3 Reasons to Not Fund Your Adult Child’s Lifestyle

Makua BeachPhoto: Nolan K.

As the new year comes upon us, we are making resolutions to save money for ourselves and our children. Saving money and spending less is the 3rd most common New Years Resolution.

When Andrew Hallam, in his book Millionaire Teacher, says that parents are often inspired to set aside money for their children’s future when investing for the future. Setting aside money is very different than encouraging a child to earn, save and invest. He further says that giving money promotes weakness and dependence. Teaching money lessons and promoting the struggle promotes strength, independence and pride.

Thomas J. Staney and William D. Danko, in their book The Millionaire Next Door, call giving your adult children money “Economic Outpatient Care”. They state that “many parents feel compelled, even obligated, to provide economic support for their adult children and  their families.”

There are a few downfalls to giving your children money for the sake of spending.

1. It Builds Dependence

The families that give money, that is given to be used to be spent and not invested, develops financial dependence. The children who also develop this dependence have less net worth and their annual income is also less. “And, in general, the more dollars adult children receive, the fewer they accumulate, while those who are given fewer dollars accumulate more.”

2. Spending Becomes an addiction.

Children who receive the money are looking for the next injection of money to maintain their lifestyle. It becomes a hamster wheel lifestyle because they continually require income to cover their needs. They are unable to buy their happiness and they are more motivated by showing off their new toys than becoming better or learn new skills to accumulate wealth.

3. They’re trapped by Mental Accounting

In behavior economics, people will create mental accounts for money. A study, stated in the book Why Smart People Make Big Money Mistakes, suggests that we will spend $50 we are given as a bonus more easily than $50 we have been told was owed to us in salary, but mistakenly withheld.

It’s the same money, same person giving them the money, but you are more like to spend one check than the other. This is the same thing that has happened to the children. If they are freely given money, they will spend it without any thought of saving.

I hope this inspires you to teach your children how to to save and invest in their future instead of having you support them financially.

 

The Gift of Review

aloha bonespc: alohabones

Those who cannot remember the past are condemned to repeat it – George Santayana

As the year comes to an end, it’s good to review the year to find out how well you have done. Not only financially, but also with all of your other goals. My pastor said over this weekend, that “we must learn from the things we have done in the past. We get older, but will we get wiser?” It’s up to us to make that decision to be wiser as we get older.

Looking to the Past

I can tell where I am going by how I have been setting myself up in the past. There are questions that help me look back at the year are:

1. What were the high points this year?

  • Starting this blog to get my ideas out to the world. This has allowed me to be creative and start to put my ideas down to start a financial program of paying back debt.
  • Understanding that my passion is to share the ideas I have on personal finance to help people learn from my mistakes and victories.
  • Being honest with my financial circumstances, and making the changes to correct my mistakes.
  • Helping my co-workers start the process of tracking their expenses.
  • Setting up the payment plan on my debt.

2. What experiences do you wish you could have changed?

  • Start the blog earlier because there is value in what I have to share.
  • Stop feeding the fears and worrying about what other people would think of my ideas
  • Going through with a balance transfer on a card that is currently in use. (such a bad idea)
  • I wish I didn’t take money out of my retirement account to pay off debt because the compounding effect in the future would have been more than the interest I would have paid on the debt.
  • Start reading books on the stock market earlier, and invest in Vanguard index funds

3. What advice would you give to yourself at the beginning of the year?

Don’t try to beat the system of paying back your debt. There is no magic bullet to pay off your debt faster with limited resources. The overall best ways best ways to pay off debt is the debt avalanche (paying debt off with the highest interest rate first). There are ways to save a little bit more interest, but sometimes taking that extra bit of effort or chance might not be worth it.

4. What were the three biggest lessons you learned in this past year?

1. Read more, and retain the information. There’s nothing wrong with reading a book for enjoyment, but if there’s a lesson to be learned, take notes. Spending 30 – 45 minutes a day reading is a good habit to cultivate better ideas for the future.

2. If you have a bad feeling about a situation, especially financially, don’t go through with the deal. My brother wanted to buy two sets of high end knives that would have cost me well over $4,000. He could purchase for 65% off of the Manufacturer’s suggested price and resell them.

I thought it was a good idea at first because the knife sets were going to be discontinued, but there were circumstances where it did’t make sense. (I’m also not very educated in how sales in knives work.) He was a bad communicator when it came to the sale of the knives, profit margins relied on too many factors to make a profit, and there didn’t seem to be that great of a demand for the knives. So overall, I didn’t go through with the deal, and I feel better about it.

3. Setting up an automatic repayment plan for your debts and saving is by far one of the greatest tools you can have to build wealth for the future. Once it’s in place, do your best not to change the payment. It forces you to keep the “promise” of payment to yourself or your creditor.

I hope that you find some of these insights interesting, and that you can learn by asking yourself these questions as well. Please like and share if you found this interesting. I’d love to hear from you as well.

Goal Setting 2016 – Part 3 Brain Storming Goals

SulepPhoto: Sherwin Ulep

In this series we’ve covered how to set goals and why you should set them. Where do you go from here? How do you know what goals to set? How do you even know what you even want?

This is where we get to pretend we’re in Disney’s movie Aladdin, and we get to have Genie as our own personal scoffer. You’ve just gotten out of the Cave of Wonders, and Carpet lands in the desert. You get a minute to look around, and you glance over at at Genie, you get your thoughts together, and you tell Genie, “You know, I kind of know what I want, but I’m embarrassed to tell you what I really want. I’m afraid of what other people will think of me.”

Genie tells you, “Well kiddo, Do you want the best things in your life? You better let me know what you really want because that’s the only thing holding you back. What I want you to do is to write down all of the things you want and all of the things you want to do for the rest of your life. It doesn’t matter what other people think because it’s your life, and it’s up to you to live it the way you wan to. I only have one rule. You have to write out all the things you might want in your life 3 minutes or less.”

He sets a timer and you start writing anything that comes to mind. As you begin to write Genie keeps telling you “Not enough, Still not enough! Think bigger!” Keep going until your time limit is up. (if this reference doesn’t make sense to you, go watch it on Netflix.)

Now go do it. Really, set a timer for 3 minutes and write down as many things as you want in life, the goals you want to achieve, the places you want to go, and even the things you wan to eat. After time is up you may have a long list or a small list. It doesn’t matter how long your list is, just as long as you have things on there that will excite you to get up out of bed to achieve. You won’t have to achieve everything the list and that’s alright. The exercise is for you to get out of your own way, and to let go of all of the thoughts that have been holding you back in your life.

A few of my goals

  • Have a positive net worth by December 2016
  • Find a blog / business mentor
  • Set 1-2 hour a night to creatively write and read between 7:30 PM and 9:30 PM
  • Go to Crossfit Monday, Wednesday, and Friday.
  • Become more educated on stocks by reading at least 1 new book a month
  • Have over $100,000 in investments and cash in 5 years. (Crazy at this point in time because i’m about $40,000 debt)

The goals follow the SMART criteria. Just as quick recap they are

  • Specific
  • Measurable
  • Attainable
  • Relevant
  • Time-Bound

I’ll go over breaking down your goals into specific categories and how to take action in the next post. See you then.

Part 1 SMART Goal Setting
Part 2 Why You Should Set Goals

Goal Setting 2016 – Part 2 Why You Should Set Goals

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Photo: jonahkalaikai

Goal setting gives you an idea of what you want to achieve in the future (as long as it aligns with your values, which is a whole different topic all together). It also allows you to create smaller goals to make sure that you’re on track to your overall goal. You want to see progress along the way. If you’re unable to see progress, you will no longer be motivated and stop reaching for your goal.

Mindtools.com says that “By setting sharp, clearly defined goals, you can measure and take pride in the achievement of those goals, and you’ll see forward progress in what might previously have seemed a long pointless grind. You will also raise your self-confidence Add to My Personal Learning Plan, as you recognize your own ability and competence in achieving the goals that you’ve set.”

A Caveat

You don’t want to have too many goals because you’ll run yourself ragged. There is only so much that your mind will able to handle. Essentially, starting a new goal is like starting a new habit. There has been research that says that your self control is an exhaustible resource and you will get tired from overexerting yourself mentally.

In the book Switch: How to Change Things When Change Is Hard by Dan Heath and Chip Heath, it says that “the bigger change you’re suggesting, the more it will sap people’s self control. And when people exhaust their self-control, what they’re exhausting are the mental muscles needed to think creatively, to focus, to inhibit their impulses, and to persist in the face of frustration or failure. In other words, they’re exhausting precisely the mental muscles needed to make a big change.”

 

 

Part 1: SMART Goal Setting

3 Reasons to Keep a History of Your Financial Information

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Working at my computer last night I found that I had added a duplicate bank account in the Quicken, and I didn’t know how to fix it. I spent about 45 minutes trying to fix the problem, and then I got frustrated. I had a bright idea , and I thought to myself “Quicken has a restore function, lets restore the system when I didn’t have this problem.”

Before I did the “Restore to a Previous Date” function, I decided to do a backup before any major changes. After the backup completed, I started to download all my bank information from their websites, and then I thought I was almost done.

I got to one of the accounts that I manually put into Quicken, and my heart dropped into my stomach. I thought I didn’t have the information. Luckily, I remembered that I just did a backup. It’s a good thing that I did because I forgot to download information for two accounts.

Two hours later, the restoration was complete and I learned three very important things.

1. Keep Good Records of Your Financial Information.

You never know when you’ll need fix a a problem with a computer program or when you’ll need to report records to your accountant. Having a good system to keep your financial information intact is a must.

Make sure you keep a lock box or an area designated in your home for your important financial records. You never know when you’ll need your social security information, life insurance policy, or passport.

For electronic records, properly have information saved where you can easily access it. Have a system of backing up the information once a month.

2. Money tells a Story

Your financial information tells a story of what you did in the past and what you spent your money on. Recently it reminded me of being able to take my father-in-law out for his birthday. It was fun and we had a great time trying new food.

It also tells you of the mistakes that you have made financially in the past like taking out student loans and not paying them back, or having invested in business deals that didn’t go well.

Your history is a learning tool. Learn from your mistakes and success and use that information to make better decisions in the future.

3. What You Spend Your Money on is what is Important to You

It took me a while to understand, but where and how you spend your money says a lot of where you spend your time. A great teacher said “Where your treasure is, there your heart will be also.

Rick Warren said “Here’s how you know what’s really important to people: Look at their calendar, and look at their bank statement. The way we spend our time and the way we spend our money says what’s really important to us.”

Personal Finance in Paradise – Debt Elimination Series: Part 2 – 5 Steps to get a handle on your debt

Hanauma Bay

Image by propst7pl

This is part two of the personal finance in paradise debt elimination series. The focus of today is to set a step-by-step process of getting your credit card debt down, and to be able to set up plan to follow so there is no wiggle room..

The major thing that holds people from investing and building wealth is credit card debt. If you are getting charged anywhere from 12.99% to 24.99% on credit card debt, it is going to be an uphill battle to building wealth if you’re losing money by paying interest.

This is a simple detailed plan of what to do and how to get out of debt so you can begin building wealth.

1. Find out where you are: in scientific studies, it has been found that people are really bad estimators. When it comes to managing their time or estimating the amount of debt that they owe, people tend to underestimate the amount of debt they really do have in their accounts. For instance, a person may think that they have $10,000 worth of debt, when in reality it can be anywhere between $12,000-$15,000.

There are online websites such as CreditKarma.com, credit.com, and mint.com that’s are good resources which I have used in the past. These resources can access your account information and give you an overall picture of the types of debt that you have.

CreditKarma.com and Credit.com both have access updating your FICO scores as well. These may not be completely accurate at the time, but it gives you a good idea of where you currently stand.

Think of it as your adult report card. It gives you a snapshot of how well you are doing. If you have a negative net worth you can be doing better, and if you have a positive net worth, what can you do to invest more.

2. Negotiate Interest Rates: one of the ways to pay less on your credit cards is to lower your interest rate. It’s pretty easy to do, all you need to do is call your credit card company to ask for a lower interest rate. Give them a compelling reason, like you been paying on time, you have been a longtime customer with the company, and or you have also been struggling with payments. It may not work the first time or with the first person that you speak with, continue to call and ask for manager if necessary.

I personally have called the credit card companies when I have missed the payment, and my interest rate shot up from 9.99% to 24.99%. They were very lenient and they had told me that I needed to pay on time for six months or my interest rate would shoot back up to 24.99% if I miss another payment. It’s worth a try, you may get shot down, continue until you are able to get that credit card breakdown.

3. Stop getting credit card offers: when I began college, I got stacks upon stacks of mailers from credit card companies to sign up for their cards. To prevent being enticed by the credit card companies stop the credit card offers from coming to you.

One way to stop credit card offers is to contact one of the three U.S. credit bureaus three credit bureaus, Equifax, Experian, and Transunion, and have them remove you from all pre-screened credit lists. When you contact one of the credit bureaus they must contact the other two to let them know that you do not want to receive any offers from credit card companies.

Another way of doing this is to go to optoutprescren.com and click on the bottom link that says “Click Here to Opt-in or Opt-Out”, and fill out the the form and mail it in. I sent in the information, and I do not receive any other offers.

4. Choose Your Strategy: Use the debt snowball strategy, popularized by Dave Ramsey, which lists your debts in order from smallest to largest. You start to paying off the smallest debt with all the extra money you have while paying the minimums on the rest of your debts. Once the first debt has been paid off, take the money you are putting to the smallest debt and use that money to pay down the next debt on your list. Continue doing this until you you are done paying off your debts.

5. Track Your Progress: Make sure to log your progress. It’s easier to keep going if you know how well you have been doing.  You want to be able to create good tracking habits so that you can focus on the rest of your life.

One good habit is to put reminders on your phone calendar every month to update your accounts, or piggy back a habit on something that occurs regularly.

Personally, I track my information on Quicken and I forecasts my expenses for the month on an Excel sheet. I get paid on the 15th and the last day of the month. I update my accounts and prepare for the next month on payday.

it doesn’t matter how you track, just find a system that works for you.

 

Personal Finance in Paradise – Debt Elimination Series: Mindset

Kahana Bay

Debt elimination strategies should always start with how you think about money and how you use it.

I feel that it is easy to blame ourselves for the debt situation that we are in. it is easy to be the victim and take no responsibility for what we have done to ourselves. Does take a bit more courage, and small tasks to step up and take real responsibility to pay off all of the debt we have accumulated.

At the same time,  we have a chance to remember that we have more than 80% of the people in the world.  It is better to focus on what is going right in our lives, and to appreciate what we already have what we have right now.

Marie Forleo has a great video about how to have a mental shift around money. I find it really helpful because the six steps she talks about are ways all of us should be reminded about how we can make small changes in mindset. It’s always the small things that can do on a daily basis to feel a little bit better about our situation.

Carol Dweck also has a great book called Mindset. Its main focus is to teach us about the growth mindset. This is where we look at the positive side of the situation, not in a sense where we pretend that the negative isn’t there, and seeing the situation or how it can make us be a better person.

It is a chance to grow from the struggle, and a chance to work through the problem to be a better person. Paying one small debt, choosing not to buy a cookie or a DVD, and finding ways to save money will help build new habits and get us one step closer to financial freedom.

Money is a powerful force that can destroy you if you let it. You have to learn to control your money instead of letting it control you. If you don’t, you will never get out of debt and will continue to dig a deeper hole.

Be honest with yourself, and and really examine the reasons why you are and that. Be aware of your desires and you wants.

Personal Finance in Paradise – 3 Steps to Achieve Your Goals (which helped me pay off $35,000 in debt)

Stairway to Heaven  pc: @ricahyokoi

The New Year is coming around and about time when I personally start thinking about my goals for the the next year. I feel it’s always good to update yourself on how you are doing on your goals. Another good habit is to continually make new goals as you complete others that you have finished.

One of my goals is to go to the CrossFit box here in Honolulu at least 2 to 4 times a week. Sometimes I don’t go because I’m not motivated. It’s good for me, but at the same time we all go through the love-hate relationship at the gym.

My current financial goals are to payoff at least $10,000 of debt, which will also increase my net worth by $10,000.

In my studies and my own personal practice, there are practical ways to reach your goals, which are easy to do and also easy not to do. when I was able to pay off $35,000 of my debt, before I was married, I followed the following steps:

1. Define Your Goal

This is where you decide what you really want. My goal was to get rid of debt, and I had choices to make. Like I said above, my goal is to pay off $10,000 of debt. This is attainable and specific.

A good outline is using the SMART criteria for goal setting. It’s a good way for you to gather your thoughts, and to know the general idea of where you are going.

Specific – target a specific area for improvement.
Measurable – quantify or at least suggest an indicator of progress.
Assignable – specify who will do it.
Realistic – state what results can realistically be achieved, given available resources.
Time-related – specify when the result(s) can be achieved.

2. Plan what what small steps you’re going to take

Define the most important tasks that you can make so that you can get to your goal.

Be specific  with what actions you are going to take. Some people call this having a black-and-white goals, meaning that there will not be any gray area of what you can and cannot do.

For instance if you’re going to pay off a specific amount say $650 a month to your credit card bills. there is no gray area, it is a specific number and you know what you’re going to have to do.

3. Define your “Why”

Getting to your goal is easier when you know what you’re trying to achieve and why it is good for you. My why was getting to travel to Taiwan, and be able to fly around the country with friends.

This is the motivator for you and only you. There will be trials that you will go through reaching toward your goal. Getting on to the road of wealth creation is a marathon. Sometimes you just want to quit.

4. Take Action and Celebrate the Small Wins.

People find it more motivating to be partly finished with a longer journey than to be at the gate of a shorter one.

Once you start, you’re already that much closer to the finish line than you might have thought.

For your money this is where you track your expenses when you make them, and to enter it into a program like Quicken where you can see what you have done with your money. This allows you to have a history of what you’ve done, and it lets you know where you have spent your time.

It’s also writing down your expenses at the end of the day. It’s a transitional habit because you become more aware of what you are spending your money on, and you know you have to be accountable for tracking where every cent and dolalr goes.

While I’m Crossfit, and I’m looking at the countdown timer to see how much longer I have until the clock with hit 00:00 or counting the reps until I’m done with the workout, I celebrate the time passing by  doing another rep or seeing the clock tick away. I know that I’m almost done with the workout no matter how grueling it can be.

The steps are easy to do and also easy not to do. at least, for me, it gives you a framework of setting goals and achieving success.

Personal Finance in Paradise – Veteran’s Day – How You Handle Your Money: Mindset

How mental accounting affects your spending

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It’s Veteran’s day!

I want to thank all the veterans who have served our country. Thank you for being able to protect the freedom we take for granted and are able to take part of today.

Let’s talk about how we label money affects our buying decisions as some of us shop online and at the stores.

The Scenario

Let’s say this morning you wake up and start the day off great with a good breakfast, and you even got to sleep in. Then you go online and start shopping at your favorite clothing store site. You see a great looking shirt that you think you would look great in, and you buy the shirt on credit. For the moment, it makes you happy, and you don’t give it a second thought because you can just pay it off later.

Later in the day, you go on a hike with a few friends and you have a blast being in the sun. On the way home, you see your favorite coffee shop, and you haven’t had anything to eat since breakfast. You remember that they the best coffee cake. You and your friends decide to go take a peak. Once inside, you find that your favorite barista is working. You ask him to make a large iced caramel macchiato. You have a few laughs with the barista, and he gets your name wrong again on your cup. You pull out your credit card again, and you notice you have a dollar and some change in your wallet. Feeling generous, you place the money in the tip container as you leave.

Then in the evening, you take it easy and you go to a movie with your friends. You have a great day celebrating veterans, sharing some laughs, and enjoying life. Then later in the month you get your credit card statement, and you are confused on why you spent so much. What happened?

Mental Accounting

Why did we decide to go out and spend more money than we wanted? We’ve fallen victim to mental accounting. It is a concept where we treat dollars differently depending on where it comes from and how we have labeled the use of that money. The difference is that when we pay for merchandise with cash or with checks we see immediate consequences. The obvious answer is that that we have less money to spend.

We place less value on money we put on credit cards because we do not see the immediate consequences. At the same time, we don’t see that buying merchandise on credit is more expensive because of the interest that gets charged when we use the card.

Small Amounts of Money

People who have harder time holding onto small amounts of money, like putting small amounts into tip jars, have a harder time saving money. It’s because that the money we have wasn’t labeled for anything important. I”m not saying that you shouldn’t be grateful and tip your barista, it’s that if money isn’t labeled for a specific use, we will find a way to spend it.

Takeaway

To get around mental accounting, place money in accounts that are labeled for a specific purpose. For instance, a savings account, which was marked for the down payment of a house. We would be placing a higher value on the account because it limits what we are willing to do with the money.

Pre-spend money before you have the chance to spend it yourself. Let me say it this way, have your money sent over to a savings account, or investment account before you have a chance to see it in your account. Psychologically it’s much easier to set your money aside this way than by writing a check to your savings or investment account.

Track your spending at the end of the day, and keep a list of your expenses.

Have a great veteran’s day. Please feel free to comment, and let me know if there’s anything you want me to talk about.

Personal Finance in Paradise – How to develop a Financial Plan

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“If you were to show me your current financial plan, would I get so excited by it that I would go across the country and lecture on it? If the answer is no, then here’s my question: ‘Why not?’ Why wouldn’t you have a superior financial plan that is taking you to the places you want to go?” — Jim Rohn

Many of us have never been taught how to develop a financial plan, and we walk through life guessing what is the next financial move that we should make. It’s possibly the main reason why people are live paycheck to paycheck.

It took me a year or two of research and testing to figure out what I wanted in my life. One thing I recommend is the worksheet from Missouri State University which is provided in the link. The worksheet is a good start point.

The process

1. Determine your current financial situation

One of my mentors told me that your net worth is your adult report card. We lose sight of how we are doing financially, and one way is to measure how we are doing is by looking at your net worth. My financial plan started out with me being $66,500 in debt in 2007 and no savings. I started to track every purchase, and it helped me to clarify where I wanted to go in the future.

Begin with how much you have saved up (in savings accounts, Roth IRAs, and other investments), and then subtract your liabilities (all of your debt from credit cards and loans). Begin tracking your expenses and organize your financial records.

2. Develop your financial goals

I wanted to get out of it the fastest way possible and not lose any of the activities that made me happy. I asked the following questions. It helped me find out where I wanted to be in the future.

  • What do you want for the future?
  • What do you want to achieve?
  • Do you want to save a certain amount of money a month?
  • Where do you want to travel?
  • What are your financial values?

3. Identify alternative courses of action

Seeing that my purchasing behavior and spending got me into trouble, I knew that the behavior was the first thing to change. I thought to myself “there’s nothing wrong with making mistakes with money. Learn from the experience and move forward.”

Remind yourself that there is no reason to beat yourself up over the situation that you’re currently in. Your circumstances can change. It’s a learning process and it’s alright if you don’t know everything now.

4. Evaluate alternatives

Because the $66,500 price tag was looming over my head, there needed to be a major decision to be made. How much could I put toward paying down the debt. After running numbers in my budget, I decided to put $1,250 a month to the debt and that was the first thing to come out.

Of course I had to give up a few luxuries like being able to eat out often. As I learned and searched for alternatives, I gained respect for money, and relearning delayed gratification. The choices you make now get will get you closer to your goals in the future.

Weigh the costs of the choices that you make. For instance, Can I make steady payments of $650 to my debt per month? What better choices can I make with my money so I can get to the $650 goal

5. Create and implement your financial action plan

After I decided to take action, all the stress and emotion was taken out of the decision making process. It ended up becoming a game of how could I make better decisions to pay the debt down faster.

Once you have made a few decisions on what you want, and the direction you want to go, it’s time to make that plan work. This is the testing phase to see if you are able to work with your plan, and if it will work for you. The hardest part of gathering all the information and planning is complete.It will be hard at first, and the process will be worth it because you are beginning to change habits that you didn’t know you had before. You are on the road to becoming better with money.

6. Review and revise the financial plan

Your first plan isn’t going to be your last. As you move along in life, your financial situation is going to change. My financial situation changed many times over the years. Yours will too. Trust in the process, adjust when you have to, and restart from the beginning when you have to.

For more detail go to wikiHow to get deeper into the planning. Let me know if this helped you, or if you have any suggestions please let me know. See you again soon.

If you go to work on your goals, your goals will go to work on you. If you go to work on your plan, your plan will go to work on you. Whatever good things we build end up building us. – Jim Rohn