Tax Deductions And Credits For College Students To Save Money

Tax Deductions And Credits For College Students To Save Money

In the past 20 years, the cost of attending college has tripled and increased almost 8 times faster than wages. While public higher education is mostly a state responsibility, the federal government does incentivize continuing education through tax deductions and tax credits.

To understand how you might take advantage of these tax deductions as a college student or recent graduate, we’ve gathered 7 tax deductions and credits you should know to save the most money on your tax bill this year.

What is a Tax Deduction vs. a Tax Credit?

Tax deductions work to reduce your taxable income. For example, if you earn $50,000 in adjusted gross income as a single filer and claim a tax deduction worth $1,000, your net taxable income becomes $49,000. With this income, you fall into the 22% income tax bracket, saving you $220 in taxes, all things equal.

Tax credits work to reduce your tax liability dollar-for-dollar. For example, take the same situation as above. If you have $50,000 in adjusted gross income, you fall in the 22% tax bracket and pay $6,790 in federal income taxes. A $1,000 tax credit reduces this dollar-for-dollar, meaning you now only owe $5,790. You can see why tax credits are more valuable than tax deductions as a result.

1. Retirement Account Contributions (IRA)

It might seem odd to start with retirement when you’re just starting on your career journey or only have a weekend job, but this is a valuable tax deduction for students in the long-run. Before picking a stock trading app to invest this money, make sure you do your stock market research first.

Regardless of how you choose to invest, the tax code awards this behavior by offering you the ability to deduct your contributions from your taxable income if you make them into a traditional IRA. You can contribute $6,000 per year or your earned income, whichever is greater. Start saving for retirement early so you can benefit from compound growth.

2. Capital Gain Losses

If you trade stocks in a taxable account, you hopefully only make gains. But, we live in a realistic world. Not all of our investments will turn out to be winners. Depending on your state of residence, you may be able to start investing before the age of 21.

When you choose to sell your losing positions, you can harvest these tax losses to lower your taxable income. Each year, you can offset your capital gains with capital losses and claim up to $3,000 in losses against your earned income. Any unused capital losses roll forward indefinitely until you’ve completely offset capital gains in future years or you have used up your annual $3,000 maximum deduction against earned income.

3. American Opportunity Tax Credit

If you pay your own way for college, including tuition, fees, and other qualified higher education expenses, you may have the ability to claim the American Opportunity tax credit (AOTC) to lower your tax bill dollar-for-dollar.

This credit can be worth up to $2,500 per year for four years of schooling after high school if enrolled at least half-time and working towards a degree. To claim the full credit, you can claim the first $2,000 of qualified expenses and then up to 25% of the next $2,000, or $500, totaling $2,500.

4. Lifetime Learning Credit

Closely related to the American Opportunity tax credit, this one also lowers your tax bill on a dollar-for-dollar basis, but only one can be claimed. The Lifetime Learning Credit can help pay for undergraduate, graduate, or professional degree courses.

This credit does not carry a minimum enrollment amount (meaning you don’t need to be enrolled at least half time), and you don’t need to work towards a degree. Down the road, if you choose to return to school to earn additional credentials or need to take continuing education coursework to maintain licenses, you can apply the Lifetime Learning Credit to your tax bill.

5. Recovery Rebate Tax Credit

As part of the CARES Act, many Americans received a stimulus check or two. If you aren’t claimed as a dependent on someone’s tax return in 2020, and you didn’t receive a check, you could claim the Recovery Rebate Tax Credit on your return. People received these payments last year as an advance payment, but technically it counts as a tax credit on your 2020 return.

6. Student Loan Interest Deduction

If you’re one of 42 million Americans with outstanding student loans, you can deduct the interest paid as part of your student loan payments. To qualify for this deduction, you need to have paid at least $600 in student loan interest during the year and may deduct up to a maximum of $2,500 each year. Like most deductions and credits listed here, you will need to meet certain income limitations to claim this deduction.

7. Earned Income Tax Credit

If you attend college as an older student and earn a low-to-moderate income, you may also qualify for the earned income tax credit. The refundable nature of the credit means even if your tax bill falls below $0 (meaning you are due a tax refund), you can claim whatever negative balance the earned income tax credit produces.

For example, if you owed $2,000 in taxes before claiming the earned income tax credit but it amounts to $2,500 in value, this will lead to a negative tax bill of $500, which can then be returned to you via a tax refund.

This article originally appeared on Your Money Geek and has been republished with permission.

10 Steps Women Should Take Negotiating Salary Compensation

10 Steps Women Should Take Negotiating Salary Compensation

” No wonder women don’t negotiate as often as men. It’s like trying to cross a minefield backward in high heels.”

 Sheryl Sandberg, “Lean In: Women, Work, and the Will To Lead”

The gender gap remains in the usual places for women–less pay, work fewer years in the workplace with time out for children and other dependents, lower savings for retirement–but women are gaining ground.

More women are graduating college and hold more graduate degrees than men. They are reaching higher corporate levels, and there are more women-owned or founded businesses. They are making progress, as women are primary breadwinners in 41% of US homes but still carry the additional caregiving and household duties.  

Women Need To Be Assertive But Find It Hard To Negotiate

When it comes to women achieving success in their careers, moving from entry levels to ever-higher corporate levels, they need to understand how to negotiate compensation packages better. Women tend to be less assertive and more accommodative than men. That may leave significant money on the table, starting with their first job’s salary.

When women get a lower salary than men for the same job and experience, we should not dismiss that difference even for just one year. It becomes cumulative. She starts with a lower base. Even if she and her male counterpart get identical raises and promotions over the same years worked, the impact of compounding interest leaves a sizable gap in her comparable net worth.

Women Pay A Greater Social Cost

Studies have pointed to the “social cost of negotiating” which negatively impacts those who are self-advocating for a salary raise. It shows that the hit was significantly worse for women than men.

“Aggressive and hard-charging women violate unwritten rules about acceptable social conduct. Men are continually applauded for ambitious and powerful and successful, but women who display these same traits often pay a social penalty paid by women who display these traits. Female accomplishments come at a cost.”    Sheryl Sandberg

Research shows women make better advocates when they represent others than for themselves. Women fear backlash when it is for themselves but are better when they negotiate for others.

10 Steps Women Should Take When Negotiating

 

1. When You Limit Yourself To The Offer 

Before you go gangbusters, know that specific jobs may not be negotiable. Entry-level positions may be less negotiable, especially when you have little to no experience in the field.

Typically, teaching, union, hourly positions, government, and civil jobs have stated pay scales. Increasingly, companies are being more transparent with structured compensation schemes easier to understand.

2. Do Your Research First

Be aware of the typical salary ranges for jobs in your field and your geographic area. It may be difficult for you to negotiate when it’s your first job. However, you can inquire what the high and low salaries reflect.

Glassdoor, Payscale, and Salary.com are good places to start to find average salaries. Their sites may provide you information for your first job offer and be a source as your role expands at the firm. A search can provide you with relevant documentation when you seek a raise.

Speak to people who you know are working in jobs of interest to you. Ask them about the drivers of success and challenges and companies that may have opportunities. Another place to learn from is Linkedin, an excellent professional networking website source to use. Job boards are helpful when you begin the interviewing process, and reach out to human resources representatives in your field.

You should learn what the industry norms are for your field and how it relates to your education and experience.

Always be prepared to reflect on successes thus far, especially when asking for raises and promotions.

3. Build your Negotiation Skills

It is not unusual to be uncomfortable to ask for higher pay, bonuses, benefits, or promotions. Take a class to develop your negotiating skills,  or find a good negotiation coach.

I strongly recommend articles and YouTubes by Stanford Graduate School of Business Professor Margaret Neale. Her videos focus on strengthening negotiation skills for women. She is a negotiation expert and author of “Getting (More of) What You Want.”

Negotiation Is A Lifelong Skill

Lifelong skills are core in many aspects of your career and life overall. Specifically, negotiation skills require the ability to communicate, take on a challenge, critical thinking, and problem-solving. Being able to negotiate for yourself is essential  These skills will help build your confidence the right way, prepare thoroughly on the key issues, and listening to the other side’s perspective. 

Don’t be afraid to practice by doing a video of yourself. Listen to your voice and tone. Watch your demeanor and body language. Ask someone to critique you. Stay positive, sit straight, and sound confident.

Practice for real by calling your cable company, asking for a reduced bill, negotiating your interest rate on your credit card, asking for a reduced price for a used or new car, for example. Be armed with information before you make the call. Imagine the power of reducing costs by practicing your negotiation!

4. Getting A Job

If you have completed the interview process for a job you desire, show your enthusiasm but not discuss salary. Wait for the offer, and the position is firmly in your pocket before you discuss compensation. Don’t be the first to provide a definitive dollar amount or a range you are seeking. You should find out the typical salary range by doing your research ahead of time (see below). 

If offered a job but not yet the salary terms, ask for the range. Don’t accept on the spot. Be thoughtful, understand the package, and be ready to negotiate. Your goal is to exceed the high end of the range because you are their best candidate.

A  2019 Glassdoor survey found 40% of employees–39% of men and 42% of women–accepted their salary offer and did not negotiate in their current or most recent job. These statistics reflect better gender parity, a significant change from the March 2016 survey when 59% of employees–52% of men and 68% of women– accepted their salary without negotiation. Women have further to go and should be able to say “No.”

5. Take Time To Mull Offer And Show You Are Serious

If you are unsure of the offer, ask for a little time to contemplate it. Even if you are silently jumping for joy, ask the hiring manager for extra time to decide. They will appreciate your seriousness. If you do want to accept the offer, give it orally and follow up immediately in writing. Ask for a letter confirming your acceptance and agreed-upon salary, your title, incentives, and benefits

If there is a gap between the figure you had in mind and their offer, you may want to open the door to negotiate. You can say you are excited about the offer and the organization. Ask if there is any leeway in the compensation. You want to be genuinely motivated, especially if you are confident in your skills and experience.

Consider Trade-Offs

If the salary gap is too large, it may be too hard to overcome unless other parts of the package, like bonuses or stock options, can bridge the salary difference.  Benefits that accompany your package may be up for negotiation between you and the employer. Make sure that this is possible ahead of time by speaking to HR.

Some companies have extra money set aside with expectations that prospective employees may ask for better compensation packages, but a lower percentage of women negotiate than men.

Salary History Bans Are Growing

By the way, if asked about salary history, change the topic to the position. Discussion of your salary history may be illegal in your state.  Massachusetts was among the first states to make it illegal to ask for that confidential information on an interview in 2016. As of 2021, 29 states now have salary history bans. 

Related Post: Challenges Women Entrepreneurs Face And Overcome

6. Keep Track of Your Accomplishments

As you move up the corporate ladder, keep a personal journal of what you have done, not hours worked. You need to build your list of selling points with real achievements like successful presentations. Examples of these are landing a lucrative contract, strong customer sales or satisfaction, or training new employees. It will strengthen your conversations when you pitch for more money and benefits.

Women often undervalue their worth and, as a result, have lower expectations for themselves. Confidence-building is just as important as your hard work, diligence, and skills. It took time for me to strengthen my self-assurance to take stands when necessary and to be able to convince others.

7. Solicit Manager Support

It is always a good idea to have management in your corner who can provide you support and feedback. Your manager can provide you with advice on how to advance in your career or get desirable assignments. Take the initiative to talk to your managers about how things are going. Look for mentors.

Ask your supervisor for suggestions on professional development or online course opportunities. Showing your engagement as a long-term player is a  positive reflection of your motivation.

Ask your boss for constructive criticism over coffee or lunch. Be professional, loyal, and supportive.

I was fortunate to have had good support from my research director, Charlie. He was often a good-sounding board, providing advice and valuable feedback in a complex environment, particularly for women. He treated people professionally and equally.

 

8. Getting A Raise

You always want to be paid what you are worth, whether you are changing jobs or moving up the ladder. If you remain in your organization, you have a record of accomplishments, your ability to work with or manage others, and a reputation. You can use internal and external sources to find out what people are making in the field.

When I was an equity analyst at a major global investment bank, I was happy with my package and not looking to leave. I ignored recruiter calls. That was a mistake. When I finally decided to talk to a recruiter, I found out that I had been underpaid (despite making big bucks!) relative to my male counterparts.

It is always good to listen to what you may be worth externally. Of course, there are “switching costs,” adjusting to different firms, management, and colleagues, having to maintain or rebuild your reputation for a new audience, other demands, and culture.

9. Know Your Worth

Often, talking to outsiders validate that you are in the right place. Nevertheless, use information like higher salaries or compensation packages to get what you want and need. Arrange to meet with your boss and speak honestly. Provide your accomplishments, share your continued enthusiasm to work with the firm, and specifically her/him and team.

Ask for the money you believe you deserve. If you cannot get to the exact dollar, consider your package and what upgrades you may want. As you move up in your firm to more senior positions, and there are specific times to discuss your annual package, it is not unusual to have an attorney with employment law expertise to assist you in negotiations.

Related Post: Ten Ways For Women To Achieve Their Financial Independence

10. Compensation, Incentives, And Benefits

Your salary is not the only part of the compensation package to consider.  Other incentives, benefits, and perks can be a big part of your compensation package. Some companies have been quite progressive and innovative. Investigate what these companies offer. In 2021, as hopefully the pandemic fades as bad memory for all of us, working from home may be in greater demand and more acceptable to more employers

Important features of a compensation package are:

Incentives such as bonuses and equity options are essential to your total compensation and may dwarf salaries. You want to know if there is a signing bonus, annual bonuses, and how you may earn equity options. Sometimes your title and position may dictate increased access to sweeteners to your compensation package. 

Learn about the company benefits such as Insurance and amounts (flexible spending or health spending plans, health, medical, disability, life, dental, and vision), 401K retirement plans and its employer-matching program, vacation, sick, and comprehensive family paid leave, college/graduate school tuition reimbursement, and other benefits.

Increasingly, companies offer other benefits and perks specific to your family situation, or you can negotiate for them to be in your package:

Flextime or work from home;

professional development opportunities;

commuter offerings like access to a car on weekdays;

Gym pass or discounts;

Severance packages in the event of a merger & acquisition of your company or elimination of your job;

An extra vacation to match the 4-5 weeks you had at your previous employer; and

Work-life balance offerings like working from home, flexible hours, child care cost reimbursements, extended parental leave.

The Corner Office

Sometimes there are perks for certain levels of attaining specific corporate levels. Years after I became the first managing director or MD (male or female) in my department after our Research Director, I was abruptly told to pack my stuff and moved to a huge corner office by a moving company. Frankly, I thought I was being let go, and no one came to talk to me.

Closing the door, I put my head down to do some work. A knock on my door, my boss walked in, asking, “Don’t you like your new digs?” He then told me he was embarrassed to tell me that managing directors get corner offices. However, I never asked for it and he was going to promote one of the men to MD’s, and already that person asked for the other corner office.

So I was entitled to a large office with space for a couch, I just didn’t know to ask. Don’t make my mistake!

Related Post: A Guide For College Grads On Your Company Benefits Plan

Final Thoughts

As women progress in their careers, compensation packages may become more complex.  Attorneys may do your bidding for you in negotiations. However, you need to understand what you deserve. Women are not getting what they are worth yet. Positive changes are happening for women in the workplace and elsewhere.

How has your experience been in getting a new job, a salary raise, and better benefits? Please share the post with others. If you found this article of value, please visit The Cents of Money and find others you may like. Give us your thoughts.  We are happy to hear from you!

 

 

 

 

 

 

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10 Money Lessons From Martin Luther King’s Words

10 Money Lessons From Martin Luther King’s Words

Dr. Martin Luther King Jr. left us with a rich legacy in his shortened life. We owe a huge debt of gratitude to him. The struggle to attain racial equality through King’s civil rights movement is well known. What is less known were his efforts toward achieving economic equality for all. It is very much a part of his work, sermons, and speeches. His words on education, money, and morality are eerily prescient and resonate in 2021 for many of us.

We celebrate Martin Luther King Day on January 18, 2021, as a US federal holiday with banks, and schools are legally closed. Let’s remember Dr. King and his legacy on money and economic fairness using the force of his words.

10 Money Lessons From Martin Luther King Jr.’s Words:

1. The Importance of Education

Pursuing education remains a great equalizer in society. However, it hasn’t always been available on a fair basis for all races. Higher education provides opportunities for higher earnings potential and a better standard of living. Even today, it remains out of reach for many given its high cost and the burden of student debt.

I teach diverse business students who are often economically challenged at an urban-based community college part of City University of NY (CUNY). As a professor at a CUNY college, I found this incredible speech by Dr. Martin Luther King at City College’s June 12 1963 commencement. City College, located in Harlem, was founded in 1847, caters to the poor and immigrants. It was the first free public institution of higher education intended for those who couldn’t afford college.

Given my experience, I feel a personal connection to this particular speech. King targeted the importance of education and awareness of social evils (war, economic and racial injustices) for all Americans. Education, especially for the poor, is a means of lifting the oppressed and the unfortunate.

Here are some of the golden nuggets:

Power And Control As Byproducts of Education

“The complete education will equip one with the power of concentration, but it will also give him worthy objectives upon which to concentrate. It will give him a critical faculty for precise judgment, but it will also give him profound sympathies with which to temper the asperity of his judgments. It will give him not only knowledge which is power but wisdom which is control.”

  • “Education must enable a man to become more efficient and it must humanize him.”
  • “Keeping our more moral progress commensurate with our scientific and technological advances.”
  • “The function of education is to teach one to think intensively and to think critically”.

 

2. “False God of Money”

In July 1953, assisting his father, Dr. King spoke on Atlanta’s first black-owned radio station. “False Gods We Worship” series on science, nationalism, and money. He feared money worship would lead to exploitation for economic ends, selfishness, cheating, and moral degradation. His concerns were fair when we think of our current financial situation many today find themselves in: the lack of emergency funds, overspending, and high debt loads.

 Among the points Dr. King made:

  • Chasing materialism is a wasted effort.
  • “We do not have to look very far to see the tragic consequences which develop when men worship the almighty dollar… it causes men to be more concerned about making a living than a life.”
  • He cautioned on the danger of spending profits made for the sole purpose of appearing rich with possessions like Cadillacs and Buick convertibles.

This phenomenon is lifestyle inflation.  Often, it occurs when we increase spending as our income rises rather than putting away some savings. As a result, living beyond our means prevents us from reaching financial goals. Its remedy is conscious financial management that requires budgeting, cutting unnecessary spending, and good money habits to target reasonable short and long-term financial goals.

3. “Drum Major Instinct” And Our Need For Importance And Recognition

Among my favorites of Dr. King’s sermons, Drum Major Instinct was given on February 4, 1968, two months before his assassination. The notion of Drum Major Instinct raised by Dr. King was the desire to gain attention, to stand out, and be recognized. By itself, without a more legitimate aim, Drum Major Instinct was about being boastful or living beyond your means. However, harnessing Drum Major Instinct can positively contribute to society by leading, inventing, or creating something for humanity.

Using cars as metaphors for prosperity, King returns to themes of economic greed and overspending. “Do you ever see people buy cars than they can’t even begin to buy in terms of their income?… But so often, haven’t you seen people making five thousand dollars a year and driving a car that costs six thousand? And they wonder why their ends never meet.”

Instead of pursuing materialistic possessions, go after better ideals like the civil rights movement and economic justice.

4. Keep Moving Forward

“If you can’t fly, then run, if you can’t run, then walk, if you can’t walk, then crawl, but whatever you do you have to keep moving forward.”

As a preacher, Dr. King knew intimately the Gospels. He often relied on the Book of Isaiah in his speech at Spelman College Museum on April 10, 1960, as he did for “If you can’t fly.” He encouraged young men and women to keep moving forward, make achievable goals, and persevere in the fight against injustices. Dr. King warned against materialism, which focuses on “profit-making and profit-gettings aspects of capitalism.”

5. Achieving Excellence

Inspiring young students to achieve their best, Dr. King spoke at Barrett Junior High School in Philadelphia on October 26, 1967. In his famous speech, “What’s Your Life’s Blueprint?”  King said:

“Set out to do a good job and do that job so well that the living, the dead and unborn couldn’t do it any better.”

“Be A Great Street Sweeper”

He went on: “If it falls to your lot to be a street sweeper, sweep streets like Michelangelo painted pictures, sweep like Beethoven composed music, sweep streets like Leontyne Price sings before the Metropolitan Opera. Sweep streets like Shakespeare wrote poetry. Sweep streets so well that all the hosts of heaven and earth will have to pause and say: Here lived a great street sweeper who did his job well.”

Obtaining an education, enriched skills, and a strong work ethic will provide you with a path to achieve excellence and attain personal goals. Seek every opportunity for training at work or elsewhere and exploit your inherent abilities such as being multi-lingual. Leverage your unique characteristics that are valuable for employers. Don’t just do an ordinary job but be the best at what you set out to do.

6. “A Freedom Budget For All Americans”

The Freedom Budget was an ambitious step toward economic equality. Asa Philip Randolph wrote it with Dr. King’s support. Completed in January 1967, the Freedom Budget was a manifesto to reduce poverty. This manifesto was a step-by-step plan to wipe out poverty within ten years. Its goals were to provide better schools, homes, clean air, jobs, and guaranteed income through a $200 increase in federal income taxes ($1,587.70 in 2020 dollars) on the wealthy.

The seven basic objectives were:

  1. To provide full employment for all who are willing and able to work, including those who need education or training to make them willing and able.
  2. To assure decent and adequate wages to all who work.
  3. To assure a decent living standard to those who cannot or should not work.
  4. To wipe out slum ghettos and provide decent homes for all Americans.
  5. To provide decent medical care and adequate educational opportunities to all Americans, at a cost they can afford.
  6. To purify our air and water and develop our transportation and natural resources on a scale suitable to our growing needs.
  7. To unite sustained full employment with sustained full production and high economic growth.

Who Wrote It?

Dr. King illuminated the financial stresses afflicted on whites as well as nonwhites in our society. Several scholars worked on this doctrine, notably economist Leon Keyserling (chair of the Council of Economic Advisory under President Truman) and Bayard Rustin, legendary civil rights leader. There were 211 signers, reflecting a mix of progressive economists, thinkers, and activists of the time. The current dialogue regarding guaranteed income started with the Freedom Budget and Dr. King.

7. “Where Do We Go From Here?- Guaranteed Income For All

Adding to his economic justice efforts in the Freedom Budget, Dr. King spoke at the Eleventh Annual Southern Christian Leadership Conference (SCLC) on August 16, 1967. He pointed to progress made as black owned-banks were providing loans to black businessmen. Employment was rising for blacks in both government and private industry jobs, reflecting little but positive progress.

Calling for guaranteed income, Dr. King wanted to create full employment and payments for those in poverty. He said,  “New forms of work that enhance social good have to be devised for those for whom traditional jobs are not available.” However, blacks were earning 50% of whites’ income, and change was urgent for the good of the whole economy.  He wanted to combine the best parts of capitalism and communism to create an equal ground for those in need with guaranteed incomes.

Dr. King’s plan called for a universal basic income for all Americans by creating jobs, better education, and housing so that all could prosper at a time in the economy where many were reaching affluence. There were about 40 million people in poverty at the time of this speech. John Kenneth Galbraith, a notable economist, thought MLK’s plan would cost $20 billion per year. This cost compares to the then $35 billion annual costs of financing the unpopular Vietnam War. For more on a current view of the Pros and Cons of Universal Basic Income, see our article here.

Nixon’s Proposed Family Assistance Plan

The call for universal basic income doesn’t seem so farfetched today, and it wasn’t then either. Shortly after Dr. King’s death, President Richard Nixon had proposed an anti-poverty plan to the nation in 1969. It was called the Family Assistance Plan. Nixon’s plan would have provided an annual guaranteed minimum income of $500 for each adult and $300 for each child when the median household yearly income was $7,400. The plan intended was to gradually phase out income benefits as the family’s earned income rose. Advocates realized benefits would be within one year.

8. Leadership

Few leaders have impacted others as Dr. Martin Luther King Jr. had. He taught others to be purposeful, be educators and leaders, works with others to get things done, and promote justice. We are better for what he stood for and what we could have been as a nation had he lived a full life in years.

  • “A genuine leader is not a searcher for consensus but a molder of consensus.”
  • “We need leaders not in love with money but in love with justice.”
  • “Money, like any other force such as electricity is amoral and could be used for good or evil.”

9. Be Kind To One Another

Dr. King appeared at the Western Michigan University campus in Kalamazoo on December 18, 1963, and delivered a plea for brotherhood with these words: “We must learn to live together as brothers, or we will perish together as fools.” For sure, Dr. King was referring to the racial divide. Our country remains politically divergent. Perhaps MLK’s inspiration can heal our differences. Be kind to others as a first step.

10. Estate Planning

With all of Dr. King’s efforts to provide for guaranteed income, education, selflessness, and better jobs for all Americans, he financially shortchanged his own family. Imposing sacrifices on himself, he mostly gave away the money he earned, including the $54,600 Nobel Peace Prize received. Despite Coretta King’s plea to set aside money for their children’s education, there were no financial assets. Activist friends provided funding for his four children’s education.

Moreover, Dr. King died intestate, that is, without a will. The family did not receive guidance or instructions regarding the use of his many works. As a result, his children have fought amongst themselves in court battles over intellectual property rights. However, well-intentioned and proud Dr. King was in leaving a remarkable legacy for his family and all Americans, it is sad to know how the lack of proper estate planning can tear a family apart.

Leaving legacies in more contemporary times is even more complicated with the advent of digital technology. Most of our assets are in digital form and are still not fully addressed in our estate planning documents. Take a look at some guidance we provide to how you may best approach accounting for these assets.

Final Thoughts

Dr. Martin Luther King Jr. has provided us with a rich legacy. He has inspired us with his conviction for racial and economic equality. Through his words, he has provided us with valuable lessons on money: overspending, materialism, lifestyle inflation, achieving excellence in education and work,  economic parity, financial insecurity, giving back to others, and leaving assets for his loved ones.

Thank you for reading! Are there favorite MLK quotes or speeches that inspired you? Please share! We would love to hear from you!

 

8 Financial Lessons Learned During The Pandemic

8 Financial Lessons Learned During The Pandemic

“The meaning of intelligence is the ability to change.”

Albert Einstein

According to studies, it takes 21 to 66 days on average to change your habits in regular times. As a result of the pandemic, which continues, we needed to change our lifestyles. To stay healthy, we made significant concessions. Lockdowns required masks, social distancing, and grocery shortages. As a result, it led to an economic downturn with massive unemployment. This became our new norm.

We formed new habits and learned many lessons with financial implications to cope with COVID-19. Optimism is in the air as potential vaccines may provide a path to resuming our lives. Still, the pandemic has left an indelible mark on all of us in a variety of ways.

If we can point to a silver lining from the pandemic, several surveys have consistently pointed to the following trends that show people are:

  • saving more money.
  • spending less.
  • reevaluating their priorities.

If these are permanent changes, they are good financial habits and favorable outcomes for Americans—improved financial literacy yields long-term benefits.

Saving More

The US Personal Savings rate–the percentage of people’s disposal income after taxes and spending–exhibited substantial rises during the pandemic. From 7.2% at the end of 2019, this savings rate peaked at 33.6% in April 2020, before settling down to a still-high 14.3% level in September.

A Harris Poll and CIT Bank reflected a strong disposition towards saving more money during the pandemic. This study showed 53% of consumers (including unemployed) saved more than they typically do in the last 3 months.

As a result of the pandemic, many consumers plan to continue to save more and spend less on nonessential items (egNerdWallet, The Harris Poll). Whether this a permanent shift in priorities or a hopeful aspiration remains to be seen post-pandemic.

Less Spending

According to a recent Bank of America survey, roughly two-thirds of Americans say their spending habits have changed since the start of the pandemic. Respondents pointed to reduced costs from commuting, dining out, paused gym memberships, and vacation travel.

While these costs decreased as many people stayed home, working or otherwise, other spending increased. Most notably, we spent more on online shopping, especially for groceries, higher pet expenses as families adopted more pets, and online education courses. Grocery spending was up 54% from panic buying in March compared to February.

People also formed some bad habits–overeating, too much alcohol, and a lot more binge-watching as “too many subscriptions” with new streaming services were readily available.

Reevaluating Priorities

More people participated in the market, putting more of their money into stocks after the sharp decline in March. TD Ameritrade reports that they had more visits to its website by people wanting to learn how to do day trading. Robinhood, a fintech company with an advanced trading platform, has reported that it scaled up to 13 million accounts by early October.

Day trading can be dangerous for new and inexperienced investors in volatile markets. My preference is for people to learn how to invest for the long term.

The need for saving money for emergencies became a far greater priority.

Frugality, an admired trait for some people, became more accepted. Two in three Americans report in a Slickdeals survey that the pandemic has turned them into frugal persons. Being called frugal is a compliment to many. Let’s value our collective experiences and pack them into financial lessons we learned during the pandemic.

Financial Lessons Learned During The Pandemic

 

 

1. An Emergency Fund Is Vital

The mantra of having an emergency fund to pay for your living essentials became more apparent during these times. The amount to save for this fund is less obvious. As a rule of thumb, common recommendations start with saving of $1,000 or having a goal of establishing a fund to pay for 3-to-6 months of living expenses.  Dave Ramsey calls for 3-6 months funds. Suze Orman has recommended having 8 months of savings for your living expenses.

I admire these leaders in the money management space but for this event at least that may not be enough. For many, the pandemic caused high medical and other costs AND high unemployment. Savings of 6-8 months may just a starting point and a national average.

Set Aside More Savings If You Are In A High-Cost Area

Remember that there is a significant portion of our country who live in high-cost cities like NYC and San Francisco. Lose your job there and you are still paying high-cost rent. That’s the problem with the rule of thumb. You may get the tip bitten off.

The Lesson

When determining how much to save, consider your economics and family situation.  Many learned this year that a more significant amount of savings is needed when something as unpredictable as coronavirus rolls in, dramatically hurting our economy. To better protect yourself, coverage of a year of your basic living needs will allow you to sleep better at night. Sleeping well is a better rule of thumb.

Aim high, so you don’t feel low. Reduce some of your spendings on non-essentials so you can have an abundance of financial flexibility when times are difficult.

Invest Your Emergency Funds In A Liquid And Accessible Account

Your emergency money should be in a separate account where it is safe and accessible for liquidity purposes. Such a place may be a high yield saving account or a money market deposit account, both of which are FDIC-insured.  Check whether rules limit your ability to withdraw money. While you won’t earn much in the way of income now in our low yield environment, liquidity to cash-equivalents is virtually king. Here are some other places you invest your emergency fund.

2. Investing In Stocks For The Long Term

Triggered by the reality of COVID 19, the S&P 500 index sharply declined 33.9% from February 19 peak to its bottom on March 23. This decline ended the long bull market from the 2009 recovery. Many investors, fearful of this breathtaking decline, sold their stocks into the market weakness. Even the normally optimistic investment guru Warren Buffett, was selling more stocks than actively buying in March, according to his 13F filing.

Sure, it was difficult not to be tempted to sell stocks, especially if you lost a job or lacked liquidity. I felt enormous pressure to stay the course and not sell as stocks went to the bottom.

The market’s bottom is only clear in hindsight.  I held on to my stock positions with some difficulty by having faith in my experience and listening to market experts I respect. Was I worried at all? Only a liar would say no. Having a long-term horizon that is shorter than those in their 20s and 30s means I am closer to retirement now than I was in the Great Recession. However, I sold my stocks closer to the 2009 bottom, a costly lesson I keep close to me now.

The Lesson: Don’t Sell Stocks Out Of Panic

Here’s the lesson: in my newbie years as an investor, many times, I actively sold a lot of my stocks and went over to the sidelines. There, I would watch good stocks recover over time.

Don’t sell stocks out of panic. Markets come back in time. Indeed, the S&P 500 index is up nearly 57% since its bottom, registering an 8.6% gain year-to-date. Few predicted the March collapse or the rapid stock market recovery in 2020. How did it happen? It took a little bit of luck, recovering corporate earnings, stimulus money, and, most of all, aggressive action by the Powell-led Fed all contributed to stimulating the economy and the markets.

Don’t Be Greedy

Keep a long-term perspective while maintaining diversification in your portfolio. Determine whether you have too much or too little risk for your tolerance and lifestyle. I trim stocks that have done well. I do this sell a bit as certain stocks have grown 20-25% or are too large compared to my total stock portfolio.

There is nothing wrong with selling part of your stock position into cash. Instead, it is opportunistic and financially disciplined. It helps you to avoid being greedy.  As the old Wall Street saying goes, “Bulls make money, bears make money, pigs get slaughtered.”

3. Working Remotely Became A Bigger Benefit

Before the pandemic, remote working was trending upwards in many organizations as an extension of telecommuting. However, many companies, indeed, whole industries (eg. investment banks, brokerage firms), that did not believe in the virtues of remote working were forced to consider this as a viable option.

Many companies have successfully switched to long term remote work. For many employees who kept their jobs during the pandemic, this is a meaningful perk in company benefit plans in the future.

This is a grave lesson for employees who were furloughed or laid off because of jobs that weren’t as amenable to remote work or lacked skills to do so.  Remote working jobs will remain in demand. Employees will want to equip themselves for such jobs by learning skills to allow them to do so.

As many employers took this route, allowing their people to work remotely, many credit the impact of COVID-19 for their accomplishments.

Achievement highlights show:

  • 15%-40% in increased productivity;
  • 10%-15% less turnover;
  • 40% reduction in absenteeism; and,
  • 20%+ potential cost reduction in real estate and resource usage.

Sources: Forbes, Global Workplace Analytics; BCG Analytics.

The Downside of Working Remotely

Remote working is not without its downsides. Not everyone liked working remotely, missing the interaction, collaboration, and socialization of the work environment. New employees, in particular,  may find it challenging to learn their way around the company when working remotely.

To counter that feeling of being lost, employees may need to assert themselves with their colleagues and managers with active participation. Take more initiative as you gain more confidence at the new firm. It is also the responsibility of companies and more experienced employees to establish ways to build a virtual bridge and integrate new employees. Mentoring programs may be the best way to do this with frequent check-ins.

When in need of guidance, new and young employees should be encouraged to ask potential mentors who are readily available.  As the new people on the block, frequent zoom communications should allow them to ask what skills they should add, and offer to help others.

Related Post: Remote Working As The New Normal: Advantages And Disadvantages

The Lesson

Remote working is a trend likely to stay. It provides cost benefits to both employers and employees. The opportunity to work from home is increasing. If this is a desirable benefit for you, make it a priority in your training and how you choose your job.

4. Telemedicine Became More Essential

The telemedicine industry was growing before the pandemic. However, as the government called for widespread lockdowns,  telemedicine’s need became essential for the medical field to adapt quickly. Physicians wanted to remain engaged with their patients during COVID though not every medical office was set up to implement the practice.

Big Technology Needs

Many physicians, who may have scorned the movement to provide remote medical care, took steps to implement telemedicine. To a great extent, the complexities–technology, regulatory, legal, and patient acceptance-are greater for physicians to do so.

A certain level of advanced technology is needed to provide real-time audio-video two-way communications.  Physicians want to be able to smoothly connect from their offices with their patients living in diverse locations. Many were in different places than their homes, as COVID may have hampered people’s ability to travel home from vacations or visiting family. Conversations are not enough when there are serious or chronic ailments requiring remote monitoring or MRIs.

For Example

I needed a particular recording device for monitoring my heart after an ablation procedure. To gauge its success, my cardiologist sent a special monitor to record my heart rhythms for about 10 days which I then sent back for his analysis. Fortunately, tracking reflected good results. Was it ideal? No, but it was better than waiting for the pandemic to disappear.

I didn’t need medical images or other care. However, telemedicine is not suitable for patients in need of urgent care requiring in-person attention.

 

Legal And Regulatory Compliance

Besides technology, the healthcare field requires compliance with a range of strict HIPAA privacy, insurance, and other guidelines while COVID poses threats for in-person diagnosis and treatment.

States granted temporary licensing waivers as emergency needs persisted and telemedicine became widespread during COVID. Existing telemedicine providers, like the publicly traded Teladoc, a major telemedicine provider, has had a jumpstart in treating non-emergency medical problems. It is already in compliance with relevant state, national, and international laws and regulations, including HIPAA.

The Lesson

As patience acceptance grows and there is strict compliance, telemedicine is likely to continue to grow for a garden variety of non-emergency ailments. However, the practice of distance medicine can not fully replace the “hands-on” attention for emergency needs even with the use of robotics and other technologies. Telemedicine is valuable as an interim measure or for regular visits.

5. Online Learning

Back in March, as the spread of the coronavirus caused lockdowns, schools across the country adopted remote learning measures in a hurry. For the most part, people–students, parents, teachers, and administrators–adapted as well as possible. This Fall, schools, colleges, and universities modified classed into an in-person, hybrid, and fully online model. As COVID cases increased in schools, colleges, and universities, there was a greater shift to online teaching.

The jury is out as to the success of remote learning in K-12 grades, colleges, and universities. The younger your child is, the more essential in-person learning is for instruction, emotion, and socialization benefits in order for them to thrive in our society.

Public education is the best way to raise responsible citizens, forge a common culture among our diverse population. That was constitutionally accepted after the Brown vs Board of Education.1954   Until then, public education was unequal for blacks who were discriminated against by having to go out of their neighborhoods to separate schools.

Lack Of Broadband Internet For Some

With hybrid or fully online education in place for most communities in the US since March 2020, we have learned of the disparity of broadband Internet technology. Those who reside in rural or poor neighborhoods do not have the same high-speed Internet facilities as urban areas. There has to be a level playing field for education. We must build the high-speed data transmission facilities needed for teaching.

As a replacement for in-person learning, there is a recognition that remote learning is not an equal replacement. Even Sal Khan, the founder of Khan Academy, admitted that distance learning is a less than perfect substitute for in-person schooling.

The Lesson

Distance learning is not a replacement for the classroom. Improvements should be made so remote learning works as an option for many people who have subscribed to online classes before the pandemic. As an educator myself, I am hyper-sensitive to the challenges of my students who may be sharing laptops with another family member or simply enjoy being in a class with their peers.

6. The Benefits Of Lifelong Learning

My mother always told my brother and me, “So long as you are able to learn something and can read a book, you will never be lost or bored.” It sounds corny, but my mom was right. We were never allowed to say we were bored when we couldn’t find something to do. We didn’t grow up with the Wide World of the Web (www or the  Internet) like the Gen Z digital natives. Somehow, I was able to entertain myself pretty well.

My love of reading and learning came in real handy as we were in lockdown at home. The way we read and learn may be different but once an appreciation, always one now. Sure, I was distracted by the news, little binge-watching, and too many visits to certain apps on my phone (Candy Crush, if you are wondering).

Expand Your Skills

Many people turned to pick up new or expand skills to improve their work profile or pleasure during the pandemic. People learned new languages, AI, machine learning, robotics,  how to excel on DIY projects, do exercises, experiment with cooking, and Zumba dances remotely with streaming classes of all sorts.

In a recent Gartner analysis, only 16% of new hires possess the skills needed for their current and future jobs. They found existing roles may require up to 10 new skills by 2021. That’s a lot of learning to do. Companies can accelerate training for their employees.

The Lesson

Learning skills can make your job more secure, help you earn more, and position you as a more attractive candidate to other organizations.  Take the initiative to look into where you do some of this training on your own. Learn and update your knowledge in your field so you can be a more valuable employee now and in the future.  Expanding your knowledge in areas of interest adds new dimensions to you as an employee and to your life.

Related Post: The Benefits of Lifelong Learning With No Downsides

7. More Family Time To Talk

Family time with two teens at home can be quite emotional. It doesn’t help that we also have a new puppy in our home. Hormones are raging like a “tempest in a teapot.” That said, I have had some of my best conversations with both kids or individually, learning about their interests, academics, and their good friends.

My daughter, Alex is a planner. She is organized, loves criminal forensics, enjoys working, and is very interested in diverse topics. As an avid reader of this blog and others, she is interested in learning how to handle money better and learn how to earn interest. My son, Tyler, is interested in cash usually borrows from Alex without paying her back.

The Lesson

Jokes aside, we have increased our discussions with our finances, stock market, and skill-building during this time. I have learned from their viewpoints. They are both young adults who remind me every day how hard this pandemic has been on them. It is hard not going to school with their friends, playing sports, and socializing like typical teens.

8. We Owe A Debt A Gratitude

 

Be Thankful For Your Job

Being grateful for what you have and to others provides good feelings all around. You are fortunate if you kept your job unscathed by reduced hours. By May 2020, 20.5 million were unemployed, an increase of 14 million people since February. This is a higher level than in the Great Recession.

Yes, there were higher unemployment checks and stimulus money at the start. That helped many a temporary relief. But it is stressful to be dependent on government aid held up by political maneuvers.

Health Care Workers And Many Others

During the pandemic, it was hard not to be touched by essential and non-essential workers who were in harm’s way when doing their jobs. Those efforts continue while the pandemic is still rising in the number of cases, hospitalizations, and death. So many people are working tirelessly behind the scenes in stressful jobs. Healthcare works became visible but what about security guards, food servers, janitors, transportation workers, and many more?

We may have passed these people in the past without thinking about them. I am grateful for their help and for being there for us. Thank them more often.

Family And Friends

COVID exposed a lot of vulnerabilities in our society. Our elderly population, black communities, and those with pre-existing conditions paid a higher price, many the ultimate and others who are chronically suffering from having the coronavirus.

Cancer patients had difficulties getting the essential treatments they needed. We lost two cousins and a dear friend. They may still be with us, if not for.. Not a typo but I just can’t finish that thought that is in common with so many people.

Related Post: Gratitude Can Help Your Finances

 

Final Thoughts

The tragic coronavirus pandemic has affected us all. We were forced to change our lives dramatically to cope with the dangers of the virus. Some trends are emerging that have provided some favorable outcomes. We addressed 8 financial lessons learned during the pandemic. Each financial lesson offers benefits that may help us earn and save more, spend less, invest for the long term, and help us enjoy our lives more.

Thank you for reading! Stay healthy! If you found some value in this post, can we ask you to share it with someone? Consider joining by subscribing to The Cents of Money and getting some freebies and our weekly newsletter.

 

 

 

Scary Financial Statistics You Should Know (And Learn From)

Scary Financial Statistics You Should Know (And Learn From)

“Do not save what is left after spending; instead spend what is left after saving.”

Warren Buffett

Financial literacy is the ability to understand how money works. It is a challenge for many people to make, manage, spend, and invest it for the benefit of having financial flexibility and a good life.

Growing up in a home that often struggled with money, I have had some financial success but not without self-made challenges and forced errors. The smartest people I know in the world, my husband and I included, have blind spots when handling money. Being a lifelong learner, I find no shortage of things I would like to learn.

The Importance of Financial Literacy Skills

I have either worked in the financial field on Wall Street or teaching finance to college students virtually all my career. My goal is to teach financial literacy skills to all who want to learn more through this blog. It is surprising how few financial literacy courses are in high school or even college. Yet, financial literacy is a skill we all need to learn. I always find this statistic scary: 63% of Americans got three or fewer answers (out of a five-question exam) correct on a basic financial literacy test given by FINRA Investor Education Foundation.

In writing this article, I found interesting and scary financial statistics in 8 significant areas. However, we had a dreadful year in 2020 due to coronavirus. We have had to be on zoom because of continued social distancing needs in 2021, and that maybe is the scariest fact of all.

Financial Statistics You  Should Know And Learn From In 8 Areas

 

1. Savings Should Be A Priority Starting With An Ample Emergency Fund

COVID’s impact has been devastating to many, and it has not yet disappeared. One financial lesson is clear: the need for an ample emergency fund for unexpected costs. However, saving for one is not always easy. Based on a 2018 survey by the Federal Reserve, 61% of adults would handle an unexpected expense of $400 using cash, savings, or a credit card. By paying the credit card bill in full, you won’t have interest payments.  Another 27% would only be able to cover $400 by borrowing or selling something, and 12% would not cover it.

Related Post: Why You Need An Emergency Fund And How To Invest It

The reality is that many Americans often face more significant financial difficulties than $400 when having to pay for a car repair or a medical bill.  Just 40% of adults would be able to cover the unexpected amount through savings if the cost rose to $1,000, according to Bankrate’s 2020 survey.

How Much Should You Save for Unexpected Costs?

To combat these pressures, an ample emergency fund is a “must-have” tool for households. How much should it be? It is common to believe six months of savings to pay for living expenses is a good start.  During financial crises, people may need more savings. The median duration of unemployment increased from 8.6 weeks in November 2007 to 25.2 weeks in November 2010. However, 45% of people were still unemployed 52 weeks or more in 2011 (Bureau of Labor Statistics report).

Many have been out of jobs during the pandemic through layoffs and furloughs with still high unemployment levels months later. While unemployment checks help to an extent, dependency on government resources is often folly given the politics we have seen in the latest stimulus talks.

$2,467 May Be The Magic Amount

Researchers found $2,467 in emergency savings is needed to offset a financial disaster. A study of lower-income households by the Federal Reserve Bank of St. Louis and a Chilean professor determined the amount. About 70,000 households participated with income below 200% of the poverty level.

The median household savings was $70, while a quarter of the participants had zero savings. $2,467 was out of reach for many respondents. Like skipping medical appointments, hardships rose for those who were unable to come with that amount compared to those who could. While the $2,467 sounds like a big number, it is not out of line with the need to have savings of at least six months of your living expenses covered. Savings rates tend to rise by income.

Living Paycheck-To-Paycheck

A recent survey by First National Bank of Omaha found 49% of respondents expected to be living paycheck-to-paycheck. That percentage is high as the bank completed the study in early 2020 before the pandemic impact.  Living paycheck-to-check means that your monthly expenses devour your monthly income with little to no money left for savings or otherwise.  Budgeting is a must, and 83% of the respondents expected to stick to their budget this year.

Separately, Willis Towers Watson, a leading global advisory firm, reported 18% of employees making more than $100,000 per year live paycheck-to-paycheck. Keep in mind that certain parts of the US have significantly higher living costs. Higher annual incomes don’t always stretch as much as you would think.

2. Spending Less Than You Earn

To be financially comfortable, you should spend less than you earn, not borrow to pay your debt. In 2019, annual household income was $68,703 and compared favorably to $64,036 in consumer expenditures. (US Census, Bureau of Labor Statistics)

However, overspending does exist in our consumptive society as borne by these statistics by The Credit  Examiner and multiple sources:

52% of Americans spend more than they earn.

The average American spends $1.33 for every dollar earned.

21% regularly have expenses above income.

13.5% of Americans adjust their spending the following month to get back on track.

1 in 4 has more debt than savings.

Avoid Impulse Buying

Impulse buying has been a  culprit in overspending. The average consumer spent $5,400 annually on impulse shopping pre-pandemic, often on food and dining. Valassis research found 35% of consumers consider themselves predominantly impulse spenders. As such, they tend to treat themselves to buy something unexpected as part of the experience. That tendency to impulse shop continued mostly online as spending increased by 18%  in April 2020 compared to earlier in the year (Slickdeals, Valassis).

Overspending Can Lead To Borrowing More Than You Should

To avoid overspending, understand your needs, and wants. Needs are your basic living needs such as food, shelter, medical, and education requirements. Wants are desires shaped by your personality and culture. Consider these purchases more carefully if you are overspending. Go shopping with a list and stick to it. When making purchases online, put your buys in a cart and wait hours or the next day to see if you still must have it.

Related Post 10 Ways To Better Manage Your Spending

3. Retirement Savings

The average 401K retirement plan balance rose to $112,300 in 4Q 2019, while the average IRA  amounts to $115,400. Fidelity, which has more than 30 million retirement accounts, reported some positive trends for retirement plans:

Record numbers of workplaces offered managed 401K and 403(b) tax-exempt plans, which grew to 32% of the total percentage of plans.

35% of employers are automatically enrolling new employees and at a higher default contribution savings rate of 5% or higher. They reported that employees’ contribution rate has more than doubled over the last ten years, from 9% in 4Q 2009 to 19% in 4Q 2019.

The average 401K balance and contributions vary by age group. Twentysomethings (20-29 years) have a balance of $10,500 and a 7% contribution rate, while Sixtysomethings (60-69 years) have balances of $171,400 and 11% contribution. Early in 2020, Congress removed age limits so that individuals 70.5 years or older could continue to make contributions to their traditional IRAs. (Fidelity)

Many of Fidelity’s accounts tend to be high net worth holders and may not accurately represent US households.

A More Realistic View of The Retirement Savings Landscape

The Federal Reserve Report on the Economic Well-Being of US households in 2019 tells a different story.

The median retirement savings in the US was $60,000 in 2019. While 75% of non-retirees have some money in savings, 25% of that group does not. Of those who do save for retirement, 55% had balances in an employer-sponsored 401K plan. The Fed’s survey found fewer than 4 out of 10 respondents felt that their retirement savings were on track.

Related Post: Saving For Retirement In Your 20s

4. Net Worth

US families’ median net worth in 2019 was $121,700, a better representative amount than the average net worth of $748,800. Median is the middle point where half of the families have more, and the other half have less. Average net worth is a far rosier number because it skews higher by including the wealthy top 1% as part of the group averaged into one.

The top 1% hold 34.23% of US wealth in 2Q2020, which compares to 19.46% at the end of 2007, ahead of the Great Recession. (Federal Reserve)

The net worth varies for families by income, age, race, and asset and liability composition. Having a higher income affords families financial flexibility to have better assets, notably retirement savings, investment accounts, owning a home, net of a mortgage liability. The unemployed and underemployed have trouble paying bills and borrow more, resulting in lower net worth. 

Although net worth is a commonly used benchmark, liquid net worth is a more accurate measure of what you have for big emergencies or even a business opportunity. The calculation strips out assets that may take time to monetize quickly for liquidity purposes but keeps the same amount of your liabilities.

5. Consumer Debt

Total consumer debt held by US households in 2Q 2020 was $14.23 trillion, including $9.78 trillion in mortgage debt. (The Federal Reserve) The CARES Act benefited those holders of debt–mortgages and students, allowing for delays in payments.

Car Loan Debt

Total car loans were 1.2 trillion at the end of 2019, or 9.5% of American consumer debt.

Americans borrowed $32,480 for new cars and $20,446 for used vehicles.

Average monthly car payments vary by plan, with $550 for new vehicles, $393 for used cars, and $452 for leased vehicles.

The average APR was 8.06%. The rate often differs by the length of term and credit scores. For those with the highest credit rating, the borrowing was 5.66% compared to 21.54% for borrowers with poor credit.

Late payments of 90 days amount to 4.5% of outstanding debt.

The average loan length of term for new cars was 69 months, 35 months for used vehicles, and 37 months for leased vehicles. The longer the length of time, the greater the amount of interest paid on your purchase.

The Length of Your Loan Matters

Typically, the longer the term of your car loan or mortgage, the higher the amount of interest you will be adding to your purchase. The most extended car loan you used to be able to get was 60 months. Length creep has been pushing upwards as some lenders have offered 84 months or more. That’s just nuts. Buy a used car or a small car if the monthly payment is too much to handle. We recently bought two used certified pre-owned late-model cars to avoid taking on new debt.

Longer mortgages of 30 years remain more common than 15-year loans. The buyer should not ignore the substantially higher interest you are paying for the purchase of the home. Increasingly there are term lengths of 20 years and ten years that lenders may attract homeowners. Here is an example of the financial implications of a 30-year mortgage versus a 15-year mortgage.

Financial Implications For 30 Year Mortgage versus 15 Year Mortgage

When comparing the different loan maturities on a $300,000 loan:

  • The APR will be higher for the 30-year mortgage than a 15 year one, all else being the same.
  • The monthly mortgage payments will be significantly higher for the 15-year mortgage, given the shorter period. If you can afford to pay the higher monthly amount, you are better off with the 15-year mortgage because you pay less in total interest.
  •  Assuming you have a 720 credit score, the total home price, including total interest paid and down payment, will be lower with a 15-year mortgage loan.
  • The 30-year mortgage is much higher because you are paying interest on your loan longer, so the total home price or principal is $375,000 plus $189,622 equals $564,620.
  • If you opt for a 15 year mortgage, your total home price or principal  is $375,000 ($300,000 loan + $75,000 down payment of 20%) + $76,012 in total interest equals $451,012 for principal and interest.

Housing and Mortgage Debt

The housing market has been a good story despite coronavirus. It has been a significant beneficiary of our economic recovery since the Great Recession. Recent mortgage statistics reflect a still strong recovery despite the remaining high unemployment levels impacted by the pandemic this year. Housing purchases are at strong levels as consumers are attracted to historically low mortgage rates. However, the longer the economic downturn from COVID, the more vulnerable these statistics are.

Total outstanding mortgage debt was $9.78 trillion at the end of 2Q 2020, accounting for the largest household expenditure at  68.7% of total consumer debt. That makes sense, as owning a home is often our largest asset.

The average mortgage loan rate was 3.84% (Federal Reserve Bank of St. Louis). That rate is historically low.

78% of homes sold have a mortgage, with the remaining 22% in cash. This result was due to more cash sales than in the past.

2.63% of homeowners in the US have mortgages.

The new mortgage loan balance is $260,386.

 

An average down payment is 6%, which is below the traditional down payment of 20%. (Smart Asset) I found this statistic particularly disturbing. Apparently, bankers have been accepting down payments as low as 1%. “History doesn’t repeat itself, but often rhymes” is appropriate whether it was Mark Twain or not.

Could It Happen Again?

Small down payments are too reminiscent of the housing debacle that caused the Great Recession of 2008-2009. Then, bankers made mortgage loans, including the toxic sub-prime mortgages, relaxing requirements on credit histories, and down payments. They justified the lower down payment requirements based on the rising housing prices. We all know what happens when housing prices stopped rising and housing values crashed in 2008-2009? BOOM!  Today, housing is healthy. But, we have high unemployment and a mixed economic outlook so that a healthy housing market can change the longer the recovery takes.

The share of homeowners with a mortgage at 62.9% in 2019 is among the lowest in recent years. (Urban.org)

Mortgage debt-to-home value for residential real estate peaked at 63.3% in 2009 to 1Q19. This improvement was due to an aging population, tighter credits by the banks, and more cash sales. (Urban.org)

A survey by MBA found that the delinquency rate for mortgage loans on one-to-four family unit residential properties increased to a seasonally adjusted rate of 8.22% of all outstanding loans at the end of 2Q 2020. This rate is a nearly four percentage point jump in delinquency, the most significant quarterly rise in the survey’s history.  The COVID-19 pandemic is hampering some homeowners’ ability to make their payments.

Barriers Remain For Many Potential Homeowners

Although mortgages are low, there are three main barriers to owning a home for first-time homeowners:

68% of renters cited saving for a down payment as a significant obstacle. Many renters are unaware of low down payment programs. (Urban.org)

Access to credit, while looser now since 2008, remains tight. The median score for originating mortgages is 759 as of 1Q2019. That is well above the 696 scores in 2005 (Federal Reserve Bank of New York). That doesn’t mean that you couldn’t get a loan if you have a credit score below 700. However, it may be at a higher borrowing rate putting it out of range for many.

Affordability of homes is a factor as home prices rose in 2020. The landscape during COVID has changed with more people leaving urban environments, so it would not be surprising to see less inventory and higher down payment requirements.

Student Loans

Recent outstanding student debt was  $1.67 trillion in federal and private debt with about 45 million borrowers. Private loans account for 7.87% of the total student loans (NerdWallet).

69% of college students took out student loans, graduating in 2019 with an average of $29,900 of private and federal debt.

The average student loan debt is $32,731, with a $393 monthly payment.

The median student loan debt is $17,000, with a $222 monthly payment.

11.1% of student loans are 90 days or more delinquent or are in default.  (Student Loan Hero).

Seniors With Student Debt

Over 3 million people age 60+ still have student debt. Of those, 40,000 seniors owe an average debt of $33,800, up 44% since 2010. Those with student debt will be unable to college tax refunds, social security benefits, and other government payments. The government will garnish these amounts. Potentially losing these benefits is a harsh result for those who are at or nearing retirement. Perhaps it is time to forgive these loans. Roughly 1 in 7 people who file for bankruptcy are 65+ years old, an almost 5-fold increase since 1991 (The Consumer Bankruptcy Project).

Credit Card Debt Can Be Toxic

Credit card debt at $0.82 trillion of total consumer debt in 2Q2020 reflects a steep decline from borrowers owing more than $1 trillion at the end of 2019. This drop is likely due to COVID-related factors, which resulted in lockdowns, high unemployment, and more savings.

The US personal savings rate–personal saving as a percentage of disposable personal income–peaked at a historical rate of 33.7% in April 2020, up from 7.6% in 2019. As job losses remain high after peaking in March and April, the personal savings rate was still above previous rates at 14.1% in August 2020. (US Bureau of Economic Analysis)

Credit card debt is a relatively small part of total consumer debt. However, credit cards, if misused by users, can be far more financially lethal.

Credit Card Statistics:

If used properly, credit cards can be a useful tool for its convenience and ability to not pay for things with cash during COVID. Paying your monthly card bills in full enhances the cards’ benefits without the downside. See our related post on the Pros and Cons of Credit Cards.

6. Credit reports and Credit Scores

It is essential to review your credit report at least annually. The Federal Trade Commission did a study and found one in five people have an error on at least one of their credit reports. Related Post: 6 Ways To Raise Your Credit Scores

1 in 5 Americans aged 20-29 don’t know their credit scores.

More than 29.8% of Americans have a credit score of 680 or better.

Nearly one in two people don’t pay off their credit balances each month.

51.2% of Americans renting property do not know they can report utility and rent payments to improve their credit scores.

 

7. Investing As A Means To Wealth

Investing early and even in small amounts will be beneficial for you in the long term. Yet, many people have remained on the sidelines. There are a variety of reasons for not investing in the stock market. When stocks dropped significantly in March 2020 due to the coronavirus, it ended the longest bull market, replaced by the bear market, which proved short-lived as stocks bounced back.

Although the stock market is subject to volatility, I remain steadfast in my belief that if you have savings, can pay your living expenses, and have a long-term investment horizon, investing is where you should be. That said, you should learn as much as you about the market and be financially disciplined.

Related Post: 10 Tips To Diversify Your Portfolio

According to CNBC, 61% of adults say they find investing in the stock market to be “scary or intimidating.” Millennials feel more intimidated than either Baby Boomers or Generation X. That is probably why only 1 in 3 Millennials invest in stocks.

However, over 66% of Millennials are interested in learning how to invest. 61% of this generation believes that this is a good time to invest based on a survey by Money Under 30.

The share of adults investing in the stock market has declined from 65% in 2007 to 55% in 2020. (Statista)

In a March 2020 survey, over one-third of adults reported they were less likely to invest based on what they knew of the coronavirus. Only 12% of respondents said they were more likely to invest. (Statista)

Robinhood’s Accounts Grew During COVID

Countering some of this decline in interest in investing is Robinhood’s growth to over 13 million accounts in May 2020, in part due to COVID. Robinhood is a popular app and website for investing and trading, particularly for individuals in their 20s and 30s. They are known for zero-based commissions except for purchases on margin. Customers have to pay $5 per month for the opportunity to borrow money from Robinhood. Their platform is designed for simplicity for users to get up and running quickly. Criticisms of Robinhood are associated with outages and security, both of which the company has been fixing.

A Fun Fact

More Americans own cats than stocks. Really. While 13.8% of American families own stocks directly (as opposed to mutual funds, for example), 25.4% own at least one cat. (Federal Reserve, American Veterinarian Medical Association).

8. Estate  Planning

In a 2020 Caring.com survey, 30.4% of respondents say they don’t have a will because they don’t have assets to leave anyone.

24% fewer people have a will than in 2017.

Many beneficiary designations are out of date, a common and costly mistake. IRS statistics show that beneficiaries cash out six months after the death of the person who designated that money. Many beneficiaries are losing the compound benefits by cashing money out rather than rolling over the asset and perhaps paying taxes and penalties. We address tips on how to handle designated beneficiaries better here.

Other Financial Facts To Know

85% of people don’t like their jobs, according to a Gallup global poll pre-COVID. Only 15% of people are engaged in their careers.

Do You Want To Be A Millionaire?

7% of households in America are considered millionaires.

The average millionaire filed for bankruptcy 3.5 times. President Trump is in good company. Although he hasn’t filed for bankruptcy personally, his businesses have six times.

Only 20% of millionaires inherited their wealth. The other 80% earned their money on their own. (The Millionaire Next Door)

Final Thoughts

In this post, we reviewed many key areas of financial literacy backed by financial statistics. We tried to make relevant points on how we may improve our money management skills by learning. The coronavirus has certainly added to the many financial challenges people face. Taking one step at a time, we can improve our financial discipline by saving more, spending less, participating in retirement plans at work or on our own, and have an estate plan. With more savings, we should have an emergency fund and start investing in the stock market if you haven’t already.

Thank you for reading!! If you found this of value, feel free to share and subscribe to The Cents of Money.

 

12 Ways To Improve Your Time Management Skills

12 Ways To Improve Your Time Management Skills

“Time keeps slippin’, slippin’, slippin’, into the future.”

 Fly Like An Eagle – Lyrics by Steve Miller

 

Have you ever felt overwhelmed and stressed with too much to do and not enough time? It’s a widespread feeling.

Having good time management skills at an early age prepares you to achieve success at your school, your workplace, and your life. It is not easy to manage our time when we have so many distractions competing for our attention with immense data growth, social media, biases, and those bad habits like procrastination. Yet, with strong motivation and hard work, we can do better. We have time management tips below.

What Is Time Management?

Time management is the process of planning, arranging, and controlling how much time to spend on tasks and activities to maximize effectiveness. Developing a good habit of managing our time will give us more control over our lives. Most of us are not good at managing our time well. According to a survey, only 10% of people say they feel “in control” of how they spend their day. Learning how to allocate our time and energy is beneficial. 

Yet having better time management skills are achievable. 

Benefits Of Time Management Are Huge

  • Become more productive, effective, and efficient.
  • Have an awareness of wasting time and able to make adjustments.
  • Have a better focus, less stress, and be healthy.
  • Improve work/life balance.

By saving more time, we can have more opportunities to achieve meaningful career and life goals.

How Time Relates To Money

We often talk about the relationship between time and money and their importance as resources. Time is money, as said by Benjamin Franklin and many others. But is it?

Time is a finite resource that, when it has passed, is permanently gone. Although money may be hard to find when you are out of a job, you have an opportunity to replace it even when times are hard, as they are now. You can file for unemployment benefits, turn to money saved for an emergency, borrow money, search for a job, or start a side hustle. While not optimum, we at least have the possibility of replacing money. On the other hand, the time spent is gone forever.

Many of the tips for improving time management skills are akin to better money management habits. Having time management strategies is essential when you are in college, in the workplace, and life. 

How To Better Manage Time And Money

Tracking time spent is similar to tracking your spending. By doing so, you may better see how wasteful you are and can make changes.

Budget your time wisely for what you need to do first before acting. When budgeting your money for essential needs such as living costs, you can better assess what you have for discretionary spending for your wants.

When you spend time foolishly, you may be late on deadlines, do a poor job, and need outside help to complete your job. Overspending leads to ramping up debt that may be difficult to pay off.

Being frugal with your time is a way to acknowledge you wish to spend it more prudently. The same goes for money when we are cheap with how we spend money.

For college students, having time management skills are a must to achieve your goals. Avoid procrastination by taking better control of your schedule. Managing your time will help you to do well and graduate from school and start your career. Time management skills are relevant. You can carry these skills forward into the workplace to be more effective and efficient at your job.

I Wasted Time At College

To be honest, my time management skills were terrible in college. There weren’t any courses to take to help you eliminate time wasters. Intuitively, I knew I was wasting time, and I know when I do so now. The difference between then and now is that I have become more aware and proactively work on being more focused—years of needing to be effective and agile as an equity analyst helped me realize better productivity. If I didn’t control my time better, my competitors would undoubtedly have advantages over me.

Improving My Skills Out Of Necessity

That said, I truly learned to develop time management skills when I went to law school. I went back to school at an older age and had some good habits already. However, I had some bad ones too. Law school made a world of good in the world of time management. As a student, I read the legal cases ahead of time, then compiled the relevant concepts into big study guides. Then I cut the principles down into an index card for each class. I had daily “to-do” lists with detailed schedules for the rest of the term. I was focused, organized, and strategic about my priorities.

Think of time management as a means to an end. Mastering your time well in school and at your job often leads to handing in your assignments on time with outstanding quality, less stress, have free time to enjoy family, friends, and yourself. By saving time, you can accomplish more of your goals in your life.

My sixteen-year-old daughter, Alex, has a system for managing her priorities with stickers for as long as I can recall. My son, Tyler, not so much. As a result, he has often been unnecessarily late with assignments. He has taken a page out of Alex’s book and has dramatically improved.

Merely having goals without good habits is not enough to reach them. Having a desire to lose to 20 pounds, handing in assignments on time, or saving $10,000 within a year is an empty promise without a plan and good habits. We can improve them with hard work, persistence, and perseverance.

12 Ways To To Improve Your Time Management Skills

 

 1. Be Goal-Oriented With A SMART Approach

To achieve success, you need to know what your short and long term goals are. Most of us are more focused on the near-term, but these targets should fit our life goals. That doesn’t mean you can’t adjust your long term plan along the way. However, having some idea of the lifestyle you’d desire motivates in the short term. For example, when you see a house near a lake and it may produce an image for your memory bank that someday you may want to pursue.

To better reach goals, a SMART approach can bridge the gap to better habits. George T Doran first introduced the acronym in Management Review in November 1981. College students and employees can use this approach to adapt to money and time management: 

  • Specific
  • Measurable
  • Achievable
  • Realistic (or Relevant, Reasonable)
  • Time

A SMART Example For Students: Improve My Academics

You are a sophomore, and your GPA is just under 3.0. You have been floundering a bit but recently have decided to pursue a career in business. So it is time to work on your grades to boost your GPA to the 3.5 level by graduation.

Specific

This semester, you registered for business courses you are interested in, such as Consumer Behavior, Business Law, and Finance. You also have to take Statistics, which you are worried about because it has a lot of math. You need to get your overall GPA to B/B+, including Statistics, by the end of the semester, a 6-month target. (SPECIFIC)

Measurable

Keep in mind that your grades matter. If you can improve your grades to a solid B or higher this term, with better planning, you should lift your GPA to over 3.0.  (MEASURABLE)

Achievable And Reasonable

Ask yourself: Can I get at least or a B or better in each course I am taking? It will require more organization of due dates for homework assignments and required papers. I will be scheduling a lot more study time ahead of the midterm and final exams and ask for help when needed.

As math is sometimes an issue in Statistics, go to the Tutoring Center and schedule a few sessions ahead of exam time. Spend more time on the Statistics classwork. (ACHIEVABLE, REASONABLE)

Time

Your goal at college is to have a 3.5 GPA by the time you graduate. After graduation, you plan to get a job in business, potentially in finance, where it is competitive. With a better focus on your academics, you hope to improve your GPA each semester, picking up a few A’s.  (TIME)

2. Plan Your Work Daily

Being strategic about handling your work day-to-day is essential. You can use a daily planner or calendar app that works best for you. You should complete specific tasks in a certain timeframe.

Make a daily to-do list that is as specific as possible. This list should identify what you need to do that day. It should anticipate critical due dates to help you tackle reports, papers, meetings, exams, and projects. If you are working collaboratively with others, make sure to integrate those meetings into your planner or app.

For example, you are working with three students making a study guide for an upcoming exam on global history. Split up the topics, and each should have respective deadlines for turning in their piece to the person coordinating the whole study guide.

Organizing time in the workplace may require more effort when working when people are working in teams collaboratively rather than individually. However, planning upfront by allocating different activities to individuals in the group with respective deadlines provides accountability. No one wants to be the deadweight person in a team or department who will not be part of the group’s next project.

3. Get An Early Jump On Your Tasks

When possible, get a jump on assigned work, especially if it is not part of your routine. If you are unfamiliar with the task, there may be a more significant learning curve. Give yourself extra time by reviewing the assignment, do some research, and sketch out an outline that will help you get started. Then you can plan and prepare in advance to help spur your motivation.

Look at the big picture first and break down the assignment into smaller steps. Ask for help early if you are unsure about the work. I have sometimes wasted a lot of time fearful of admitting to others that I didn’t know something. When working on a particular company when I was an associate to a senior analyst, I was unfamiliar with a specific regulatory requirement that would impact the business. When I finally got up the nerve to ask the senior analyst, she hadn’t heard of the provision, which was unique.

4. Set A Routine

Be strategic about recurring daily tasks. Eliminate or change how you go about doing things that may have the potential to be timewasters. Reading and answering emails are essential but decide how you will address this task. Should you tackle emails first thing in the morning or later in the day? Make choices about emails and stick to that routine. If you have daily or weekly meetings with your group, stick to a specific amount of time allotted to certain topics. Avoid unnecessary meetings. A good routine is a good habit.

Determine when you are most productive. That is usually the best time to tackle demanding tasks rather than the easiest ones. Have a plan for when to handle those most critical and urgent, then devote time to the challenging projects. In my experience, if you have too many pressing demands on your time, it may be from procrastinating over the tasks. The due date is fast approaching. You realize you are behind schedule. Plan better to avoid unnecessary stress.

There Still May Be Contingencies

Recognize that as great as your daily routine may be, there may be surprises to your plan. Deadlines may be moved up or, later on, a potential opportunity to do an extra project or picking up a new client who needs a lot more attention upfront. Leave room to be flexible when you need to go a contingency plan.

I recall vigorously working on a significant report, happy to be getting some quiet time to do it. Suddenly, a merger in my industry was about to be announced that evening. Switching gears on a dime, I set aside the report I was doing to focus on the potential merger. As such, I prepped an outline of the consolidation’s pros/cons and made some calculations for the possible event. The merger announcement happened after the close of the stock market. Being ready is always a good discipline to have.

5. Consider ROTI or Return on Time Invested

Return on time invested or ROTI is a similar concept to ROI or return on investment. ROI is a well known financial ratio calculated as net income divided by the cost of investment. Using ROI, we can evaluate the investment’s cost-efficiency, whether it is a return on stocks, bonds, or a business project. ROTI, on the other hand, can help you measure how time-efficient you or your team are.

For example, how many minutes or hours did you spend at the department’s morning meeting versus what you learned? Colleagues can take a survey sharing their thoughts about how much time spent out of the total was useful. If 75% was valid out of the 90 minutes meeting, why not cut meeting times by 20-25 minutes unless there is more on the agenda? Many people found that zoom meetings have been shorter, effective, and more efficient during the pandemic. See if you are spending too much time on non-essential topics.

Related Post: 18 Financial Ratios You Should Know

 6. Track Time And Avoid Distractions

Like tracking your spending, track how you spend your time. Review how you spend your time over 30 days. You may find surprises at how efficient you are in some things, wasteful in others.

What are the most common time wasters you may find? Any of these look familiar?

Are you continually checking messages?

Long meetings that drag on. (Zoom communications were more effective. However, I noticed they are getting longer too.)

You were mulling a decision too long.

You are socializing when you have work to do.

Saying “Yes” to a task, you should have said “No.” Learn how to say No when it matters most simply. 

You are delaying more demanding tasks by spending too long on more manageable tasks.

Make changes when you become aware of how much time you wasted. Budget your time wisely, so you have ample time and resources to do a quality job. This list and many more such timewasters serve as distractions from doing our work. They are bad habits we need to eliminate strategically. We will find a lot more time available to focus on other activities that will enhance our grades, careers, and lives.

7. Make Good Habits Which Allow You To Be Effective

Once formed, habits allow us to do things automatically in everyday life. Our practices start through repeated actions that may come with rewards.

Studies say it takes 21 days to 66 days to break a bad habit like scrolling aimlessly through email or social media rather than using your time more productively.

The 21-day time frame dates back nearly 70 years. Dr. Maxwell Maltz, a 1950s plastic surgeon, found that it would take his patients about 21 days to get used to seeing their new face or post-amputation, they would sense a phantom limb. Dr. Maltz wrote about his adjustment period to changes and new behaviors to form a new habit….” it requires a minimum of about 21 days for an old mental image to dissolve and a new one to jell.”

There is more research that indicates that it takes 66 days to form a new habit. A 2009 study published in the European Journal of Social Psychology by Phillipa Lally, a health psychology researcher at University College London, indicated it took 66 days on average (in a range of 18 days to 254 days) to form a new habit.

Whether 21 days or 66 days, it takes significant time, effort, and determination to create a new habit.

Habit Stacking

James Clear has studied and written extensively on habit stacking, including in his book, Atomic Habits. Clear says the quickest way to build a new habit into your life is to stack it on top of current practice. This method is called habit stacking. First, Clear explains how a study of synaptic pruning may lead to building new and presumably better habits.

In a 2007 study from Oxford University, researchers compared newborn baby brains with those of adults. They found that the average adult had 41% fewer neurons than the average newborn.

The fewer neurons was a surprising result considering that babies are born with blank slates. They don’t have the strong connections adults have. However, adult brains prune away connections between neurons that don’t get used and build up relationships often. It is a biological change that leads to skill development.

Are you with me? Synaptic pruning could lead to building new habits.

Habit stacking is related to implementation intention, created by BJ Fogg. It is pairing a new habit (you desire) with current practice (you have). You are using habits that already exist and adding new behavior. Using this method increases the likelihood you’ll stick with a practice by stacking new behavior on an existing one.

Habit Stacking: Time Examples

Think in terms of your morning routine. A typical start to my day:

Get up, go to the bathroom, shower, brush teeth, get dressed.

Go downstairs, let Kelly, our dog, out. Make coffee, say hi to Teddy, our puppy, and my husband, Craig (usually in that order).

Turn on CNBC for financial news, have coffee, and a bite. I review “to do” list, which I wrote the night before, adding tasks I hadn’t been able to finish. I may do a quick small activity like review homework from students. On days I teach, I go online to set up my lesson.

I found that I flounder after my classes end in the mid-afternoon. The habit of whittling down my list is a good habit and replaces my idleness. To remain productive until dinnertime, I realize I need to grade papers, a task I sometimes delay. Pairing a good practice with a desired habit helps me to take care of this responsibility.

Later in the day, I read emails and answer them. Make phone calls. Dinnertime is family time though, in recent years, my teen kids rush off. After work, I outline and research an article I plan to work on the next day.

Finish work for the day. Go walking on a treadmill or outdoors.

8. Avoid Multitasking By Doing One Activity At A Time

Multitasking is when you are juggling a lot of tasks simultaneously. It may seem like a great way to gets it done, but we are not doing it so well. There has been a lot of research that proves multitasking takes its toll on our productivity, especially if the tasks are involved.

There are costs in switching between the tasks. Psychologists have conducted task-switching experiments. In the mid-1990s, Dr. Robert Rogers and his team found that even when people change completely and predictably between two jobs every two to four trials, they were slower on the task-switch.

In a 2001 study, Joshua Rubinstein, Ph.D., Jeffrey Evans, Ph.D., and David Meyer, Ph.D., conducted four experiments in which young adults switched between different tasks, such as solving math problems or classifying geometric objects. The researchers found that the participants lost time when they had to switch from one task to another. As assignments got more complex, participants lost more time. As a result, people took significantly longer to switch between more complex tasks. Time costs were also higher when the participants switched to relatively unfamiliar tasks. They got up to speed faster when they changed to tasks they knew better.

More recently, a 2018 study done by Anthony Wagner, a psychologist at Stanford University, and his colleague, Melina R. Uncapher, found that heavy multitaskers have reduced memory. Specifically, people who use many media types at once, doing heavy media multitasking performed significantly worse on simple memory tasks.

To do quality work, focus on one task at a time and do it well. Multitasking may be a great concept but difficult to implement with possible downsides.

9. Prioritize Tasks

It is easy to lose focus when you have a lot of work in front of you to do that vary in priority. Some work may be necessary, urgent, challenging, or easy, required for you to do on your own or with others. Some tasks are similar, so you may be able to bunch them together in one fell swoop. Your work may be academic, rote, require technology, problem-solving, or critical thinking skills.

Prioritizing your tasks in the right way is essential for productivity. Academic and workplace settings use the following three standard methods. 

Pareto Principle

The Pareto principle is an oldie but goodie, also known as the 80/20 rule. This rule signifies the law of the vital few. It takes its name after an Italian economist, Vilfredo Pareto, for his work in 1896.

In practice, the premise often means that 20% of customers account for 80% of its revenues. Therefore, a greater focus on those customers is essential. From a salesperson’s or student’s perspective, 20% of their work may account for 80% of their commissions or grade, respectively. The 80/20 rule is among the most useful concepts for time and life management. For example, 20% of activities are critical as it contributes to 80% of your success. Be strategic about spending your time on these tasks to maximize your goals, be it revenues, subscribers, homework, or term assignments for class.

ABC Method

The ABC Method, developed by Alan Lakein, helps you to prioritize tasks by assigning letters and numbers to the items on your to-do list. The highest priority, which is essential and urgent on your list is “A.” As such, it would get a number “1” for A1, A2, A3. Then you move to B and C.

Students use this method at colleges and businesses. It calls greater attention to what is most urgent and what “must-do” using due dates on your time table. After completing A priorities, B priorities are those B tasks you “should do,” and then C has lower priority tasks, which would be “nice to do.”

Eisenhower Method

Yes, the Eisenhower method is attributed to a quote by the 34th President, Dwight D. Eisenhower. He said, “I have two kinds of problems, the urgent and the important. The urgent are not important, and important are never urgent.”

This method can be used by grouping daily tasks into four categories:

Category 1 is urgent and vital and requires the most substantial attention paid to those activities in that they are both urgent and important. For example, a due date is fast approaching for a term project worth 50% of your grade.

Next, Category 2 refers to essential but not necessarily urgent tasks. For example, you need to plan and organize activities for such an essential conference for your company requiring speakers on specific topics in a relatively short time frame.

Category 3 tasks that are urgent but not important and may be delegated to someone else, freeing time up for you. Workers must undertake delegation of tasks, but people are often reluctant to do so to their detriment. Learn how to do this better.

The final group is Category 4, the lowest priority. These tasks are neither urgent nor essential and are often timewasters. As such, they seriously should be considered for being dropped.

There are other methods people can use to identify what is most critical and least critical in their to-do list. The point is that they deserve varying amounts of attention determined by their importance and urgency. Don’t make a task “urgent” just because you avoided doing it for so long. That is just procrastination.

11. Avoid Procrastination

Procrastination is the enemy of good planning, whether for financial or time management.

For those who procrastinate, tomorrow is always a better day to make better decisions or tackle tasks we don’t want to do. Procrastinators voluntarily delay doing something like paying their bills or doing their work, despite knowing they will be worse off due to the delay. Avoiding procrastination is a way to back on track.

When planning your daily, weekly, or monthly calendars, you schedule dates when essential tasks like reporting for school or work and paying bills. With fair scheduling and using a calendar, you will take care of what’s necessary on time before it becomes urgent.

College students are big procrastinators.

Procrastination tends to be particularly prevalent among college students. An estimated 25%-75% procrastinate on academic work. As a professor, I can attest to grappling with students handing in assignments well after deadlines despite knowing the due dates at the start of the term, and amplified by me in the classroom or online.

In a classic 1995 study, Joseph R. Ferrari, Judith I. Johnson, and William G. McGown have written academic research on students and their tendencies to:

  • appropriate too little time to perform tasks;
  • overestimate how motivated they will be in the future, and
  • mistakenly assume that they need to be in the right mind to do the project.

It’s not just college students who procrastinate. According to Ferrari, 20% of US adults are chronic procrastinators. Delaying is part of their lifestyle.

Surveys show employees often opting into an employer-sponsored retirement plan because they are confused by the choices given. Yet, they often are aware that they can make future changes to their goal.

12. Biases Cause To Be Less Rational

Biases tend to get in the way of working rationally, whether we manage our finances or time. We have written a lot about biases.

Related Post: How Our Emotions Lead To Irrational Money Decisions

Present Bias

Behavioral economists refer to procrastinators as having “present bias” tendencies. They frequently are overweighting decisions today with instant gratification and underweighting tomorrow that result in pain and losses in the future.

Academic research is plentiful in confirming that procrastination is a significant predictor of impulsive financial behavior and inadequate financial and time management planning.

Sunk Cost Fallacy

Sunk cost fallacy is another significant bias. You cannot recover these sunk costs. Let’s apply it to money or time. Imagine paying $50 for a ticket to a concert. On the day of the show, there is a blizzard. Despite the worsening weather, you drive hours to get to the concert because of your initial investment even though you are less interested in going to the event.

Sometimes you may be spending a lot of time researching and writing a paper. You have been writing pages and realize the topic is not that interesting, and you are spinning your wheels and wasting time. Still, you don’t want to abort your paper, and you keep going.

Both of these examples are casualties of this bias. When you think you are spending too much time on an activity you no longer are interested, you are likely to do a lower quality report.

Instead, step back and evaluate if you can do a better job by focusing on another topic or activity. Don’t worry about the time spent because you still need to complete the task. Reversing course can be painful, but I often have regretted not doing so in the past. Start by sketching an outline of your report and begin to research your topic.

Plan For Downtime

I hate wasting time and other people’s time. As a result, besides my phone and iPad, I often carry a notebook, a book, and a small calendar with me when I find some downtime outside of my office or home. When I meet someone in a restaurant, Starbucks, or the park, I enjoy working on some small tasks as a precursor for doing an article or a report if I am early. Alternatively, if I don’t feel like working, I may read a book.

Reading during downtime has been a reasonably typical habit going back to law school when my time was limited. It was always difficult to carry those heavy legal textbooks to use my class notes to summarize on index cards for studying.

Sometimes, we just need downtime to stretch, yoga, walk, run, sit, and just enjoy our lives. For some, the pandemic has allowed us to have time to be at home with our families if we were fortunate enough to work remotely. That means reducing your commute and being home more. Saving time may have resulted in some to achieve a work/life balance that didn’t exist before.

Final Thoughts

We have a precious amount of time to do what we need and want to do at school and work. By improving our time management skills, we can more control over our lives while being more productive. Although multitasking doesn’t work well, there are many ways we can improve our effectiveness and efficiency.

Thank you for reading! If you found value in this article, you can find other articles on topics that may be of interest to you on The Cents of Money. Consider subscribing for free, get our weekly newsletter, and more.

 

 

 

 

 

 

 

 

 

“Time keeps slippin’, slippin’, slippin’, into the future.”

 Fly Like An Eagle – Lyrics by Steve Miller

 

Have you ever felt overwhelmed and stressed with too much to do and not enough time? It’s a very common feeling.

Having good time management skills at an early age prepares you to achieve success at your school, your workplace, and your life. It is not easy to manage our time when we have so many distractions competing for our attention with growth in big data, social media, biases, and those bad habits like procrastination. Yet, with strong motivation and hard work, we can do better.

What Is Time Management?

Time management is the process of planning, arranging, and controlling how much time to spend on tasks and activities to maximize effectiveness. Developing a good habit of managing our time will give us more control over our lives. Most of us are not good at managing our time well. According to a survey, only 10% of people say they feel “in control” of how they spend their day.  Learning how to allocate our time and energy is beneficial.

Benefits Of Time Management Are Huge

  • Become more productive, effective, and efficient.
  • Have an awareness of wasting time and able to make adjustments.
  • Better focus, less stress, and healthy.
  • Improve work/life balance.

By saving more time, we can have more opportunities to achieve important career and life goals.

How Time Relates To Money

We often talk about the relationship between time and money and their importance as resources. Time is money as said by Benjamin Franklin, and many others. But, is it really?

Time is a finite resource that when it has passed, it is permanently gone.  Although money may be hard to find when you are out of a job, you have an opportunity to replace it even when times are hard, as they are now. You can file for unemployment benefits, turn to money saved for an emergency,  borrow money,  search for a job, or start a side hustle. While not optimum, we at least have the possibility of replacing money. On the other hand, the time spent is gone forever.

Many of the tips for improving time management skills are akin to better money management habits.

How To Better Manage Time And Money

Tracking time spent is similar to tracking your spending. By doing so, you may better see how wasteful you are and can make changes.

Budget your time wisely for what you need to do first before acting. When budgeting your money for essential needs such as living costs, you can better assess what you have for discretionary spending for your wants.

When you spend time foolishly, you may be late on deadlines, do a poor job, and need outside help to complete your job. Overspending leads to ramping up debt that may be difficult to pay off.

Being frugal with your time is a way to acknowledge you wish to spend it more prudently. The same goes for money when we are being frugal with how we spend money.

For college students, having time management skills are a must to achieve your goals. Procrastination needs to be avoided by taking better control of your schedule.  Managing your time will help you to do well and graduate from school and start your career. Time management skills are relevant. You can carry these skills forward into the workplace to be more effective and efficient at your job.

I Wasted Time At College

To be honest, my time management skills were terrible in college. There weren’t any courses to take to help you eliminate time wasters. Intuitively, I knew I was wasting time, and I know when I do so now. The difference between then and now is that I have become more aware and proactively work on being more focused. Years of needing to be effective and nimble as an equity analyst helped me to realize better productivity. If I didn’t control my time better, my competitors would certainly have advantages over me.

Improving My Skills Out Of Necessity

That said, I truly learned to develop time management skills when I went to law school. True, I went back to school at an older age and had some good habits already. However, I had some bad ones too. Law school made a world of good in the world of time management. As a student, I read the legal cases ahead of time, then compiled the relevant concepts into study guides that were big. Then I cut the guides down into an index card for each class. I had daily “to-do” lists with detailed schedules for the rest of the term. I was focused, organized, and strategic about my priorities.

Think of time management as a means to an end. By mastering your time well in school and at your job, it often leads to handing in your assignments on time with great quality, less stress, have free time to enjoy family, friends, and yourself.  By saving time, you are able to accomplish more of your goals in your life.

My sixteen-year-old daughter, Alex, has a system for managing her priorities with stickers for as long as I can recall. My son, Tyler, not so much. As a result, he has often been unnecessarily late with assignments. He has taken a page out of Alex’s book and has greatly improved.

Simply having goals without good habits is not enough to reach them. Having a desire to lose to 20 pounds, handing in assignments on time, or saving $10,000 within a year is an empty promise without a plan and good habits.  We have the ability to improve them with hard work, persistence, and perseverance.

12 Ways To To Improve Your Time Management Skills

 

 

1. Be Goal-Oriented With A SMART Approach

To achieve success, you need to know what your short and long term goals are. Most of us are more focused on the near-term but these targets should fit with your life goals. That doesn’t mean you can’t adjust your long term plan along the way. However, having some idea of the lifestyle you’d desire provides motivation in the short term. As an example, when you see a house near a lake and it may produce an image for your memory bank that someday you may want to pursue.

To better reach goals, a SMART approach can bridge the gap to better habits. George T Doran first introduced the acronym in Management Review in November 1981. This approach can be adapted for money and time management and can be used by college students and employees.

  • Specific
  • Measurable
  • Achievable
  • Realistic (or Relevant, Reasonable)
  • Time

find an  example for time mgt

A SMART Example For Students: Improve My Academics

You are a sophomore and your GPA is just under a 3.0. You have been floundering a bit but recently have decided to pursue a career in business. So it is time to work on your grades to boost GPA to the 3.5 level by graduation.

Specific

This term you registered for business courses you are really interested in such classes as Consumer Behavior, Business Law, and Finance. You also have to take Statistics, a course you are worried about because it has a lot of math. You want to improve your overall GPA by getting B/B+ in all your courses, including Statistics, by end of the semester, a 6-month target. (SPECIFIC)

Measurable

Keep in mind that your grades matter. If you are able to improve your grades to a solid B or higher this term, with better planning you should be able to lift your GPA to over 3.0.  (MEASURABLE)

Achievable And Reasonable

Ask yourself: Can I get at least or a B or better in each course I am taking? It will require more organization of due dates for homework assignments and required papers. I will be scheduling a lot more study time ahead of the midterm and final exams and ask for help when needed.

As math is sometimes an issue in Statistics, go to the Tutoring Center and schedule a few sessions ahead of exam time. Spend more time on the Statistics classwork. (ACHIEVABLE, REASONABLE)

Time

This will fit with your long term goal at college to have a 3.5 GPA by the time you graduate. Your plan is to get a job in business, potentially in finance where it is competitive. With a better focus on your academics, you hope to improve your GPA each semester, picking up a few A’s.   (TIME)

2. Plan Your Work Daily

Being strategic about handling your work day-to-day is important. You can use a daily planner or calendar app that works best for you. Depending on whether you are a college student or in the workplace, you have specific tasks that need to be done in a certain timeframe.

Make a to-do daily list that is as specific as possible. This list should identify what you need to do that day. It should anticipate key due dates to help you tackle reports, papers, meetings, exams, and projects. If you are working collaboratively with others, make sure to integrate those meetings into your planner or app.

For example, you are working with three students making a study guide for an upcoming exam on global history. Split up the topics and each should have respective deadlines for turning in their piece to the person coordinating the whole study guide.

Organizing time in the workplace may require more effort when working when people are working in teams collaboratively rather than individually.  However, planning upfront by allocating different activities to individuals in the team with respective deadlines provides accountability. No one wants to be the deadweight person in a team or department who will not be chosen on the next project for the group.

3. Get An Early Jump On Your Tasks

When possible, get a jump on assigned work, especially if it is not part of your normal routine. If you are unfamiliar with the task, there may be a larger learning curve. So give yourself extra time by reviewing the assignment, do some research, sketch out an outline that will help you get started. Planning and preparation in advance help to spur your motivation.

Look at the big picture first and break down the assignment into smaller steps. Ask for help early if you are unsure about the work. I have sometimes wasted a lot of time fearful of admitting to others that I didn’t know something. When working on a particular company when I was an associate to a senior analyst, I was unfamiliar with a certain regulatory requirement that would impact the business. When I finally got up the nerve to ask the senior analyst, she hadn’t heard of the requirement which apparently was unique.

4. Set A Routine

Be strategic about recurring daily tasks.  Eliminate or change how you go about doing things that may have the potential to be time-wasters. Reading and answering emails are important but decide how you will address this task. Should you tackle emails first thing in the morning or later in the day? Make choices about emails and stick to that routine. If you have daily or weekly meetings with your group, stick to a specific amount of time allotted to certain topics. Avoid unnecessary meetings.  A good routine is a good habit.

Determine when you are most productive. That is usually the best to time tackle hard tasks rather than the easiest ones. Have a plan for when to handle those issues that are most important and urgent, then devote time to the difficult projects. In my experience, if you have too many pressing demands on your time it may be from procrastinating over the tasks. Now, it is urgent and should have been done days ago but the due date is staring you down. That is unnecessary stress that can be better planned for.

There Still May Be Contingencies

Recognize that as great as your daily routine may be, there may be surprises to your plan. Deadlines may be moved up or later on, a potential opportunity to do an extra project or picking up a new client who needs a lot more attention upfront. Leave room to be flexible when you need to go a contingency plan.

I recall vigorously working on a major report, happy to be getting some quiet time to do it. Suddenly, there were noises that a merger was going to be announced that evening in an industry I was responsible for.  Setting aside the report I was doing, I prepped an outline of the pros/cons of merger and some calculations for the possible event which did in fact happen after the close of the stock market. Being ready is always a good discipline to have.

5. Consider ROTI or Return on Time Invested

Return on time invested or ROTI is a similar concept to ROI or return on investment. ROI is a well known financial ratio calculated as net income divided by the cost of investment. Using ROI, we can evaluate the cost-efficiency of the investment made whether it is a return on stocks, bonds, or a business project. ROTI, on the other hand, can help you measure how time-efficient you or your team are.

For example, how many minutes or hours did you spend at the department’s morning meeting versus what you learned? Colleagues can take a survey sharing their thoughts as to how much time spent out of the total was useful. If 75% was useful out of the 90 minutes meeting, why not cut meeting times by 20-25 minutes unless there is more on the agenda? Many people have found during the pandemic, that zoom meetings have been shorter, effective, and more efficient. Compare the zoom meetings to those in the office to see if you are spending too much time on topics that are non-essential.

Related Post: 18 Financial Ratios You Should Know

 

6. Track Time And Avoid Distractions

Like tracking your spending, track how you spend your time. Review how you spend your time over a 30 day period. You may find surprises at how efficient you are in some things, wasteful in others.

What are the most common time wasters you may find? Any of these look familiar?

Constant checking of emails and texts.

Long meetings that drag on. (Zoom communications were more effective, however, I noticed they are getting longer too.)

Mulling a decision too long.

Socializing when you have work to do.

Saying “Yes” to a task you should have said “No”. Learn how to simply say No when it matters most.

Delaying harder tasks by spending too long on easier tasks.

By being aware of how much time is wasted from these bad habits, we can make changes. Budget your time wisely so you have ample time and resources to do a quality job you can feel good about. This list and many more such timewasters serve as distractions from doing our work. They are bad habits we need to strategically eliminate. We will find a lot more time available to focus on other activities that will enhance our grades, our careers, and our lives.

7. Make Good Habits Which Allow You To Be Effective

Once formed, habits allow us to do things automatically in everyday life. Our habits form through repeated actions that may come with rewards.

Studies say it takes 21 days to 66 days to break a bad habit like scrolling aimlessly through email or social media rather than using your time more productively.

The 21-day time frame dates back nearly 70 years. Dr. Maxwell Maltz, a 1950s plastic surgeon found that it would take his patients about 21 days to get used to seeing their new face or post-amputation, they would sense a phantom limb. Dr. Maltz wrote about his own adjustment period to changes and new behaviors to form a new habit….”it requires a minimum of about 21 days for an old mental image to dissolve and a new one to jell.”

There is more research that indicates that it takes 66 days to form a new habit. A 2009 study published in the European Journal of Social Psychology by Phillipa Lally, a health psychology researcher at University College London, indicated it took 66 days on average (in a range of 18 days to 254 days) to form a new habit.

Whether 21 days or 66 days, it takes significant time, effort and determination to create a new habit.

Habit Stacking

James Clear has studied and written extensively on habit stacking, including in his book, Atomic Habits. Clear says the quickest way to build a new habit into your life is to stack it on top of a current habit. This is called habit stacking. First, Clear explains how a study of synaptic pruning may lead to building new, and presumably better habits.

In a 2007 study from Oxford University, researchers compared newborn baby brains with those of adults. They found that the average adult had 41% fewer neurons than the average newborn.

This was a surprising result considering that babies are born with blank slates. They don’t have the strong connections adults have. However, adult brains prune away connections between neurons that don’t get used and build up connections that get used more often. It is a biological change that leads to skill development.

Are you with me? This may mean that synaptic pruning could lead to building new habits.

Habit stacking is related to implementation intention, created by BJ Fogg, it is a pairing a new habit (you desire) with a current habit (you have). You are using habits that already exist and adding new behavior. Using this method increases the likelihood you’ll stick with a habit by stacking new behavior on an existing one.

Habit Stacking: Time Examples

Think in terms of your morning routine. A typical start to my day:

Get up, go to the bathroom, shower, brush teeth, get dressed.

Go downstairs, let Kelly, our dog out. Make coffee, say hi to Teddy, our puppy, and my husband, Craig (usually in that order).

Turn on CNBC for financial news, have coffee and a bite. I review my “to do” list which I wrote the night before, adding tasks I hadn’t been able to finish. I may do a quick small activity like review homework from students. On days I teach, I go online to set up my lesson.

What happens after my classes are done in the mid-afternoon I have often found that I have floundered. The habit of whittling down my list is a good habit and I am mindful to be more detailed about what needs to be done. To remain productive until dinnertime I realize I need to review papers for grading, a task I sometimes delay doing. Pairing a good habit with a desired habit helps me to take care of this responsibility.

Later in the day, I read emails and answer them. Make phone calls. Dinnertime is family time though, in recent years, my teen kids rush off. After work, I outline and research an article I plan to work on the next day.

Finish work for the day. Go walking on a treadmill or outdoors.

8. Avoid Multitasking By Doing One Activity At A Time

Multitasking is when you are juggling a lot of tasks simultaneously. It may seem like a great way to gets done but we are not doing it so well. There has been a lot of research that proves multitasking takes its toll on our productivity especially if the tasks are complex.

There are costs in switching between the tasks. Psychologists have conducted task-switching experiments. In the mid-1990s, Dr. Robert Rogers and his team found that even when people switch completely and predictably between two tasks every two to four trials, they were slower on the task-switch.

In a 2001 study, Joshua Rubinstein, Ph.D., Jeffrey Evans, Ph.D., and David Meyer, Ph.D., conducted four experiments in which young adults switched between different tasks, such as solving math problems or classifying geometric objects. For all tasks, the researchers found that the participants lost time when they had to switch from one task to another. As tasks got more complex, participants lost more time. As a result, people took significantly longer to switch between more complex tasks. Time costs were also greater when the participants switched to tasks that were relatively unfamiliar. They got up to speed faster when they switched to tasks they knew better.

More recently, a 2018 study done by Anthony Wagner, a psychologist at Stanford University, and his colleague, Melina R. Uncapher, found that heavy multitaskers have reduced memory. Specifically, people who use many types of media at once, doing heavy media multitasking performed significantly worse on simple memory tasks.

To do quality work, focus on one task at a time and do it well. Multitasking may be a great concept but difficult to implement with possible downsides.

9. Prioritize Tasks

It is easy to lose focus when you have a lot of work in front of you to do that vary in priority. Some work may be important, urgent, hard, or easy, required for you to do on your own or with others. Some tasks are similar so you may be able to bunch them together in one fell swoop. Your work may be academic, rote, require technology, problem-solving, or critical thinking skills.

Prioritizing your tasks in a good way is essential for productivity.  Here are three common methods that can be used in an academic or workplace setting.

Pareto Principle

The Pareto principle is an oldie but goodie also known as the 80/20 rule. This rule which signifies the law of the vital few was named after an Italian economist, Vilfredo Pareto for his work in 1896.

In practice, the premise often means that 20% of customers account for 80% of the company’s revenues. Therefore, a greater focus on those customers is important. From a salesperson’s or student’s perspective, 20% of their work may account for 80% of their commissions or grade, respectively. This principle can be used in many applications, including time spent. For example, 20% of activities are so critical as it contributes to 80% of your success. Be strategic about how you spend your time on these tasks to maximize your goals be it revenues, subscribers, or homework or term assignments for class.

ABC Method

The ABC Method developed by Alan Lakein helps you to prioritize tasks by assigning letters and numbers to the items of your to-do list. The highest priority which is important and urgent on your list is “A.” As such, it would get a number “1” for A1, A2, A3. Then you move to B and C.

This method is used by students at colleges and businesses. It calls greater attention to what is most urgent and what “must-do” using due dates on your time table. After A priorities are completed, B priorities are those B tasks you “should do” and then C has lower priority tasks which would be “nice to do.”

Eisenhower Method

Yes, the Eisenhower method is attributed to a quote by the 34th President, Dwight D. Eisenhower. He said, “I have two kinds of problems, the urgent and the important. The urgent are not important, and important are never urgent.”

This method can be used by grouping daily tasks into four  categories:

Category 1 is urgent and important and requires the strongest attention paid to those activities in that they are both urgent and important. As an example, a due date is fast approaching for a term project that is worth 50% of your grade.

Next, Category 2 refers to important but not necessarily urgent tasks. For example, you need to plan and organize activities for such an important conference for your company requiring speakers on specific topics in a relatively short time frame.

Moving down to Category 3 are tasks that are urgent but not important and maybe delegated to someone else, freeing time up for you. Delegation of tasks must be undertaken but people are often reluctant to do so to their detriment. Learn how to do this better.

The final group is Category 4, the lowest priority. These tasks are neither urgent nor important and are often timewasters. As such they seriously should be considered for being dropped.

There are other methods people can use to identify what is most critical and least critical in your to-do list. The point is that they deserve varying amounts of attention determined by their importance and urgency.  Don’t make a task “urgent” just because you avoided doing it for so long. That is just procrastination.

10. Avoid Procrastination

Procrastination is the enemy of good planning whether for financial or time management.

For those who procrastinate, tomorrow is always a better day to start to make better decisions or tackle tasks we don’t want to do. Procrastinators voluntarily delay doing something like paying their bills or doing their work, despite knowing they will be worse off due to the delay. Avoiding procrastination is a way to back on track.

It is important when planning your daily, weekly, or monthly calendars, that you schedule dates when important tasks like doing a report for school or work and paying bills that are due. With good scheduling and using a calendar, you will take care of what’s essential on time before it becomes urgent.

College students are big procrastinators

Procrastination tends to be particularly prevalent among college students. An estimated 25%-75% procrastinate on academic work. As a professor, I can attest to grappling with students handing in assignments well after deadlines despite having known the due dates at the start of the term, and amplified often by me in the classroom or online.

In a classic 1995 study, Joseph R. Ferrari, Judith I. Johnson, and William G. McGown have written academic research on students  and their tendencies to:

  • appropriate too little time to perform tasks;
  • overestimate how motivated they will be in the future, and
  • mistakenly assume that they need to be in the right mind to do the project.

It’s not just college students who procrastinate. According to Ferrari, 20% of US adults are chronic procrastinators. Delaying is part of their lifestyle.

Surveys show employees often put off opting into an employer-sponsored retirement plan because they are confused by choices given. Yet, they often are aware that they can make future changes to their plan.

11. Biases Cause To Be Less Rational

Biases tend to get in the way of working rationally whether it is when we are managing our finances or time. We have written a lot about biases.

Related Post: How Our Emotions Lead To Irrational Money Decisions

Present Bias

Behavioral economists refer to procrastinators as having “present bias” tendencies. They frequently are overweighting decisions today with instant gratification and underweighting tomorrow that result in pain and losses in the future.

Academic research is plentiful in confirming that procrastination is a significant predictor of impulsive financial behavior and poor financial and time management planning.

Sunk Cost Fallacy

Another major bias is sunk cost fallacy. It refers to sunk costs which is a cost already spent and can’t be recovered. It can be applied to money or time. Imagine paying $50 for a ticket to a concert. The day of the concert, there is a blizzard  and it is expected to get worse. You drive hours to get to the concert because of your initial investment even though you have less interest in going to the event.

Sometimes you may be spending a lot of time researching and writing a paper. You have been writing pages and realize the topic is not that interesting and you are spinning your wheels and wasting time. Still, you don’t want to abort your paper and you keep going.

Both of these examples are casualties of sunk cost fallacy. When you think you are spending too much time on an activity in which you no longer are as interested, you are likely to do a lower quality report.

Instead, step back and evaluate if you can do a better job by focusing on another topic or activity. Don’t worry about the time spent because you still need to complete the task. Reversing course can be painful but I often have regretted not doing so in the past. This is why spending time outlining the task, doing some research may take you on a better path.

12. Plan For Downtime

I hate wasting time and other people’s time. As a result, besides my phone and iPad, I often carry a notebook, a book, and a small calendar with me when I find some downtime outside of my office or home. When I am early for meeting someone in a restaurant, Starbucks, or the park, I enjoy working on some small tasks as a precursor for doing an article or a report. Alternatively, if I don’t feel like working, I may read a book.

This has been a fairly typical habit going back to law school when my time was limited. It was always difficult to carry those huge legal textbooks so I would work on using my class notes to summarize on index cards for studying.

Sometimes, we just need downtime to stretch, yoga, walk, run, sit, and just enjoy our lives. For some, the pandemic has allowed us to have time to be at home with our families if we were fortunate enough to be to work remotely. That means reducing your commute and being home more. This may have resulted in some to achieve a work/life balance that didn’t exist before.

Final Thoughts

We have a precious amount of time to do what we need and want to do at school and work. By improving our time management skills, we can have more control over our lives while being more productive. Although multitasking doesn’t work well, there are many ways we can improve our effectiveness and efficiency.

Thank you for reading! If you found value in this article,  you can find other articles on topics that may be of interest to you on The Cents of Money. Consider subscribing for free, get our weekly newsletter, and more.

 

 

 

 

 

 

 

 

 

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