Veterans: Are 401(k) Loans Bad For Your Retirement Future?
Hey my Veteran friends: Do you ever have an itch to get a loan on your 401(k)?
In theory, saving extra earned money (like you could get here) in your 401 K should be something that is easy to do and requires very little thought beyond the setup phase. Set it, forget it, retire wealthy, amirite??
Well, unfortunately life is not as simple as any living human being knows.
It is really, really hard not to gaze longingly at a huge balance in your retirement plan when you have a present need.
Big fluctuations in the market will also have you watching your balances. It can be like a bad roller coaster ride that won’t stop.
Then there are the significant unexpected economic hardships that make you want to break the piggy bank, and the fact that you can get access to retirement savings funds in a 401 k can produce some serious temptation.
On the face of it, taking a loan from a 401 (k) can seem like a logical thing to do.
It can be rationalized by saying “Hey, I am paying 6% interest to myself! What’s better than that!”
Unfortunately, the reality is that most people who take loans against their 401 k plans will lose in the long run.
Here are 5 reasons this is the case:
1. You Want Tax on Top of Those Taxes?
No Retirement For You!!! Image: Pixabay
As explained in the video below, when you take out a loan from your 401 k plan, you, in effect, are paying taxes on your retirement funds twice.
Why?
Because you pay the loan back with after-tax dollars AND you are taxed once you take the funds out at retirement.
This is a serious hidden drag on the amount of money you can have available to you in your retirement years.
Before taking that loan ask yourself: Am I ‘OK’ with paying taxes twice on this money?
Or even better, would I take out a loan at 20% interest to solve my problem?
Most would say “Hell No!” to that question.
Well, you will be paying effectively 28% tax on that money which is basically equivalent to paying a 28% interest rate just to get back to where you would have been before.
2. Hey, Yeahhh..Let Me Get Back…*click*
Most people who take loans against their retirement plans NEVER PAY IT BACK fully. This is because you usually have one to five years to pay the loan back, and nowadays, who stays at their job for five years or more?
Very few people!
So when you leave your job you will be asked to pay the whole balance back or be hit with penalties and fees. So you will be taxed and fee’d to death at tax time for that money. A serious drag waiting to happen.
3. Why Did The Nest Egg Stop Growing?
Most people who take loans stop adding to their 401 k balance. This is because the new focus becomes paying the loan back!
It still FEELS like you are contributing to the retirement account because you are paying some money into it, but you are not adding new investment dollars so the overall pie stops growing until you pay back the loan.
This is a potentially 5 year waste of compounding money growth. If you study compounding you will realize that the 5 years at the end of a 30-year investment cycle can mean the difference between retiring to a wealthy beach lifestyle and retiring while still needing a part-time job to make ends meet. Yes, it’s that serious!
4. If You’re Struggling Financially, This Ain’t Gonna Save You
If your financial situation deteriorates further, say through poor financial decision-making or events such as getting fired, having an outstanding 401 (k) loan adds two additional burdens.
First, is the aforementioned taxes and fees coming due. Second, is that if you really hit skid row, you have already eaten part of the nest egg that could save you from complete financial disaster.
Avoiding complete financial disaster (like the loss of a home while looking for employment) could be a time to break the piggy bank. But if the bank is already broken into, what will you do??
5. So You Made A Series Of Bad Choices, What Do You Think The Next One Will Be?
Taking a loan out of your retirement plan is a huge red flag that suggests you don’t have your financial house in order and are possibly living beyond your means.
According to Investopedia needing a 401 k loan basically means you are just looking for another loan in order to spend more than you are making or have saved for a particular item or situation. In this case, this loan is seemingly more harmless than say a credit card or home equity line of credit, but the end result is still the same: Your Financial Ruin…
Learn More
The video below can provide another viewpoint for a person considering taking a loan against their future retirement income.
So what do you think? Is there ever a good reason to take out a 401 K loan or are they all bad? Comment below or on our Facebook page!
Hey Veterans: Have You Ever Been Confused About The Difference Between An Investor and A Trader?
Warren Buffet (the world’s greatest investor, in my opinion) once said that “Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic…”
That statement is dead-on. And really funny too!
His point is that investing is an action that is taken with such gravity that it is almost an act of finality. It’s like you are choosing to get married to the stock, bond or other investment.
Trading, and in particular, active trading, on the other hand, is an activity that can be made on the slightest of whims and can terminate on even flimsier notice.
I like to think of this difference in more down-to-earth terms, and so we have put together this list which is borrowed from the infographic at the bottom of this article to help people really understand the difference more deeply.
1. The goals of trading and investing are basically different.
The goal of trading is to take advantage of temporary inefficiencies in the market and profit in the short term. The goal of investing is to accumulate wealth over time through the increase in the value of assets which can only be done by holding them for the long term.
2. Different Belief Systems
The underlying belief system of a trader is based on the idea that she can predict the direction of a short-term price fluctuation and take advantage of it. Investors typically have a deep belief in the intrinsic value of their asset and are only concerned about whether the asset will continue to add to this value.
3. Profit Expectations Differ
The way a trader profits is based on purchasing on a low fluctuation and selling on a “high point”. This is considered by investors to be a fool’s errand as the short-term market price fluctuations are nearly impossible to predict. Investors want to profit based on the ability of the asset to provide cash flow in the short term and value gains in the long term.
4. Holding Periods Differ Vastly
The holding period of a trader can be as short as a few minutes. The typical holding period of an investor is greater than one year, and many times, much greater.
5. Profit Expectations
The expected returns of an active trader might be as much as 10% per month. This is not always reality as fluctuations in market conditions make this kind of return supremely difficult to maintain. An investor might expect between 5 and 15% per year return and would be delighted with a 5% loss if the general market tanked 25% over that time.
6. Tools of the Trade
The analysis tools a trader might use are termed technical indicators which are mostly statistics that are generally based on the direction of price movement. Investors typically rely on ‘fundamental’ analysis which tries to determine the intrinsic value of an investment based on the cash flow the investment will generate over its lifetime.
7. Tactics
The tactics a trader uses to earn a return is rapid buying and selling of the assets. The investor’s tactic is to buy an asset at a price they perceive to be significantly lower than the intrinsic value then hold as long as necessary for the market to bring the price to a point well above intrinsic value.
8. Avoiding and Preventing Loss
The trader’s defense against the unexpected might include trying to place sell orders that get them out of an adverse price move. The investor usually rides out adverse price moves based on the faith that their analysis of the asset is usually more correct than the market’s often wildly inaccurate fluctuations.
If you have other information to share about trading or investing feel free to share in the comments or on our Facebook page. Also feel free to share the infographic.
The infographic shown below is a tongue-in-cheek representation of how money has actually helped in man’s evolution while banking has helped speed up man’s devolution.
In a nutshell we can prove the following items beyond a shadow of a doubt…
1. Life was simpler back when barter was the main mode of trade — Image = short caveman with spear
2. Banks started to appear around 3000 BCE in Sumeria and this allowed us to store our hard-won stuff a little more securely, freeing us to wander, or sit about and think, which helped us become more civilized –Image = taller caveman with a straw hat
3. Things start to get complicated when coins were introduced by the Sumerians around that same time – we now see a tall modern man with farm tool
4. Chinese Emporer Hien Tsung issues first known paper bank notes in 806 CE, Europe quickly follows more than 800 years later when Sweden issues the first bank notes in Europe — Image= same height man but now with a sack on his back
5. Great Britain creates the Gold Standard in 1816 allowing people to place more trust in their currency due to the fact that anyone could always trade in their paper (fiat) money in exchange for real gold — Image = man bent under the weight of holding lots of office stuff
6. The US follows suit adopting the gold standard in 1879, but discards the idea a mere 54 years later with advent of the Federal Reserve Board in 1933, an entity that is NOT under the oversight of the government structure and therefore is not bound legally to serve the highest interest of anyone but themselves — Image = a poor guy bent over a plow
7. The first general acceptance Credit card introduced by Diners Club in 1950 unleashing a new, more powerful way to expand the money supply and further devalue the currency — Image = man sitting at a desk (lower than previous guy similar to last person in devolution link)
8. Bitcoin introduced in 2009. Yay! We’re all saved! Or not… (small monkey connected by wires to a computer)
9. Where is money headed next? I am afraid to ask…
Hey Veterans: Here Are The Top Personal Finance Books You Should Be Reading
Are you a veteran who is interested in investing your hard-earned dollars for the future?
Do you want to learn about the pitfalls of personal finance before you risk your hard earned money?
Are you terrified of “losing it all”?
Well, you are not alone. Luckily for us there are some real experts at gaining wealth that we can lean on to help avoid some of the most common mistakes.
We have done some digging around in the internet and have come up with some awesome books that can ‘level up’ your investing skill-set real quick.
It is clear that a new investor requires knowledge and inspiration to start an investment and stick to it long enough to reap profits. It is wise to read about others who have experienced pitfalls and success so that you can learn from their mistakes!
The better you understand the dynamics of personal finance the better you are able to equip yourself with knowledge that helps you make informed decisions.
The following books are a must read for any investor who desires to be successful.
Level Up Your Assets – Image Pixabay
1. “The Intelligent Investor” by Benjamin Graham
The author of the book is popularly known as the “godfather of value investing. ” He details the history of the stock market for you to understand proper investing in the market. He educates readers on how to analyze a stock. The book gives investors the secret to reaping big gains during the downs of the market rather than being caught up in it.
Graham gives insight into the type of trade advice to keep and which to ignore with his character Mr. Market. This book will keep you engaged and enlightened and thus it’s a must-have if you desire to be a successful investor. Look, this guy taught Warren Buffett what he knows about investing. Nuff said!
2. “The Essays of Warren Buffet: Lessons for corporate America” by Warren Buffett
Who does not know this investment guru? Warren Buffet is an investor who has been writing brilliant letters to his investors in Bershire Hathaway for over 50 years. The book gives his views on a variety of topics. Some of the topics he discusses are accounting and finance, valuation, tax planning, corporate governance, investing, mergers and acquisitions among others.
As a novice investor, this book can help you learn the proper relationship between corporate America and shareholders. The book is rich in ideas that detail the processes of enhancing a company’s value (and hence, your pockets). You cannot go wrong getting some tips from this legend.
3. “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School” by Andrew Hallam
The author is a teacher who became a millionaire in his mid-30s. He is a self-made millionaire who never inherited wealth nor won a lottery. The book has nine strategies of ensuring that you become a millionaire. It is great especially for the millennials who want to really be rich through debt free living rather than look rich through heavy credit card use.
The author advises investors on what to spend their money on and emphasizes the importance of investing now with what you have. Hallam writes on why one should invest in stock index funds, bond funds, and stocks. A super way to start your investment journey by following the nine steps.
4. “One Up On Wall Street” by Peter Lynch
Peter Lynch is widely recognized as an American business genius. This book emphasizes doing your own research rather than waiting for stock analysts to predict the most rewarding stock for your portfolio. He advises investors to invest only what they can bear losing and to avoid investing because of the crowd’s seeming current success.
Am I a potential successful investor? Lynch answers this question by outlining the qualities of an investor. The author summarizes the benefits of investing in a company that you believe in and when to sell and when to buy.
5. “Think and Grow Rich” by Napoleon Hill
This books is more about a wealth mindset than actual investing tips. Rules for success couldn’t be said better than in this, one of the best-selling books of ALL time. Hill describes the path to success which really always starts in your mind. This success is then propelled by a plan and persistence and a “burning need” to succeed.
He talks about making definite goals and working towards making them work. Hill explains poverty as something that is not planned and changing it requires you to have a clear mindset and to overcome emotions that draw you back.
Final Assessment of Your Financial Reading List
The above are just but a few books available an investor who wants to make conscious and intelligent decisions on the backs of the trials and successes of geniuses. However, the secret is not just reading them but using the shared insights to your advantage.
Hey Veterans: How To Start Investing With As Little As $10
Let’s face it:When you only have $10 invest it may not seem like you have choices.
The money just doesn’t seem like it can do diddly-squat for us but quench our thirst at Starbucks.
However, people who want to attract wealth would do their best with whatever money they have.
These same people are typically surprised at how much a consistently small effort can yield.
Think of ants. One ant drags a small crumb back to the nest. Doesn’t seem like much right? But the ant consistently brings back the crumbs when its warm, then eats in the warmth of the ant hill for the entire winter.
Even a person with only $10 to spare will still have options available if they are willing to look around for investing opportunities.
There are a lot of different things to consider, and you’d really have to take a little time to explore your options, but rest assured, they are out there.
Consider an App for Investing
One thing that a person with $10 to invest needs to do is consider an app that will allow them to make better investment choices.
Investors have to take the time to explore the app community because there are many options out there.
When thinking about how to invest $20 or so, try reviewing some apps that allow people to put their money into multiple funds through a diversified portfolio. A little bit of money is placed into a series of different investment opportunities.
These are the type of apps that people want because it gives them a chance to diversify even if there is no large sum of money available to put into a single investment. People that invest this way will be surprised about the returns on investment that they can have.
Savings Accounts
There are some that put their money into a savings account. This is something that can be tricky because most savings accounts really do not have a high rate of return.
Fortunately, there are online banks that have much higher interest rates than a typical brick-and-mortar bank.
People trying to invest money that only have $10 may consider this as an option but we don’t recommend it due to inflation and the current low rate of interest.
There are banks that can provide higher returns on interest, and it gives people the chance to save more money over the long run with low risk, but even this “high” rate of interest, quite frankly, sucks in today’s environment.
If you continue to save on a regular basis you may, however, have a decent amount of money at the end of the year to transfer from savings to an online stock investment account.
A $10 savings may not seem like a lot of money to invest, but if this is $10 a month this is a total of $120 for the year.
A person that has $10 that they can invest for each week will have a total of $520 for the year. This can be a significant amount of money that can be earning interest in an online banking account.
Invest in Yourself
When your funds are tight and you are actually trying to learn about making small investments for beginners it can be tough. Turning this small amount into a significantly bigger amount will take more than slow growth bank interest rates.
To make your money double or triple in a short time period a person may need to consider investing in their own skills.
Someone that can draw or do things creatively may consider taking the money and investing it in supplies for artwork.
There are apps that allow people to freelance and sell the type of work that they are doing to potential customers online. This is great because it actually allows so many people to turn their skills into something that is profitable. Think Uber.
If you are thinking about investing this $10 it may be to your advantage to actually invested in yourself and buy things that can help you make money in other ways.
This is ultimately going to be the fastest way to turn this $10 into more money than you may have been able to save on your own.
There is always a possibility to make more money when you invest in things that can return your profit. It just takes a little time to get what works best.
Hey Veterans: Ready To Start Investing But Don’t Have Money Saved Up?
Investing: It’s all the rage.
Everybody seems to be doing it.
They all seem to be having so much fun!
Drinking champagne…Living the high life…Riding around in limos! What do they all have in common?
They’re investing!
Ok, maybe this is a little-bit over-hyping the situation.
But, there are many articles out there that focus on what one can earn by investing. Heck, some event talk about investing small amounts throughout a lifetime.
But few that discuss how to do so for the brand new beginning investor.
Where do you go to start?
Are there investment vehicles that will take you to your financial promised land?
Following are some guidelines we here at SmartMoneyStar.com have come up with that can help a beginning investor get started investing small amounts regularly on the way to their own champagne party!
The Champagne of Beers!
It seems like other financial publications try to make us feel a little guilty for not having already invested money in some fashion or another. Almost like you’re being un-American!
The fact is, investing makes sense over a very long period of time, but if you have never done it before it can seem really daunting.
In the stock market, uncertainty is always present, but starting small allows you to learn and become educated to the world of high finance without risking your entire life savings (at first).
So finding ways to invest starting today, even if you have small amounts of money to do so, can really help start you on the path to your financial independence in the years to come.
I hope you realize that it goes without saying that you should always invest in any employer sponsored retirement plans and work to pay down high-interest debt before tackling solo investing.
If you’ve covered those bases then read on!
Image TheDigitalWay CC0
In order to start investing with little or no extra income I would recommend that you:
Start with a Free or No-Cost Online Broker
One of the biggest hurdles you will face when investing small amounts is minimizing transaction fees which can eat into your already tiny sum. If you are investing small amounts of money to start, it makes more sense to handle your own investments, other than investing through your 401k plan.
Avoid having your nest egg eaten up with fees by using an online broker that charges small transaction costs each time you choose to invest.
Many brokers will offer free trades if you have a certain minimum balance. If you can find one, consider saving for a few months before you open one to avoid these transaction costs.
Also see if you can reduce costs by connecting your investment brokerage account to your checking and savings account. Further, check to confirm that the broker offers a DRIP account (see below).
Automatic Investments and Subscription Services
Automatic investments or subscription based models in which you automatically contribute an amount into a single company’s stock is considered a cost-effective way to invest.
Many companies have their own subscription models set up which offer free investing at discounted prices.
These services allow you to invest small amounts that you may not initially notice but which can add up to larger stock positions after several years of doing so.
Setting up a contribution amount with regularly scheduled increases can lead to further growth in in your portfolio as time goes on.
You…In 20 Years!
DRIP Investing
DRIP investing is an acronym for a Dividend Re-Investment Plans and is one of the most effective ways to invest in small quantities. DRIP plans are most effective when you invest in stocks that pay dividends to shareholders.
With a DRIP investment any dividends that you receive will be reinvested in the stock at the current value of the stock when you receive the dividend.
Over a long period of time, even a small initial investment can lead to significant balances in the stock after a long period of collecting and reinvesting the dividends.
Like using the snowball method to reduce debt, this is more about the momentum of a stock investment building itself up over a period of time. In addition, companies that grow their dividends each year can lead to a significant return especially over, say, 10 years or so.
DRIP reinvestments are generally not charged with a fee and you can invest small dividends without cost, which makes this an attractive proposition for those investing small amounts.
Benefits of Investing Small Amounts
It is important to get started investing, even if you are only investing small amounts. Doing so gets you into the game and allows you to learn a lot of the nuances of investing with your skin in the game.
Further, by investing small amounts regularly you’ll avoid spending all of your investment dollars at the high of the market and are instead are reducing risk by doing something known as dollar cost averaging into your stock positions.
Wealth Coaching versus Financial Planning: The Pros and Cons of Financial Health Consultants
Managing your finances can sometimes feel a tad overwhelming. From the basic bills of life to planning for retirement, it is easy to feel lost as you navigate the financial waters.
But it is important to realize that you do not have to be alone on the journey. There are people out there who are trained and qualified to help you manage your road to wealth and anyone whether rich or not-so-rich can and should utilize these services. Why? Because it will probably cost you more in the long-run not to use them!
Today we are going to focus on two different types of financial advisors, a financial planner, and a financial wealth coach.
Now you may be asking yourself what the difference is between a wealth coach and a financial planner.
Understandable!
Basically, a financial planner gives you advice about how to manage your money, typically sells you investments, and can advise you on taxes related to your wealthy lifestyle. A financial planner (typically) has a very narrow view of your financial life and is focused on crunching the numbers to achieve the best result. This is not necessarily a bad thing…It’s just what is.
The best financial planners will usually have a certification from an authoritative body that recognizes excellence. For example in the US we have the Certified Financial Planner (CFP) designation which is a trusted brand. A person with this designation is expected to have the highest ethical standards and training in wealth creation investing.
Then we have a wealth coach, a person who (usually) takes the time to sit down with you to offer ideas on how best to manage your money. They also help you create a living budget and is more holistically concerned about the future of your overall financial health and wealth mindset.
With these distinctions in mind, made let’s break down the two types of wealth management consultants by looking at the pros and cons of using the services of each one.
What are the pros of hiring a financial planner?
Financial planners are paid to think of everything you do not typically worry about unless you are constantly reading wealth building books. They are skilled at choosing and navigating retirement plans and can advise you on the best investments for your retirement. Often times, a portion of these investments can be aggressive and if successful, your money can grow at exponential rates.
Financial planners also work hard to keep your head out of speculative clouds, if in fact you are reading too many speculative books on wealth creation. Many people think they are going to have millions of dollars for retirement, but if you’re 52 and haven’t saved a penny yet then that will be a tall order.
Building wealth from nothing quickly is not impossible, if that’s really your goal, but you’ll really have to have a lot of things going your way to make it work. A financial planner will focus on the here and now of your more safely building financial wealth, allowing you to plan around your current means and make realistic projections.
You don’t have to stick with a financial planner for the rest of your life so if you end the relationship there will be no ongoing fees. You can choose to merely pay for your financial plan, then go on with your life. If you choose not to buy any investments or mutual funds from the financial planner then your interaction with he or she will be short, sweet and the costs will be negligible in the long run.
Because the good ones have to constantly take wealth management courses, financial planners should think of everything you haven’t thought of like death and estate transfer taxes and other tax codes you never knew you could use. A solid financial planner is great because they will keep abreast of tax law and can help you save every penny you can from the gaping maw of the IRS.
If you prefer, you can pay a planner to completely organize your financial life for you. This is good for people who do not want to or cannot manage their money. Let’s face it, money management can be really hard for some.
A guiding hand can really help with difficult financial situations by working with you to create a budget (but they cannot make you stick to it!). Many people have lived their lives without a budget and find it a useful tool to help them better understand their finances and it may even allow them to save money by avoiding unnecessary spending especially when trying to figure out how to get outta debt at the same time.
You can run your latest crazy idea to create wealth online past your financial planner for a reality check. A financial planner can also help you find ways to save money on insurance. Insurance companies are in it to make money just like anyone else, as such, they hate it when you find loopholes that work to your favor.
What are the cons of hiring a Financial Planner?
Some of the fees you pay may not be disclosed until you end up paying for them! Make sure you ask about any and all fees before you agree to work with a particular financial planner. What’s more, you shouldn’t feel obligated to work with one planner over another. If you find someone with cheaper fees, then utilize their services instead. There are no friends in love or creating wealth.
Sales of investments are a big way for financial planners to make money. After all, they are in this to make money too! Be cautious of the types of investments you buy from a financial planner.
A lot of financial planners will try to sell you mutual funds and plans that have high fees associated with them. Mutual funds are a good investment in the right portfolio but you don’t want your total lifetime return on investment nibbled away by high fees (usually called “load”).
The financial planner is not concerned with this because he or she still gets their cut of the fees on the sale of the investment while you may not feel the bite right away. These fees tend to rear their ugly head when you decide it’s time to sell it and present a real hazard when building wealth. Based on your risk profile, a good financial planner will be advising you to buy a product that is in your favor and contains a low load or fee.
Tax laws change and as such, you may have to return to the financial planner for new or updated wealth creation strategies and pay another fee. The plans offered by financial planners are often set in the present and as such this could mean you have to visit them yearly and pay more fees to have the plans you have set down re-worked.
What’s more with you back in the hot seat, the financial planner is going to take the opportunity to try and sell you all those investments that you “didn’t know you needed”.
What are the Pros of hiring a wealth coach (finance)?
Wealth (sometimes referred to as “financial”) coaches focus on all stages of your life and are supposed to help you plan for all facets of your future. The advice a wealth coach provides you not only focuses on how to build wealth, but how to live well, and how your grand-kids can live well too! It is best if you find someone who seems like they know you better than you do yourself.
For example, they may suggest trust funds, savings accounts and or 401k’s depending on what suits your budget and life goals at the time.
Wealth coaches care about what you want out of your financial life and coach you accordingly. After all the financial coach knows you are sitting in their office because you want life help, not just a financial plan. The wealth coach should listen to your concerns and make sure that whatever they do is in your best interest for the present as well as the future.
Also, when it comes to overwhelming problems such as debt or bills you have fallen behind on, wealth coaches can help you overcome these obstacles with a sound timeless principles such as a simple budget. However, a financial coach should also help you see the true root of the problem, which for many people is not having sound spending habits.
A budget can be a very helpful way to dig your way out of debt and make sure you stay that way. It takes massive willpower to stick to a budget. To help you with this the wealth coach might help you create a savings goal or incentive that really speaks to you for staying on the budget.
Money management is not all about wealth tips, nor is it only meeting boring people with pocket protectors, calculators and zero personality. A good wealth coach can be the person to help you navigate rough waters and… who knows… with a tight belt, you might get to a point where you can take a killer vacation or have the honeymoon you dreamed of.
A financial coach should guide you to the point of being able to manage and create your own financial freedom. They are coaches after all!
It is true that they will be there for you as long as you need them, but the ultimate goal is really for you to become financially independent. The goal is that you are no longer afraid to look at your bank and credit card balances with a sense of not knowing what to do next. With the education provided to you by your wealth coach, you should have a much better chance at long-term financial success.
When it comes to investment choices a wealth coach will typically help you look for low-risk investments that slowly build up your future funds while protecting you from loss. Now you might be thinking low risk equals no reward but that is not true.
As previously stated higher-risk investments like mutual funds promise high returns but with that comes the risk of low, no, and even negative rates of return. With lower risk investments, you will eventually see a return from your investments, but it will not happen insanely fast.
A wealth coach usually isn’t there to sell you any particular product, so they will be much more honest about investment risks and other aspects of potential money makers. In a world that is usually sales driven, this is a refreshing change from the push by others to purchase stocks and other fee ridden products.
A wealth coaches fees are usually fully disclosed up front so there are no surprises. This gives you the power to budget for the service for as long as you need to. In fact, some wealth managers will even organize smaller automatic payments (if you so choose) on your behalf to pay their fees.
A wealth coach shouldn’t leave you stuck in a bad or poor performing investment without a plan.
However, if for some reason you wish to leave your money in an high risk investment, then the financial coach will advise you on the pros and cons, but if you insist, they will follow your wishes and leave the money in the investment. They are your coach, not your parent, and again they are there as a guide on the path to financial independence.
What are the cons of hiring a wealth coach?
Wealth coaches ultimately leave the decisions up to you. Now, this can be a pro and a con. Most people seek financial help because they cannot make sound decisions. Whereas others just want a little guidance and expert advice before they enact their financial goals and plans for the future.
Investments bought into by your wealth coach often have an expected low rate of return. This means that your wealth, while steady, can often make it seem like your lawn grass is growing at a faster pace. If you are not happy with this setup, you could always ask them to be more aggressive with your investments or you could always make the decision to seek out another type of money manager.
You are paying someone to do something you can normally do on your own. 401k’s are not hard to manage and there are even “dummies” guides to investing, but I personally can’t vouch for the effectiveness of those books.
Do your research on what you want from your finances before you seek paid advice. The internet has a wealth of information to help you make an informed choice. The problem is that there might be too much information. Who knows though, you might make way more money for yourself allowing you to invest the fees you were going to pay them back into the market.
Some wealth managers may not be qualified to do the job. Make sure you are working with someone who is certified and ask to see their credentials. Check their rating with the BBB or their local chamber of commerce. Do Your Due Diligence Homework!!! If they misuse your money or worse, run off with it, then it can be very hard if not impossible to get back.
Moreover, there are an alarming amount of wealth coaches who do not even have business degrees or any other related degree. Would you want your money managed by someone who has no idea what they are doing?
Where to from here?
Okay, so those are the pros and cons of choosing a wealth coach versus a financial planner. Now that you are equipped with that knowledge the decision for who to go forward with is up to you.
As you can see there are a lot of similarities between the two types of planners. From this point, you need to consider what you want from the financial service and shop around to make sure you find something that fits your budget.
Sit down with your loved ones and discuss your finances, that way you can go into the meeting with a clear idea of what you want for the present and future. Remember to ask the potential coach or planner any questions you have, get a clear rundown of their fees and make sure they are registered with the applicable organizations before you embark on a financial relationship with the respective person.
Ultimately, if you are not happy with the services that are being provided to you, or you feel you are not being listened to then all you need to do is break ties with the planner or coach and look elsewhere. It is your life and your financial freedom, you are the one who is in control and they are there only to advise.
And if you’ve read this far, congrats! You get the prize from the Oracle of Oklahoma – the greatest business coach of all time!
The University of Montana made an interesting article regarding helping kids learn responsible financial habits which is reprinted below:
Kids today have more money to spend and can develop bad financial habits at a very young age that last a lifetime, says a Montana State University-Bozeman Extension family economics specialist.
“The life-long benefits of teaching children to save and develop good money habits make it well worth the effort,” adds Marsha A. Goetting. Several programs are underway in Montana during April to help children develop such habits, says Goetting. Governor Judy Martz declared April as Teach Children to Save Month in Montana.
Martz’ proclamation urges all citizens to recognize that personal financial responsibility and the well-being of the emerging generation is essential to Montana’s future.
According to the American Savings Education Council, only seven percent of parents say their child understands financial matters. Thirty percent of youth report that their parents rarely or never discuss saving and investing with them.
Goetting says that educators around the country are trying to make people aware that children learn good money management by parents’ examples, so parents sharing how and why their family tries to save will emphasize the importance of savings.
In addition, parents can have their small children separate coins into piles by color and size and discuss their value. Another important discussion can include an explanation of the difference between wants and needs. A simple example could be the difference between a child wanting a specific toy but needing a new pair of shoes first.
Parents can make children’s savings visible by having them put their money in a piggy bank or clear jar. “Some parents agree to match the child’s savings to visibly increase the pile in the jar more quickly,” Goetting says.
Once the bank is full, children may open their own savings accounts at a bank, savings and loan association or credit union. Parents should encourage them to make regular deposits, she adds. Some financial institutions offer kids’ clubs and send members newsletters or provide balloons or other prizes when children make deposits.
Goetting says saving up for a purchase will help them make choices between the many things that they want. For instance, if they are saving for a favorite toy, have them cut out a picture of it to glue to the savings jar.
“Better they learn from their mistakes when the dollar amount is small than later when mistakes are more costly,” Goetting says. “Taking money out of their own savings will help them gain an appreciation for the things they buy when they have saved for a period and are using their own money.”
MSU Extension has a web site with additional ideas on teaching children to save.
