-free if the funds are utilized to pay for approved educational expenditures.

My financial advice to new parents is to prioritize retirement savings. If forced to pick between college savings and retirement savings, choose retirement.

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Hutch Ashoo is the founder and CEO of Pillar Wealth Management. He has personally been serving the complex needs of high net worth and ultra-high net worth investors for more than 30 years. Mr. Ashoo is the author of two books, Beyond Wealth, Finding The Balance Between Wealth And Happiness as well as The Art Of Protecting Ultra-High Net Worth Portfolios And Estates, Strategies For Families Worth $25 Million To $500 Million. Hutch Ashoo is a published financial expert columnist in national journals and newspapers as well as legal and tax publications. He has been interviewed nationwide on radio regarding wealth management for the affluent.

Clifton D. Corbin
Author
CliftonCorbin.com

Automate As Much as You Can

The first few years after having my kids are a complete blur. I have vague memories of tiny toes, late-night diaper changes, and giggles, but the particulars are hard to recall. The sleep deprivation that most parents feel and the postpartum depression that some new mothers feel are a shock to the system. No matter how many well-meaning parents tell you to “stock up on your sleep,” the truth is you will not be functioning at full capacity once your child comes home.

My advice for new parents is to use the months leading up to their new arrival to create and automate as much of your budget as possible. You do not want to be thinking, “Did I pay the electric bill?” when you get up to do a late-night feeding.

Use that budgeting process to ensure you pay yourself first and put money into an emergency fund if you don’t have one. Setting aside as little as 10% of your take-home pay will add up over a few months to give you a buffer when you need it.

If it is at all possible, also try to live on a reduced income, especially if there will be a dip in pay due to parental leave. Living within your new budget before you need to will help relieve the strain it may cause.

Building and automating a budget in advance will help you focus on your bundle of joy, not your bills.

Financial tips for new parents: Use the months leading up to their new arrival to create and automate as much of your budget as possible.

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Clifton D. Corbin, M.B.A., is the author of Your Kids, Their Money. He is a passionate advocate for advancing the financial literacy of children and young adults.

Let’s Sum That Up

The experts we quoted have different opinions on some issues. For example, some advise saving for education, some advise prioritizing saving for retirement and tapping retirement savings for education if needed. Those disagreements are expected: if everyone had the same advice, we probably wouldn’t need advice.

The comments here are a spectrum of opinions from different people with different experiences and professional perspectives. They will appeal to different people. We hope you find some ideas and suggestions here that will help you prepare for the next stage of your life!

What’s your number one tip for new parents? Let us know in the comments below!

The post 17 Financial Tips for New Parents appeared first on FinMasters.

Are Financial Advisors Worth It? (2021 Survey)

Thu, 16 Dec 2021 09:53:05 +0200

Overview: We surveyed over 600 Americans to learn about their perceptions of financial advice and its worth. What we found is that when it comes to financial advice, consumers aren’t clear on what is going on, what they are receiving, and what its value is.

Are financial advisors worth it? Many consumers aren’t sure, often because they aren’t sure what financial advisors do. Financial advice is a fragmented industry, only halfway to being an established profession.

Consumers have traditionally associated financial advice with high-end investment advisors and financial planners that serve affluent clients. Most users don’t recognize that credit counselors, housing counselors, financial therapists, and other professionals who work with financially stressed clients are also financial advisors.

The definition and role of financial advisors are changing and evolving. We conducted this survey to understand if consumer attitudes toward financial advisors are also changing, and what this means for the future of financial advice.

Key Findings

Most clients (75%) recognize that the potential of financial advice goes beyond delivering investment returns and into the realm of goals fulfillment. Learn more

Most respondents (78%) believe that only some advisors are worth the fees they charge. This implies that pricing pressure is not too far away for others! Learn more

57% of respondents believe they have a financial advisor (although the term covers many different types of advice). Of the remainder, many appear to lack sufficient assets to qualify for advice under the prevailing asset-based fee model. Learn more

While only 5% of respondents reported that their experience of financial advice had been ‘Negative’ (which is encouraging) and nearly half (48%) selected ‘Positive’, a surprisingly large group (42%) opted for ‘Neutral’ (which is less encouraging). Learn more

Only 11% of definitions indicated an explicitly skeptical or jaded attitude to the value of financial advice. The remainder emphasizes the role of the financial advisor as a ‘navigator’ in an increasingly complex world. Learn more

Consumers aren’t clear about what financial advice is, because financial advice is a fragmented industry, only halfway to being an established profession.

Introduction

Financial advisors are not like other professionals. With a lawyer, accountant, or a doctor, you have a sense that they have been through a common set of hurdles (medical school, the bar exam) and you can trust them to maintain certain standards.

A lawyer, for example, can be expected not to break client privilege, just as the doctor can be trusted not to prescribe inappropriate medication. If they do either of these things, they run the risk of being disbarred or struck from the register, after which they will no longer hold professional status.

A profession is different from an industry. In an industry, the aim of the provider is to sell you as much of a given product or service as possible. A double-glazing salesman doesn’t have a fiduciary duty to ensure you get the best double glazing at the lowest price – that’s your job as a consumer. As the lawyers might put it, the principle of ‘caveat emptor’ (buyer beware) applies.

Financial advice is – currently – somewhere in between profession and industry. Advisors don’t have the same professional standing that a doctor or surgeon might have, but at the same time, they enjoy more prestige than the car salesman or estate agent.

A big part of the problem is that people don’t have a clear view of what financial advice is. And this is no wonder, for three reasons:

The financial advisor community is highly fragmented. Since there is no single route to professional status, anyone can claim the role of ‘wealth advisor’, even if they have no qualifications at all. Consequently, the community contains the whole gamut – from actual salesmen pushing financial products to genuine experts who integrate knowledge from multiple domains to solve complex financial problems.
There aren’t a lot of movies or TV shows about financial advisors. This may sound like a minor point, until you consider how many legal and medical dramas have been produced. By contrast, there is no clear view of a financial advisor in the public consciousness. Financial advice is, sadly, not particularly dramatic, and so Hollywood tends to focus on Wall Street capers and corporate high-jinks, rather than tax-loss harvesting for Mr. and Mrs. Jones.
Financial advice has evolved considerably in recent decades. For our grandparents, “financial advice” consisted of a broker helping you to buy and sell individual stocks and bonds. Today, market timing and investment selection is only part of investment management, which is itself only a part of the broader field of wealth management as practiced by its more advanced practitioners today. It covers many related fields, some of which overlap with law (estate planning) and accounting (tax strategy). It is more akin to problem-solving than market-trading, and requires a completely different skillset

The CFP (Certified Financial Planner) Syllabus

The fragmented and undefined market for financial advice is a big problem for consumers and genuine financial advisors. The lack of clarity around financial advice allows a lot of genuinely bad actors to continue to operate under its cover, typically at the expense of unwitting clients who lose money on dubious financial products, and honest advisors whose reputation suffers from the taint of association.

This may be changing. One of the benefits of the internet age is the transparency it has brought to many industries that previously depended on or traded upon secrecy.

The financial crisis of 2008 opened many eyes to the borderline (and actual) fraud that is routinely perpetrated by the institutions who are charged with our financial wellbeing. A better informed and more demanding consumer could be just what the financial advice industry/profession needs to encourage it to raise its game.

The Results

The survey was conducted in October 2021 and consists of responses from around 620 participants from across the USA. The respondents were all from households earning above $100k in annual income. We asked the respondents to answer the following questions:

What Is the Point of Having a Financial Advisor?
Are Financial Advisors Worth Their Fees?
Do You Have a Financial Advisor? Do You Need One?
What Has Been Your Experience of Financial Advice?
How Would You Define the Value of a Financial Advisor in One Sentence?

What Is the Point of Having a Financial Advisor?

Not so long ago financial advice was limited to advising investors on what stock to buy or when to make a trade. There are still advisors who focus on security selection and market timing as their main source of added value, but they are better termed ‘asset managers’ in that their goal is simply to maximize risk-adjusted returns.

Even if it is achievable, simply targeting higher returns is a narrow set of objectives and does not take into account the point of investing, which is not ‘to become richer’ but to provide a means of achieving one’s goals.

The baseline goal for most people is ensuring that they accumulate assets to remain self-sufficient after retirement. With the rise of the baby boomer generation, the financial advice industry has developed a suite of products and services to help meet this need. For the advisor, retirees are attractive clients because they are typically in a position of substantial wealth, having saved consistently over the course of a lifetime.

The baseline goal for most people is ensuring that they accumulate assets to remain self-sufficient after #retirement.

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However, ‘retirement management’ is only marginally broader than ‘asset management’ as a definition of financial advice, since it restricts advice to those aged 55 and over (with sufficient wealth to invest). Since everyone has financial needs, financial advice should ideally address people at all life stages, and encompass many questions besides retirement.

The popular framework developed by Maslow sets out a hierarchy of needs, beginning with fulfilling bare necessities (such as food and shelter) and progressing upwards to needs more related to fulfillment and self-actualization (e.g. achieving one’s potential) than mere survival.

Maslow’s hierarchy of needs

The evolved advisor (also known as a comprehensive financial planner) helps a client on every level of the Maslow hierarchy and will begin the relationship by understanding his or her aspirations and goals relating to career, family, and legacy.

Home-buying, credit and debt management, and college savings plans are all important financial topics that warrant advice and are typically most pertinent for a client in their early or mid-career. A truly holistic advisor, therefore, serves clients of every age and supports them at every stage.

If we examine the survey results, we see – encouragingly – that a majority of clients see financial advice as more than simply ‘getting higher returns’. The largest response group (49%) believes that the value of advice is more related to setting and achieving goals, moving the value of the service further towards the higher end of the Maslow pyramid.

Later in Question 5 (“How would you define the value of a financial advisor in one sentence?”) those who answered ‘Getting higher than average returns’ in this question tended to define the value of financial advice in terms of the portfolio, the market, and outperformance.

Those who answered ‘Helping me set and achieve financial goals’ on the other hand, were more likely to mention other concerns such as plans for their children, tax implications of financial decisions, and support with their business.

The overall conclusion is that people are aware that advisors can, or at least should, be broader in their scope of services than simply delivering excess returns (or as mere ‘conduits’ as one skeptical respondent put it, presumably referring to the practice of pushing financial products).

As consumers become more assertive in this regard, it is to be hoped that the population of financial advisors will begin to resemble this updated set of expectations.

Are Financial Advisors Worth It? (2021 Survey)

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Are Financial Advisors Worth Their Fees?

Because the value of a financial advisor is such a confusing topic, it is only natural that the question of value in relation to fees is similarly fraught.

There’s a growing debate over how advisors should charge consumers for advice. In some cases, this is due to regulation (MiFID in Europe, Reg BI in the US). There is also an ongoing internal debate within the advice community as to which is the best fee model (typically, it must be said, conducted in terms of what is best for the advisor!).

Consumers are notably absent from the debate. To use the words of one executive, financial advice is ‘sold not bought’ – that is to say, people are expected not to understand the product or the fee structure, and take whatever they are given (or whatever the regulator allows).

This is likely to change in the future due to the heightened transparency of the digital age. People have access to lower-cost investment options (e.g. through Robo-advisors). While these are unlikely to replace human financial advisors as initially feared, it is nonetheless placing pressure on fees.

Why? Because even if the value of financial advice has expanded from just investments to a broader range of financial topics, the fee model remains tied to the value of the portfolio in most cases, thanks to the growing dominance of the AUM fee model (charging an annual percentage fee based on the assets under management).

Advisors don’t want to move away from the AUM fee model because it is very profitable and has up to now worked well for them. If clients start to challenge the fee level, this could make the model highly unprofitable. Owing to fixed costs, a mere 30% reduction in fees can translate to a 100% decrease in profits.

What did the data show?

Advisors can take comfort from the fact that over 90% of respondents acknowledged that at least some advisors are worth their fees. This means that advisors who can demonstrate value for money are safe from fee pressure for the time being.

Viewed from another perspective though, around 85% of respondents did not agree with the statement that most financial advisors are worth the money. This could imply they believe the true proportion of ‘good’ financial advisors is fewer than half!

That’s less of an endorsement. While professional advisors may be shielded, fee pressure is very much on the cards for the financial advice ‘industry’.

Do You Have a Financial Advisor? Do You Need One?

As we covered in the introduction, because there is no single recognized route to professional status, individuals of various backgrounds are able to hold themselves out as financial advisors. This makes it hard for consumers to distinguish the highly qualified from those less so.

Normally, one would use official designations (e.g CPA, MD) to determine the quality of a professional. There are so many qualifications (and of such varying quality) in the field of financial advice that the result is a confusing alphabet soup of acronyms, which in all likelihood only serves to confuse rather than inform potential clients.

In the case of the US, the reason for the confusion is historical. Professor Nathan Harness of Texas A&M has used the metaphor of different ‘tribes’ to explain the fragmentation of financial advice.

He traces each of the modern-day “tribes” back to their origin. One advisor might originate from a background in product distribution, where the aim is to maximize one’s close rate. Another might come from the world of accounting and CPAs, where the fiduciary culture is dominant.

From a client’s perspective, however, it may appear as though both individuals are performing the same function, particularly if they are using the same language. A financial plan prepared by an insurance salesperson, however, is more likely to be a vehicle to sell insurance.

The service that is provided by a financial advisor with roots in the world of accounting is more likely to be the kind of advice that most respondents to this survey say they want, wherein the advisor optimizes for the client’s long-term best interests.

All of this makes the results of the survey question somewhat difficult to interpret.

While the majority of respondents (57%) believe they have a financial advisor, it is difficult to know which tribe the advisor comes from or what type of advice is being delivered. From our perspective, the proportion of those receiving true financial advice (in the comprehensive sense) is likely to be far lower than 57%.

The fact that 20% of participants don’t believe they need a financial advisor gives a clearer message. By examining how they answered Question 5 (“How would you define the value of financial advice in a single sentence?”), we can examine the rationale behind their responses.

Interestingly, only some of these responses were from true “skeptics” who believe that financial advice is a waste of time. Rather, this group consisted mainly of respondents who believed they were able to handle matters for themselves (more about this later). In other words, advice is a valuable service for those who need it.

The group that said they ‘can’t afford a financial advisor’ is also significant.

As advisors have moved to an AUM-based pricing approach, it has become necessary to restrict access to those who have sufficient assets to manage (typically 500k or above), otherwise the fees are too low to pay for the service.

This cut-off point eliminates a large portion of the population below retirement age (who either lack the assets or do not have them available to hand over to be managed), including those who might otherwise have been happy to pay by other means (e.g. % of salary, by the hour).

One of the hallmarks of a true profession is that it is open to all – law, medicine, and accounting are services that the entire population has access to. Removing this unnecessary barrier will be key to unlocking the true potential of financial advice to create wealthy individuals rather than serve the already wealthy.

In the future, this chart may look very different, with the overwhelming majority of respondents sitting in column 3 (“I have a financial advisor”). There may also be a common consensus on what a ‘financial advisor’ is and does.

What Has Been Your Experience of Financial Advice?

Encouragingly for financial advisors, the number of ‘negative’ experiences is tiny (around 5%) versus the 47% who said their experiences had been positive.

However, 42% rated their experience as neutral, which is a very large percentage for a response that is essentially non-committal. After all, how many important things are consumers generally ‘neutral’ about?

This brings us back to the common theme in this report: when it comes to financial advice, consumers aren’t clear on what is going on, what they are receiving, and what its value is.

Digging deeper, we can look at how each group responded in Question 5 (“How would you define the value of financial advice in a single sentence?”).

Positive respondents, as might be expected, gave definitions that focused on guidance, goals, and value-added services such as tax advice. A significant minority focused on investment returns, implying that there is still a good market for advisors who lead with this as their main proposition.

Negative respondents tended to question the entire value of the financial advice offering (e.g. “A waste of time and money!”), and some comments (e.g. “Glorified salesperson”) implied that the respondent had encountered a product-salesperson who had not put the client’s interest first. While apparently rare, these negative experiences clearly engender a hostile attitude to the concept of advice in general.

Neutral respondents are the most interesting category. The skeptical comments in this category were more nuanced than in the ‘Negative’ contingent, with concerns mainly centered around uncertainty (“I do not understand how they make money”) and evoking a general sense of wariness rather than absolute disbelief. Many respondents gave clear and concise definitions of what financial advice could and should be. The problem appeared to be they had not experienced it themselves.

As remarked above, the sheer size of the neutral category is the main takeaway – and puzzle – in this question. We would argue that this indicates confusion more than anything else, leading to caution. The danger is that a lack of passionate devotees suggests vulnerability to alternative solutions that may present themselves.

How Would You Define the Value of a Financial Advisor in One Sentence?

Given that most financial advisors would struggle to answer this (trillion-dollar) question concisely and accurately, we were impressed with the range of the responses we received! Viewed in composite, it was possible to derive a fairly detailed view of the perception of financial advice in the mind of the everyday consumer.

Certain themes emerged, which we have set out below.

Investment Management Is Still a Draw for Some (For Now)

A sizable portion of the participants (17%) responded to the question purely in terms of investment results. For this group, the attraction of an advisor rests on the ability to generate higher returns than they would be able to do on their own. In the words of one respondent, “If they produce, they’re okay.”

As stated above, the idea of advice as primarily about generating high returns is becoming outdated (not least because it is statistically highly unlikely that your advisor will be able to beat the majority of other investors). But for many, the story of the market-beating advisor remains potent.

In this area, respondents seem to value advisors in three ways.

The first is knowledge – advisors are perceived to have genuine expertise in managing money (to quote one respondent, “Navigates a complicated investment landscape that I myself do not understand”).
Linked to this is the idea that advisors have access to ‘deals and resources’ not available to the everyday consumer, much like a mortgage broker or (in the pre-internet days) travel agent.
Also very common was the idea that consumers could perform investing by themselves if only they had the time. In the words of one respondent, “I don’t have the time or the desire to watch the market or understand products and their implications.” The idea is that an advisor is an outsource partner who takes care of an aspect of your life on your behalf.

It remains to be seen how sustainable the investment-led proposition will be, but technology and increasingly self-reliant customer attitudes may mean that few advisors can continue to pose as stock-market gurus. For now, as we have said, this market niche appears solid.

A Broader View of Advice

Only 5% of respondents referred to retirement directly, with most people referencing broader aims. While the statements these respondents made were naturally very high-level, many were excellent descriptions of the value of a comprehensive advisor, and could even be used as marketing taglines by advice firms. For example:

“Professional guidance on difficult decisions”
“Helping me navigate my financial life”
“Puts my mind at ease about my financial future”
“Gives you confidence you are making good decisions with your money.”
“Making sense out of mayhem.”

One respondent even raised the point that advisors potentially fulfill a gap in our current education system. “Since schools do not teach financial literacy, someone has to.” Other common ideas used to describe the value of an advisor include:

Keeping me on track
Keeping me from doing something stupid
Making better financial decisions

Although ‘peace of mind’ is a cliche when talking about the benefits of financial advice, many respondents referred to the advisor as a person who “removes the worry” regarding their future. This includes in particular stressful life events such as bereavement (“Reassuring that someone will help my spouse if I die”.)

Navigating an Increasingly Complex World

There was a definite indication from various responses that the need for financial advice is actually increasing in today’s world, as a result of the accelerating pace of change and growing complexity of life.

This could be due to Covid, cryptocurrencies, geopolitical shifts – but the point is that for the average consumer, the world they face is not the one in which they grew up, and a trusted advisor is more important than ever.

This means that people who did not consider a financial advisor necessary before may now be changing their minds on the subject. This is even winning over former-skeptics, as we see from the comment, “A fiduciary is necessary with our government and financial institutions as unstable as they are now. As much as I dislike it, they have become necessary now for support.”

Finding the Right Advisor Can Be a Lottery

There is a paradox at the heart of the feedback. In spite of negative comments from some (more on this in the next section), it was noticeable how warmly many other respondents spoke about the good advice that they had received in the past.

As already observed, attitudes to financial advice are – by and large – more positive than negative.

The problem is that this positive attitude is undermined by the coexistence of good and bad actors in the advice category, and the difficulty of distinguishing between them as a potential client.

Two representative comments are “An honest advisor is worth their weight in gold,” or “If they’re honest and good at their job, then they’re worth working with.” These statements are endorsements of good advisors, but the fact that the writer feels the need to explicitly call out the word ‘honest’ implies that this should not be the default expectation.

Reasons for Skepticism: More About Advisors Than Advice

Only 11% of definitions indicated an explicitly skeptical or jaded attitude to the value of financial advice. These 60 responses ranged from outright cynicism (“Most advisers give the same advice to each client.”) to caution (“[The value] depends entirely on the advisor”) and grudging acceptance (“A necessary evil.”)

Believing that a service has no value and mistrusting those who provide it are two different things. Even among the skeptics, those who believe that advice is fundamentally worthless were in the minority. The questionable point for most appears to be the integrity of advisors themselves.

As one respondent put it, “He/she should be looking out for me the investor, not ways for them to make more money through me with no regard to my investment return.” Fixing the reputation of advisors by instilling a true fiduciary approach (as opposed to a sales culture) will go a long way to winning over the skeptics.

Dissatisfaction With the Fee Model

Another strain of frustration came from a sense that financial advisors are only interested in those who are already wealthy, rather than helping people become wealthy. As one respondent wryly observed, “[Financial advisors] are for people who don’t need financial advisors.”

This is connected to the point around the fee model. There is something perverse about requiring a high asset minimum in order to accept a client, like a doctor with a minimum health requirement, or a lawyer who only takes easy cases. The fact that clients are sensing this should be a warning sign.

Another telling quotation came from a respondent who is not only receiving advice but is pro-advice, not a skeptic. “Though I might be paying more than I’m getting out of it, if I didn’t have a planner I’d be more worried about retirement.”

This is interesting because, in the very act of acknowledging the value and necessity of advice, the client is in the back of her mind wondering if she is getting overcharged.

This highlights an additional problem with the asset-based fee model: calculating the value of advice as a % of the assets invested makes far less sense when the scope of advice being given is broader than just the investments. The fee goes up and down based on the value of the assets, rather than the service received, and hence clients are left wondering if they are paying the right amount.

Closing Words

To sum up, financial advice has a solid foundation but has the potential to be so much more than it currently is. Chiefly, its mission should be to restrict access to the title of “financial advisor” by revising the requirements and opening up access to advice by restructuring the fee model.

Both consumers and advisors should recognize that many of the people who most need financial advice are not in a position to pay much for it. That has created industries like credit counseling, financial therapy, and a range of services designed to provide advice to financially stressed – or financially desperate – individuals. Practitioners in this space are also financial advisors. And should be recognized as such.

While certain types of advice may be displaced in the future, the need for a financial navigator has never been greater, and it is time that the industry evolves into the profession this new world requires.

About This Survey

The survey was conducted in October 2021 and consists of responses from 618 participants from across the USA. The respondents were all from households earning above $100k in annual income.

Copyright Information:
All the data included in this study is available via public domain. This means all statistics may be copied without permission. We do, however, appreciate citation as the source via a link.

Researcher:
Matthew Jackson

Resources:
Download Summary Data (PDF)

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The post Are Financial Advisors Worth It? (2021 Survey) appeared first on FinMasters.

Kikoff Review (2021): How Does It Work and Is It Worth It?

Thu, 09 Dec 2021 10:00:00 +0200

Kikoff’s current product is a revolving line of credit with no credit check that you can use to buy items from their store. They let you pay off your purchases in installments with no interest or fees, then report your activity to the credit bureaus to build your credit score.

This comprehensive Kikoff review will tell you what you need to know about the service, including how it works, how much it costs, and whether or not it’s worth using.

In this post:

How to Communicate With Debt Collectors

Wed, 08 Dec 2021 13:00:00 +0200

A call from a debt collector is never a happy experience. Collectors are always persistent and often aggressive. They will call again. If you don’t know how to communicate with debt collectors your first impulse may be to panic.

So what do you do?

First, take a deep breath and relax. This won’t be easy, but it’s not the end of the world. You have rights. You can take the initiative and resolve the situation.

The rules surrounding debt collection in the US changed dramatically on Nov. 30, 2021, with the adoption of Regulation F, the first major update to the Fair Debt Collection Practices Act. Those changes have been incorporated into this article. We also have more information on Regulation F.

About Debt Collectors: Something to Remember

Debt collectors usually buy debt in bulk. The collector who’s calling you may be working through a stack of hundreds or thousands of debts purchased at the same time. Collectors pay an average of four cents for every dollar of debt that they buy.

That means two things.

Collectors may not have complete records. Documents and files get lost or mixed up, especially when collectors buy debts from other collectors (yes, that happens).
Collectors don’t expect to collect all the debt they buy. Some won’t be collectible at all, and when they do collect it often won’t be the full amount. Because they pay so little for the debt, they can still make a profit.

Those facts can work for you. A collector may not be able to prove that the debt is yours. Even if they can, they will probably accept less than you actually owe.

Debt collectors are like any other predator: they go after the weakest target. Don’t be that target. Don’t be intimidated, don’t apologize, don’t admit anything. When you communicate with debt collectors you should know your rights and be firm. We’ll give you some statements that you can use at different stages in the process.

Important: Never admit that your debt is legitimate or that you owe it. Whether it’s in writing or on the phone, always treat the debt as a matter of dispute.

When You Hear From a Debt Collector: the First Contact

Regulation F has redefined the way debtors communicate with debt collectors and given debt collectors new responsibilities. One of the most noticeable changes is in the letter that a debt collector must send you within five days of their first contact with you. This letter is called a Debt Validation Notice.

In some cases, a Debt Validation Notice may be the first contact you have with a debt collector.

A debt collector may call you before you receive the Debt Validation Notice. If a debt collector contacts you for the first time by telephone, do not discuss the debt. Do not acknowledge that it is yours. This is what you say:

You are legally required to send me a written Debt Validation Notice within five days of this contact. I will not discuss this matter until I have received this notice.

That’s all you have to say. If the collector keeps talking, keep repeating that sentence.

Write down the date and time of the call so you can confirm that the Debt Validation Notice is postmarked (or delivered, if it’s by email) within five days.

Reading the Debt Validation Notice

When you receive a Debt Validation Notice you should read it at once. Don’t put it off. Nobody wants to do it, but it’s important to maintain the initiative.

Remember: Whenever you communicate with debt collectors you should respond promptly and assert your rights.

A legal Debt Validation Notice must contain an itemization date. This must be one of five dates.

The date of the last statement or invoice that the creditor provided to the consumer. by the creditor.
The charge-off date.
The date of the last payment you made on the debt.
The date of the transaction that created the debt.
The judgment date, if there is court judgment on the debt.

If there is no itemization date, the notice is invalid.

More Requirements

A legal Debt Validation Notice must also contain these items.

The name and mailing address of the debt collector.
The full name and mailing address of the consumer.
If the debt is from a loan, credit card, or other financial product, the name of the creditor to whom the debt was owed on the itemization date must be in the notice.
Any account number that is associated with the debt.
The name of the creditor you currently owe the debt to.
The currently owed and an itemized list of any payments you have made and any fees, interest, or other charges that have been added to the amount.

The Debt Validation Notice must contain a returnable form (or a checkable prompt if it’s sent by email) allowing you to dispute the debt and choose one of three reasons for disputing the debt.

This is not my debt.
The amount is wrong.
Other (with a space to supply further information).

The notice must also advise you of your right to dispute the debt and request further information.

The Consumer Financial Protection Bureau (CFPB) has prepared a model Debt Validation Notice. You can compare the notice you receive to this sample to see if it is complete. If you believe that the notice is incomplete, advise the collector of the issue.

Tip: Keep a complete record of everything you send and receive as you communicate with debt collectors. Keep all letters you receive and keep a copy of all letters you send. Send letters by certified mail and keep the return receipts. Write down the date and time of all calls, the name of the person you speak to, and what is discussed.

Set Your Communication Preferences

Regulation F established that debt collectors can use text messages and email to communicate with you. It also allows you to decide how and when you wish to communicate with debt collectors.

There are specific regulations on the frequency of contact.

If a debt collector speaks with you on the phone they must wait seven days before calling again.
A collector can only call seven times in any consecutive seven-day period.

A collector may also send “limited information messages” on media that other people may have access to, like voice mail. These messages cannot refer to a debt or identify the caller as a debt collector.

You can tell a debt collector how you want to be in contact. You can specify phone only, email only, or any other method you choose.

A debtor can refuse to allow any contact from a collector, but this is not always a good idea. The collector may decide to move straight to legal action, which you should try to avoid.

How to Communicate With Debt Collectors

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Always Dispute the Debt

If a debt collector contacts you, always dispute the debt. You may know the debt isn’t yours but the collector may not be able to prove it. If you feel a moral obligation to pay the debt, remember that whatever you pay will go to the collection agency, not the original creditor.

After you receive the Debt Validation Notice you have 30 days to dispute the debt. Send your dispute letter early to be sure that you meet that deadline.

Once you dispute the debt all collection efforts must stop until the dispute is resolved.

Before Regulation F you were required to write a formal dispute letter, often referred to as a debt validation letter.

Update: Under Regulation F you can dispute the debt simply by checking the appropriate box on the dispute form included in the Debt Validation Notice.

Your Letter

While you can dispute a debt simply by checking the appropriate box on the Debt Validation Notice, you may wish to include a letter requesting specific information.

Much of the information that consumers once asked for in debt dispute letters must now be provided in the Debt Validation Notice. You may still wish to ask for other facts or documents.

Ask for documentation that verifies that you owe the debt, such as a copy of the original contract.
Ask whether the statute of limitations on the debt has expired. The collector doesn’t have to tell you, but they can’t lie. If they won’t say, the statute of limitations may have expired.
Ask whether the agency is licensed to collect debt in your state. Again, the collector is not allowed to lie. You can ask for the date of the license, license number, and the state agancy that issued the license as well.
A copy of the last billing statement sent by the original creditor.

Tip: If you believe that there are deficiencies or missing information in the Debt Validation Notice, list those as well.

What You Can Say

If you receive a Debt Validation Notice you’re likely to get a call from the collection agency soon after. If you have read the Debt Validation Notice and it contains all of the necessary information, tell the debt collector this.

I am disputing this debt claim. I will not discuss this matter until my dispute is addressed.

Again, don’t engage in conversation. Say your piece and say it as many times as you need to.

If the Debt is Validated

As soon as you send your debt collector dispute letter, start getting ready for your next move.

If the collection agency does not respond to your letter, you’re off the hook. That’s a great outcome, but don’t count on it.

If you receive a response, examine it closely. See if the information is complete and consistent with your own records.

If the response does not contain information you request or if some information is inaccurate, you may wish to seek a lawyer’s opinion on whether or not should continue to negotiate. If you can’t afford a lawyer there are ways to get free legal advice.

The response to your letter may be complete and accurate. If it is, your next move will be to offer a settlement. You may be able to get the company to refrain from reporting your collection account to the credit bureaus. If you move immediately you may be able to settle the account before the collector files a report.

Update: Before Regulation F, many debt collectors used “passive collection”. Instead of contacting you, they would report the debt to the credit bureaus and wait for you to notice the damage to your credit and contact them

This is no longer legal. A debt collector must contact you before they report a debt to the credit bureaus.

Pay For Delete

Your debt settlement letter will include a “pay for delete” clause. You are offering to pay a settlement if the collector agrees to remove the account from your credit record.

These clauses don’t always work. The collector may refuse it and the credit bureau might not remove the account even if the collector accepts. It’s still worth a try.

If the collector validates the debt, you will want to offer a settlement immediately. That’s why you should prepare as soon as you send your debt validation level

Here’s what to do.

Read up on debt settlement. This article is a good start.
Decide what you can offer. Be sure you can make any payment you promise. If you fail to make the payment the Company may not negotiate again.
Offer less than the maximum you can pay. You may get lucky and you’ll have room to negotiate.
Prepare a debt settlement letter. This debt settlement letter template should get you started.

Take these steps before you receive the debt collector’s response to your dispute.

If the debt collector responds to your debt validation letter, read the response immediately. If the information is complete and accurate, send your debt settlement/pay for delete letter at once.

Be Aware of the Statute of Limitations

Even if a debt is valid, you should check the letter for the date of the original debt. After that, check the statute of limitations on debt in your state. You can find this information in our article on the statute of limitations on debt in every state.

If the statute of limitations has expired, the debt is time-barred. You can no longer be sued for it. You can send a letter to the collector asking them to cease all communication with you and they will have to comply.

If a debt is nearly time-barred you may choose to simply wait it out.

Remember: In some states making a payment on a debt or admitting that you owe it may restart the statute of limitations. Never admit, in writing or verbally, that you owe a debt. Always treat the debt as disputed.

What You Can Say

If a collection company representative calls you after you receive the response, here’s what you can say.

I have offered a settlement for this debt. I will not discuss this matter until I receive a written reply.

Again, be persistent. You are willing to negotiate the terms of the settlement, but you want the negotiations to be conducted in writing. Don’t discuss it on the phone.

What if the 30-Day Window has Passed?

If you have an existing collection account and the debt collector sent you a Debt Validation Notice more than 30 days ago, the debt collector can presume that the debt is valid. You still have options.

If you never received a Debt Validation Notice, contact the collection agency and inform them that you did not receive the required Debt Validation Notice. Ask them to cease all contact until they can prove that they sent it.
Dispute the account with the credit bureaus. Use our credit dispute letter (“609 letter”) template. If the credit bureau cannot verify the debt they will remove it from your credit record, and you will know that the collector does not have complete information.
Offer a settlement. If the collection company’s records are complete and they can answer your questions, use the settlement/pay for delete process described above.

Again, don’t admit liability for the debt, and don’t let the collector intimidate you.

Let’s Keep Those Letters Straight

It’s important to keep each letter in its place, so let’s sum them up.

Debt Validation Notice. This is the letter that the debt collector must send to you withing five days of their first contact with you.
Debt Collector Dispute Letter. You will send this letter to a collection company to dispute a Notice of Debt.
Credit Dispute Letter (“609 letter”). You send this letter to a credit bureau if you believe a debt has been reported incorrectly. The credit bureau may delete the record but the collection agency can still pursue you.
Debt Verification Letter. This letter contests the right of a creditor to report a debt to a credit bureau. You can send it to a collection company or an original creditor.

There are several other letters that you may wish to use.

No Contact Letter. This letter instructs a collection company to stop all contact with you. Use it carefully. The collector may choose to sue you if you cut off contact.
When to Contact Letter. This letter tells the collection agency when they are permitted to contact you.
Lawyer Only Letter. If you have a lawyer you can instruct a debt collector to send all communications to your lawyer.

You probably won’t need all of these letters, but it’s important to understand them and be ready to use them if you need to.

Know Your Rights

Debt collectors can be aggressive, but there are limits to what they can say or do. A debt collector cannot do any of these things:

Lie to you about the type, amount, or legal status of a debt;
Threaten you with violence, imprisonment, or any actiuon they cannot legally take;
Impersonate any official agency;
Use obscene or profane language;
Call you at unreasonable hours.

There’s more. If you are going to communicate with debt collectors it’s a good idea to read up on your rights in dealing with debt collectors.

If They Sue You

A debt collector can file a lawsuit against you for the collection of a debt. Some collectors will sue over even relatively small amounts.

Many debtors do not respond to a lawsuit or attend hearings. In these cases, a judge will often render a summary judgment in favor of the collector without even reviewing the evidence. This may lead to wage garnishment or even seizure of assets.

Debt collectors know this, so they may sue even if they don’t have full documentation of the debt. If a debt collector sues you, respond to all documents and appear in court when ordered to do so. Simply appearing and contesting the case may be enough to get it dismissed.

Update: Regulation F has imposed one big change in debt collector lawsuits. Debt collectors used to be able to sue you over a debt even if the statute of limitations had expired. If you didn’t show up and claim the statute of limitations as a defense, a judge could still rule against you.

Under Regulation F a debt collector can no longer sue for a time-barred debt.

If you have debts in collections it’s important to learn more about debt-collection lawsuits.

Take the Initiative

If debt collectors are pursuing you the worst thing you can do is nothing. Don’t hide, don’t pretend there’s nothing wrong, don’t try to avoid them. They will find you.

When you communicate with debt collectors it’s important to take the initiative. If a collector calls, you tell them what you are willing to talk about. Don’t admit anything. Respond promptly to every communication. Show them that you know your rights. Use the right letter for each situation. Don’t be intimidated and don’t make yourself an easy target.

Always stay organized. It’s easy to panic and forget to save letters or make notes of calls. Debt collectors will use that panic against you if you let them.

One more time: Never admit that you owe a debt, verbally or in writing. Always treat the debt as a contested matter, even if you’re offering to settle it.

It’s never easy to communicate with debt collectors, but if you make the right moves you can come out of the situation with the least possible amount of damage!

Do you have any questions about how to communicate with debt collectors? Let us know in the comments section below!

The post How to Communicate With Debt Collectors appeared first on FinMasters.

Sezzle Up Review: Is Sezzle Up Worth It? (2021)

Wed, 24 Nov 2021 08:12:48 +0200

Sezzle Up is a buy-now, pay-later service. It lets you finance purchases at certain stores in installments, then reports your payments to the credit bureaus. There’s no credit check to apply, and as long as you pay on time, there are no fees or interest.

If you’re looking to start building credit, the service is worth considering as an alternative or a supplement to traditional methods. Our Sezzle Up review will help you figure out whether it’s worth using in your circumstances.

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Extra Debit Card Review (2021)

Tue, 23 Nov 2021 11:01:59 +0200

Though there are other options now, the Extra Debit Card was the first debit card designed to help build credit. Extra reports the purchases you make on their card to the credit bureaus like a lender would, which helps you increase your score by improving your payment history.

In most other respects, the Extra Debit Card functions like any other debit card. There’s no credit check to apply, you can connect it to your existing bank account, and there’s never interest on your purchases.

Here’s our comprehensive Extra Debit Card review to help you decide whether it’s your best option for building credit.

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LOQBOX Review (2021)

Tue, 16 Nov 2021 13:00:10 +0200

LOQBOX is an innovative solution that uses monthly savings to build credit history and boost credit scores. Our LOQBOX review will give you the pros and cons and help you decide if this product is right for you.

LOQBOX launched in the UK in 2017 and opened to US consumers in 40 states in September 2020. It’s similar to a credit-builder loan, but there’s no interest. If you release your savings into a new account with a partner bank you won’t even pay any fees: LOQBOX makes its money from a commission paid by the partner bank.

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Yes, You Can Build Credit with a Debit Card. Here’s How!

Mon, 15 Nov 2021 13:00:07 +0200

Can you build credit with a debit card? The traditional answer to that question is “no”. With a traditional debit card you could draw money from an ATM or make purchases in stores or online, but you would not build credit.

Times have changed. A new generation of emerging debit cards from providers like Extra, Sesame Cash, and Sequin provide all of the features offered by traditional debit cards and build credit at the same time.

How is this possible? Let’s take a closer look at why you couldn’t build credit with a debit card before, and why you can now.

In this post:

Microsavings Apps: Start Saving Money Effortlessly

Wed, 10 Nov 2021 13:00:49 +0200

Saving money isn’t easy, especially if you’re trying to get by on an income that’s barely enough to live on. Microsavings apps can help you build savings into daily life.

Microsavings apps, as the name implies, help consumers increase their savings in small, incremental amounts. These apps will round up transactions, transfer small amounts from checking to savings regularly, help cancel unused subscriptions, and more. Many have no minimum fees and no withdrawal limits.

Fact: Right now, 21% of Americans say that they would have to borrow money if they had an unexpected $400 expense. Microsaving can help you prepare for any unexpected events.

While low-income households are the target market for most microsavings apps, young people and savvy consumers of all income levels can use microsavings apps to save $1000 or more annually.

Here’s how microsavings apps work, and how you can use them to reach your savings goals.

In this post:

Credit Strong Review (2021) | Is Credit Strong Worth It?

Tue, 09 Nov 2021 13:00:27 +0200

Credit Strong offers credit builder loans. These “loans” won’t help you buy things. In fact, you don’t get any money until after you close the account, at which point you get the principal portion of your payments back.

As the name implies, the purpose of their accounts is to build your credit. Signing up for one adds an installment loan to all three of your credit reports and gives you an opportunity to make timely payments, establishing a positive payment history.

Here’s our comprehensive Credit Strong review to help you decide if the service is worth your time and money.

In this review:

Manufactured Spending: What Is It and How Does It Work?

Mon, 08 Nov 2021 13:00:54 +0200

Manufactured spending lets you qualify for the introductory spending bonuses on credit cards without depleting your financial reserves. Instead of purchasing traditional goods or services to meet the necessary thresholds, it involves buying things you can turn back into cash, which you can then use to pay your credit card bill.

Manufactured spending can net you hundreds, if not thousands, of dollars in rewards. However, there are risks involved, so don’t rush into it without knowing how it works. Here’s what you should understand about the process to decide if it’s right for you.

In this post:

How Manufactured Spending Works
Manufactured Spending Strategies
- Prepaid Visa and Mastercard Gift Cards + Money Orders
- Funding Bank Accounts
The Legality of Manufactured Spending
Relation to Credit Card Churning
Know the Risks and Start Slow

How Manufactured Spending Works

One of the primary ways that credit card companies attract new users is to offer lump-sum sign-up bonuses. These usually promise an enticing reward of points, cash, or miles. All you have to do is hit a certain spending level on the card within a brief introductory period.

For example: in 2021, the Chase Sapphire Preferred card offered a whopping 100,000 in bonus points if you spent $4,000 on purchases within the first three months of opening your account. That’s equal to $1,250 toward travel through the Chase reward system or $1,000 in cash.

As you can see, there are exciting rewards to be had. A $1,250 travel credit could easily cover a round-trip flight to a tropical destination of your choice.

However, not everyone can afford to spend $4,000 on their credit card in three months. That works out to $1,333 per month, and you might have difficulty hitting that number without inflating your spending.

Credit card companies are hoping you’ll go out and buy that new flatscreen TV you’ve been thinking about or make some other big purchase to get you over the hump. They stand a better chance of making money off interest on your balance that way.

Of course, while that’s good for them, it’s terrible for you. Credit cards carry an average interest rate of 16.16%¹. If you overstretch and get stuck making an $80 minimum monthly payment indefinitely to pay off a $4,000 balance, you’d pay a whopping $2,564 in interest before you finished.

Enter manufactured spending. You can use it to cover the difference between your natural spending levels and your credit card reward threshold. Or, if you’re more ambitious, you can use it to cover the entire amount, so you don’t ever have to worry about spending too much.

Once you’ve reached your spending requirement, ideally generating additional cashback rewards or points in the process, you can use the money to pay off your credit card balance.

Manufactured Spending Strategies

Manufactured spending strategies tend to shift over time. When they become too well known, credit card companies or other third parties involved may feel like people are abusing the system. At that point, they may step in to limit a technique’s effectiveness.

Fortunately, there are countless ways to manufacture spending, and people find new ones all the time. Once you understand how others do it, you’ll start to see opportunities yourself and learn to create your own strategies.

The best techniques are:

Easy to complete repeatedly without calling undue attention to yourself or breaking any rules
Inexpensive enough that you don’t diminish your rewards by paying unnecessary fees
Reliably executable so you can confidently liquidate on the back end

Here are some examples of tried and true strategies that meet these requirements. They’ll give you a better picture of how manufactured spending looks in practice.

Prepaid Visa and Mastercard Gift Cards + Money Orders

One of the classic methods for manufacturing spending is to buy Visa and Mastercard gift cards and use them to pay for money orders payable to yourself.

You’ll pay a small activation fee for the gift cards, usually somewhere between $5 and $10, but you typically won’t face any charges for buying them with a credit card. Credit card fees are the bane of manufactured spending.

For example: if your landlord allows it, there’s often a fee of around 3% of your bill to pay your rent by credit card. At that rate, to reach a minimum spending threshold of $4,000, you’d pay $120 in fees, significantly eroding your potential reward. Buying gift cards is a way to avoid getting hit with these types of costs.

You can usually find the lowest activation fees for gift cards at grocery stores. Depending on your credit card terms, that may also let you leverage a category bonus.

For example, your card might offer additional points or discounts for spending at grocery stores, restaurants, and gas stations. You can also buy cards online through sites like GiftCards.com, but it’s typically more expensive.

An important thing to keep in mind when using gift cards for manufactured spending is that your credit card issuer may decide to treat the transaction as a cash advance. That would trigger significant additional fees and interest, which you want to avoid at all costs.

One of the classic methods for manufacturing spending is to buy Visa and Mastercard #giftcards and use them to pay for money orders payable to yourself

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Some ways to prevent that problem are to:

Buy your gift card in the same transaction as your grocery run
Turn off cash advances with your credit card provider

Tip: You should also ask the gift card seller whether their gift cards show up as a cash advance or a purchase before you buy to be safe.

Once you have your gift card in hand, you can use them to purchase a money order that you make out to a bank account in your name. Money orders are like prepaid checks, which means you can deposit them directly into a bank account.

Funding Bank Accounts

When you open a new bank account, you need to deposit a minimum amount of money into it to get started. Usually, people do this by depositing cash, depositing checks, or making electronic transfers. However, using your credit card instead is one of the easiest ways to manufacture spending.

Unfortunately, banks have been cracking down on this strategy for years. Most limit the amount you can fund to a relatively low dollar amount or disallow it entirely. If the transaction does go through, it often registers as a cash advance anyway.

If you’re going to give it a try, make sure you thoroughly research the bank and credit card in question first. Even then, you might end up triggering cash advance fees, so be prepared.

Learn More: Credit cards are powerful tools, but only if you know how to use them. Find out our favorite tips for wielding them well: How to Use Credit Cards Wisely: 11 Rules to Live By

The Legality of Manufactured Spending

Manufactured spending is legal. No law says that you can’t use your credit card to pay for things like gift cards, money orders, or bank accounts to get your credit card rewards. In fact, credit card issuers are well aware that they’re taking a risk by offering these incentives.

All financial institutions know there will be some people who manage to game their system. They’re just confident that they’ll still make a profit on average. That should tell you something about the dangers of manufactured spending.

However, while manufactured spending is not illegal, it is frowned upon. Financial institutions and vendors consistently revise their terms and conditions to block manufactured spending strategies. That’s why techniques typically become obsolete over time.

In addition, if your financial institution gets wind of your manufactured spending tactics or decides that your behavior is suspicious, they may lock or even cancel your account at any time.

It’s a good idea to create accounts at separate banks for your manufactured spending. You don’t want to risk losing access to the funds in your primary checking account or ruining the relationship with your bank over a $500 credit card reward.

Relation to Credit Card Churning

Manufactured spending is closely related to credit card churning, which is the process of continuously opening up credit cards, qualifying for the rewards, then closing them to avoid annual fees.

The most dedicated churners regularly open up dozens of cards per year. They can generate impressive rewards, but the only way to sustain that much spending without going broke is to manufacture it.

Unfortunately, the more often you manufacture your spending, the more likely you are to run into the risks involved, such as:

Being unable to liquidate your intermediary step back into cash
Triggering a cash advance fee or racking up interest
Getting your bank account locked or your credit card canceled

Even if you don’t manufacture your spending, banks often take steps to prevent credit card churning. For example, Chase’s infamous 5/24 rule will block your application for any of their accounts if you’ve opened five others, regardless of the institution, in the last five months.

Learn More: To get a more comprehensive understanding of credit card churning, check out our analysis of the strategy: Credit Card Churning: What Is It and Is It Worth It?

Know the Risks and Start Slow

Manufactured spending has the potential to be highly lucrative, and the lure of easy money is powerful. However, the potential downsides are also substantial, especially for people who repeat the process multiple times as a part of their credit card churning strategy.

For example: Even if you churn properly, there can be significant implications for your credit. Every time you open up a credit card, you add a hard inquiry to your credit report. Too many of them, especially in quick succession, can significantly harm your credit score.

Even worse, if you make a mistake while churning or manufacturing spending, it can quickly wipe out your credit card reward and snowball into a significant expense. For example, cash advance fees can be as much as 5% of the amount advanced and carry an interest rate even higher than the base rate for traditional credit card balances.

If you’re going to engage in manufactured spending or credit card churning, make sure you know the risks and take steps to mitigate them as much as possible. Do your research, and make sure you have the financial resiliency to withstand an attempt gone wrong.

What’s your #1 advice for people looking to practice manufactured spending? Share your thoughts in the comments below!

The post Manufactured Spending: What Is It and How Does It Work? appeared first on FinMasters.

The Millionaire Next Door Review: Best and Worst Advice (2021)

Thu, 04 Nov 2021 09:00:00 +0200

The Millionaire Next Door made waves in 1996 when it challenged America’s ideas about wealth. Despite coming out a quarter-century ago, it’s still a #1 Bestseller on Amazon in 2021. It’s long been popular in the early retirement community, too, so I was excited to finally read it.

Notably, the book isn’t so much a step-by-step guide to building wealth as it is a research report. The authors paint a picture of typical wealthy households using data and contrast it with the ideas most of us have about rich people.

This The Millionaire Next Door review will point out what I think are the easiest lessons to extract from the book and consider their merits.

In this post:

The Millionaire Next Door Summary
Stanley and Danko’s Worst Lessons
Stanley and Danko’s Best Lessons
Is It Worth Reading The Millionaire Next Door?

The Millionaire Next Door Summary

The Millionaire Next Door is rooted in a simple premise: Most wealthy people aren’t pulling up next to you at a stoplight in a BMW. In reality, they’re your next-door neighbor mowing the lawn on Tuesday morning as you pull out of the driveway and go to work.

In other words, being rich doesn’t actually look the way most of us think it does. And if you try to copy the people who outwardly appear to be millionaires, you’ll never become one yourself.

That insight alone is valuable, but the book also meticulously explores the way that wealthy households operate. There are several great lessons in it that can help you and your family duplicate their success.

Being rich doesn’t actually look the way most of us think it does. And if you try to copy the people who outwardly appear to be #millionaires, you’ll never become one yourself.

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However, some of its attitudes don’t exactly hold up in today’s world. For example, all of the millionaires that the authors interviewed were men, and the authors write as though the old-fashioned nuclear family model is a given.

It assumes a male breadwinner and a housewife, with children destined to live out the same pattern. So if you decide to read the book, be aware that it’s outdated in some respects. Try to focus on extracting the broader lessons that can still apply to your life.

Important Note: Do not take this book’s recommendations or any of my opinions on them as investment or tax advice.

Stanley and Danko’s Worst Lessons

Let me start with a quick disclaimer: The authors of The Millionaire Next Door (Thomas Stanley and William Danko) and I have many similar ideas when it comes to wealth generation. I don’t have many negative things to say about the book’s underlying messages.

However, there are some potential takeaways I want to draw to your attention. These points aren’t really instances of bad advice that I want to disagree with. They’re more like ideas that you might absorb that could backfire if you don’t apply them correctly.

1. Self-Employment is the Best Path to Wealth

The authors report that roughly two-thirds of the millionaires they spoke to were self-employed. The point shows up a lot throughout the book, and it’s easy to come away with the idea that starting a business is the best way to become wealthy, especially if you don’t read to the end.

I’ve said it before in other book reviews, but self-employment isn’t for everyone. In fact, despite being happily self-employed myself, I’d argue that it’s probably not for most people. There are a lot of things you give up when you go off on your own, such as:

Health insurance benefits
Automatic tax withholding
A social network of coworkers
Unemployment benefits

In addition, getting a business off the ground requires so much more time, capital, energy, and risk than getting a job that many will never be able to attempt entrepreneurship safely.

Ultimately, the only requirement for accumulating wealth is that you save and invest a significant portion of your income. There’s no reason you can’t do that through traditional employment.

2. Spend Heavily on Your Children’s Education

I know this next point might sound a bit nitpicky, but it warrants addressing. The authors claim that wealthy people spend heavily on their children’s schooling because they know the value of an education. It’s an exact quote from their imaginary, prototypical millionaire: “We spend heavily for the educations of our offspring.”

What the authors are probably trying to say is that getting an education is valuable. I agree with that, but there’s a potentially dangerous interpretation of their statement: the literal one.

Yes, educations have substantial monetary value, but sinking thousands of dollars into a degree can cripple your finances for life. Don’t be too quick to give your life savings to a university or take out Parent Plus student loans, even for your kids.

There are plenty of ways to get through college without debt, like community college classes, federal grants, and scholarships. Make sure you exhaust them all before you reach for your wallet.

3. Be a “Tightwad”

Don’t get me wrong, I like to save money twice as much as the next guy, and that tendency has done a lot for my finances. However, there is such a thing as pushing for too much frugality, and The Millionaire Next Door treads dangerously close.

I speak from personal experience when I say that saving money can be addictive, and you can easily trap yourself in a troublesome headspace by focusing on it too much.

I hate to admit it, but I’ve struggled to enjoy purchases because I’m too busy calculating what they cost me in foregone compound interest on more than one occasion.

The Millionaire Next Door seems to lead people toward this line of thinking. It notes that most millionaires are self-proclaimed “tightwads.” They hate to let go of a dollar, even when they have enough. To quote their constructed millionaire again:

“I am a tightwad[…] Why else would I spend two or three hours being personally interviewed by these authors? They paid me $100, $200, or $250. Oh, they made me another offer – to donate in my name the money I earned for my interview to my favorite charity. But I told them, “‘I am my favorite charity.’”

I dream of a day where no American lives paycheck to paycheck, but I also caution you not to overcorrect. Being financially responsible doesn’t mean you should be a miserable miser until you can afford to retire.

Stanley and Danko’s Best Lessons

Now that we’ve covered the less favorable aspects of the book, let’s focus on the good stuff. Honestly, I had a hard time narrowing my favorite lessons down to these four, which speaks volumes about the quality of the content.

Many of the best ideas in the book revolve around building a wealthy household and ways to make sure your kids do too, which was refreshing. Financial advice is everywhere these days, but it’s usually about managing your individual funds and lacks practical guidance for family units.

1. Intentional Frugality is Better Than Keeping Up With the Joneses

I know I chided The Millionaire Next Door for its overemphasis on frugality earlier, but there’s a balance to these things. The book still does a great job of driving home the distinction between having a high income and being wealthy, which I appreciate. It’s all about how much you save, not how much you earn.

The authors also coin one of my favorite terms for an emergency fund of all time: a “go-to-hell fund.” The idea is that having months or years of cash saved gives you the power to say no to an employer in a world where the power dynamic often skews the other way.

Central to their notion of frugality is the idea that becoming wealthy requires going against the typical expectations of wealth. If you waste your money accumulating fine trappings like luxury cars and massive houses, you trap yourself.

They mention an interesting anecdote of a millionaire they interviewed who declined a free Rolls-Royce. He felt that it would be more of a burden than anything and would pressure him to inflate his lifestyle further.

The idea that one luxury item leads to another resonates with me. It would feel incongruous to park a Rolls-Royce outside of a modest two-bedroom apartment, after all. Pretty soon, you’d be upgrading everything else in your life to match it. It’s like getting plastic surgery. Not many people can stop at just a nose job.

2. Marry Someone Who Shares Your Financial Values

While not typically a topic of personal finance, your choice of life partner has a massive impact on your ability to accumulate wealth. The Millionaire Next Door reports that most millionaires have spouses who are on board with their frugality.

That helps protect you from two potential pitfalls:

The overly spendy spouse: No amount of self-discipline will save your finances if your spouse blows your budget every month. You’ll work indefinitely only to finance their spending habit.
Financial disagreements: Arguments over money are one of the leading causes of divorce, and divorce is one of the leading causes of bankruptcy – the opposite of wealthiness^{[1, 2]}.

If you’re going to marry someone and raise a family, make sure you choose a partner who shares your financial values. Bring up the topic relatively early on in new relationships, even if it feels a bit crass. You’ll be glad you did in the long run.

While not typically a topic of personal finance, your choice of life partner has a massive impact on your ability to accumulate #wealth.

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3. Passive Investors Usually Outperform Active Investors

One of the statistics I found the most shocking in the early days of my financial education was that the vast majority of active fund managers underperform compared to a simple S&P 500 index fund.

Over the 15 years ending in 2019, roughly 92% of large-cap funds failed to beat the market. They also charge significantly higher investment fees than index funds, which erodes a shocking percentage of your portfolio over time.

Stanley and Danko found that most millionaires in America recognize this and take a primarily passive approach to investing:

“Fewer than one in ten millionaires are ‘active investors.’”

If you’ve ever seen The Wolf of Wall Street, you may remember the scene where Matthew McConaughey’s character admits that stockbrokers have no clue what the market is going to do. As he puts it, the market could go up, down, sideways, or in circles – who knows? And he’s mostly right.

If the professionals can’t do it, the average person without the same resources would likely struggle even more. Besides, when passive investment returns are more than enough to become wealthy, why waste the effort or take the risk?

4. Raise Your Children to Be Financially Capable

High-income and wealthy parents face unique financial challenges when it comes to their children. If they’re not careful, they could end up with kids who grow up so privileged that they don’t understand the value of money or hard work.

The authors of The Millionaire Next Door point out that these children tend to underearn, overspend, and remain financially dependent on their parents for much longer than they should.

Not only does that cripple the child’s development, but it also poses a significant drain on the parent’s finances. As you might expect, it’s most common in households with high income and high spending.

The authors write:

“What is expected of children who are exposed to a household environment predicated upon very high consumption, few-if any-economic constraints, little planning or budgeting, no discipline, and pandering to every product-related desire?”

Be careful how you discuss and handle money around your children, as well as how much you give to them. Not only do they listen to the things you say, but they tend to absorb your attitudes as well. It’s easy for that to get out of hand in dangerous ways.

Is It Worth Reading The Millionaire Next Door?

I appreciate many of the lessons in The Millionaire Next Door, and if you’d like to dive deeper into any of the ones I discussed above, I’d say the book is worth perusing. There are some interesting anecdotes and tips in there that you’ll probably find enjoyable.

That said, it’s not a how-to book. It won’t help you learn to do any of the things it suggests, meaning there’s very little practical budgeting, investment, or business advice in there. If you’re looking for that, you should go elsewhere.

It’s also a little old-fashioned in ways that might be upsetting to some people, and it can be repetitive, especially about the importance of frugality.

All in all, it’s probably worth picking up a free copy somewhere and giving it a quick read-through, but you’re not missing out on much by skipping it now that you’ve read this review of the highlights.

The post The Millionaire Next Door Review: Best and Worst Advice (2021) appeared first on FinMasters.