A Guide For College Grads On Your Company Benefits Plan

A Guide For College Grads On Your Company Benefits Plan

Congratulations, Graduate!

“Find a job you enjoy doing, and you will never have to work a day in your life.”

Mark Twain

Hopefully, there will be a commencement season this year. It is one of my favorite times of the year, and I don’t even have a child going to college yet. As a professor and a hopeful nerd, I enjoy college grads getting all kinds of accolades and advice on life and read as many commencement speeches as I can. Some of those speeches through the years have become legendary.

For one of the most inspiring, read or listen to the commencement speech of Steve Jobs, co-founder of Apple, at Stanford University in 2005.

Enjoy This Moment of Sunshine

After years of toil at your college and most likely working hard in high school to land at your top college choice, you have earned the chance to enjoy this moment. The time between college and starting your first job is an excellent time to take a breather. And travel time to visit family, friends, and possibly part-time employment.

The value of obtaining your bachelor’s degree remains a significant factor in your lifelong income and financial well-being.

Your First Job After College

On average, most graduates believe the benefits of their education meet or exceed the costs. Likely you are either starting your first job soon or are engaged in your search.  According to its survey, the National Association of Colleges and Employers (NACE), the average annual salary for college grads is about $50,000. Those who majored in computers, engineering, mathematics, health sciences, and business were the highest earners, with salaries ranging between $52,000 and $71,000. 

 Tips For Making The Most Of Your First Job:


1. Perfection Is The Enemy Of The Good

You are beginning your professional life. You don’t know what to anticipate in your new environment. Expect to make mistakes and learn from them.

Prepare for your job interview for the job. Start by reading their annual report and articles to understand the company. Competence is what you are aiming for when you first get started in your new job.

2. Paying Your Dues

Initially, you are not likely to get the “cool” assignments. You will be doing a lot of the grunt work or doing something you believe is beneath you. Everyone goes through this feeling. Remain enthusiastic as your co-workers and boss may want to see how you handle the easy work before giving you more tasks.

3. Volunteer To Help Others But Complete Your Work

When I hired associates to work with me I often had “eager beavers” wanting to do everything everyone else was doing, leaving behind the work I asked them to complete. Instead, they would rush their work, doing a shabby job.

4. Seek Opportunities To Learn New Skills

As you get deeper into the swing of your job, complete tasks on or ahead of schedule, become a sponge. Learn as much as possible and take advantage of any company-sponsored training offered to you. Strengthen your existing skills and build your abilities to be a problem solver. 

 5. Do More Than Asked

I heard a great story from a now successful executive at a major newspaper firm. She elevated herself from the entry-level job, by completing her work efficiently, then helping others.  Along the way, she picked essential skills to make herself invaluable. As a result, she is now a senior manager of the firm.

6. Understand Your Company Benefits Package

According to the Bureau of Labor Statistics, the combined benefits plan adds about 30% to your total compensation. In a tight employment market, companies often become more generous with their benefits. Besides the standard vacation days, your benefits package may vary widely.

A recent Glassdoor survey said 4 out of 5 employees prefer benefits to a raise.

Your Company Benefits Package:


Retirement 401K Plan

As soon as you begin to work at your new firm, you need to set up an account to start saving in your 401K plan. Better yet, automate contributions directly from your paycheck. You need to understand the dollar amount or percentage of company matching contribution with any defined cap amounts on employee contribution.

For example, Discover, the credit card company, has a generous company match up to 7%.

What is the vesting period of the company’s matching contribution for the 401K? If vesting is partial or two years, you will more likely keep the company’s match amount than if the vesting period is 5 years or more. Many companies have partial vesting.

As this is your first job, you may not expect to stay the five years required to earn the company’s contribution. People no longer stay in the same company for years. However, you should still begin to put money in your 401K. If you leave your job, you have options for your 401K. You can leave it in the old plan or roll it over to your new employer or roll this 401K into an IRA. 

Student Loans Repayment

Student loan repayment as an employee benefit is in its infancy period. It could grow into a core part of a company’s benefits package. According to SHRM’s 2019 survey, about 8% of employers repay student loans as an attractive benefit.

More companies are helping with student loans, especially since the IRS ruling a few years back. Abbott Laboratories was a pioneer in addressing student loan repayments giving employees the option. Employees can contribute toward their student debt rather than to the 401K plan. However, they still get the 401K employer’s match contribution even if the worker didn’t contribute themselves.

Company Stock Ownership Plans Differ Widely

They are a desirable benefit for the employees to participate in the company’s growth and may offer tax deductions.

For closely-held or private corporations, Employee Stock Option Plans or ESOPs means that the company is owned partly or entirely by employees. Publix, the supermarket company, is among the largest owned.

Employee Stock Purchase Plans or ESPPs are offered by 52% of most public corporations through employee participation is relatively low at 42%.

The ESPP plan is usually offered as a tax-qualified plan. All employees may participate based on a minimum number of years at the company. These employees may buy stock during “an offering period” over  3 months-to-27 months, set at a discount up to 15% from the market price.

Employees can profit immediately or over a longer holding period. If holding more than a year and a day, your income is taxed at the capital gains rate. Make sure you diversify your investment portfolio beyond holding any concentrated positions.

A Word of Caution

Sometimes employees can expand their stock ownership on a tax-advantaged basis, even buying the shares inside their 401K plans. I have significant concerns about employees using their employer’s stock in their 401k for three main reasons:

  • Owning too much stock of the company you are working for is too much risk no matter how great the company is as your employer. Too many eggs in one basket are hazardous, and you need diversification.
  • WorldCom and Enron’s financial scandals were devastating for those company employees who received an excessive amount of compensation in their company stock for bonuses and 401K plans. There was little heads up of the calamity coming.
  • Many lost their life savings along with the devaluation of their homes due to their proximity to corporate headquarters. I knew many of the WorldCom folks.

 Health Insurance

Not surprisingly, 58% of new college grads want 100% employer-paid medical insurance but only 7.5% of employers provide that. You need to understand the premiums, deductibles, and co-pays you are responsible for and your plan covers.


If there is a high deductible, determine whether your employer contributes to health savings accounts (HSAs). An HSA is a tax-advantaged account for individuals covered by high deductibles, not subject to federal income tax at the time of deposits.  HSA funds are used to pay for qualified medical expenses and may cover over-the-counter medications with a doctor’s prescription.

FSAs – Health Care Flexible Spending Plans 

 A flex plan allows employees to pay for specific unreimbursed healthcare and dependent care expenses with pretax dollars. This plan helps to offset some of the costs not met with the main health insurance up to a capped amount (e.g., $2,000).

Dental and Vision insurance is offered by about 62% of employers and is considered a desirable perk for college grads. Vision insurance is part of the more significant health insurance, allowing regular eye exams and some employer contribution for glasses.

Disability Insurance

According to Social Security Administration, 25% of all 20-year-olds will be disabled by the age of 67. Disability insurance is an essential part of any package, but few believe they need this insurance. 42% of private sector companies offer this insurance.

This insurance plan replaces a portion of an employee’s gross income, usually up to 50%-60% to you, while you are disabled subject to a physician’s approval. You buy this insurance on a short-term and long-term basis. The employer may pay the premium in part or in whole. The employee will pay the rest.

On a short-term basis, the disability benefits extend up to 52 weeks, kicking in 1-14 days after the employee cannot work and has applied their sick days.

Life Insurance 

Usually, employers offer a relatively small amount of life insurance rather than enough to protect you and your family fully. The employee can increase its coverage amount by paying the premiums on a monthly or quarterly basis through its company’s group term life plan at reduced rates than what they would pay on their own.

Tuition Reimbursement 

Most employers are often willing to provide tuition reimbursement for advanced education rather than lose the employee. The refund can correlate to grades. An “A” would 100% reimbursement, “B” gets 75%, and so on.

Increasingly, companies are offering online courses to employees to complete their degrees for high school and college, as well as “English as a Second Language.”

Unique Lifestyle Benefits  

There is a long list of excellent benefits often found to be high quality among the best companies. Flexible work options are becoming more standard after given the broad experience many have had during the pandemic. Here are some of the best I found:

  • egg freezing for female employees
  • adoption and surrogacy assistance and reimbursement
  • employee relief fund for national disaster victims
  • doctor’s office or medical clinic onsite
  •  counseling sessions to reduce stress
  • high-quality dining
  • leave of absences to care for family members or newborns
  • financial aid coaches
  •  career planning
  • discounts or full paid courses for high school, undergraduate degrees, yoga, and ESL
  • flex hours or work from home
  • dry cleaning on-premises
  • paid time off for volunteering
  • pet insurance
  • onsite gym
  • personal or professional time off
  • child daycare or  day elder care

Maybe There Is A Free Lunch

Take advantage of your company benefits plan by reading it thoroughly. Ask questions of human resources to understand it better. Work diligently and convey a positive attitude. Whether this is your first job or your fifth job, your company benefits package is a meaningful part of your compensation.

Thank you for reading! What is in your company benefits package? What are the benefits you value the most? Please share your thoughts with us!






Best Personal Finance Tips You Should Know

Best Personal Finance Tips You Should Know

This time of year is always a good time and place to see where you stand regarding your financial goals. Build and strengthen financial habits to achieve financial success. Use these personal finance tips as a checklist to become more financially organized at the beginning of the year. No matter what your situation is, your financial success doesn’t happen without work. Careful planning, often with professional guidance, requires that you look at a wide range of your finances and how you handle money.

We cover major tenets of personal finance and relevant tips you should know to have better financial health and success.

Evaluate Your Monthly Budget

Track your monthly income and expenses. Break your expenses into fixed or non-discretionary expenses and variable or discretionary expenses by category on an excel spreadsheet. Think of your budget as your household’s income statement. Your budget will help you to control your spending.

Use the 50/20/30 budget rule as a rule of thumb. Essentially, you are allocating your after-tax income into three budget buckets:

  • 50% of your spending are for your needs, notably housing, utilities, groceries, car payments and other needed fixed or non-discretionary expenses.
  • 20% for savings that can be used for paying down debt, emergency fund, and  investing or combination.
  • 30% are for your wants, that is discretionary or flexible spending for entertainment, vacations, and shopping. This what is left after your allocations are made for priorities, notably needs and savings.

Adopt a disciplined strategy as early as possible when you have fewer items to track. Use budget apps readily available or create your own excel spreadsheet.

Update Your Net Worth

Keep track of your net worth which is your household balance sheet. To calculate net worth, add all of your assets that you own less all liabilities that you owe. When you are young, you may have more liabilities because you are just starting out and may have college loans. However, over time, through accumulation of assets that grow at rates faster than your debt, you should have amassed comfortable net worth.

Net worth is an important benchmark to compare against your short and long term financial goals. Are you where you want to be in your 20s, 30s, 40s and thereafter? The fastest way to build wealth is through good financial habits that require saving, spending less, managing debt wisely and investing.

Build An Emergency Fund

Save for emergencies in a separate account that is readily available money. A common mistake made is not saving money for unexpected events like losing a job, pet surgery or a flood in your basement. Plan for 6 months of essential living costs to take care of rent, mortgage, uitlities, credit card bills and any other fixed monthly costs. Make sure your emegency fund is liquid in either cash or cash-equivalent (also known as money market) securities.

This fund should be used for emergency purposes not necessarily your wants for a high priced vacation. If you like to travel a lot, it may be worthwhile to have a separate vacation fund to set aside for those purposes.

Make Savings Your Mantra

Spend less than you earn so that something is left over to put in savings. Part of your savings should be allocated to investing. Growing your money in investment accounts is your best path to a comfortable financial life and to achieve wealth. Alternatively, spending more than you earn will result in more debt.

Automate your finances from your direct deposit paycheck so that some portion goes into your emergency fund, 529 college savings and retirement savings. Even with automation, review your amounts periodically. It is easy to set up withdrawals from your earnings and forget about it. However, you may be able to afford higher amounts than what you set up initially and can sock some more money away now.

College Savings Planning Should Be Started Early

Set up a 529 college savings fund as soon your newborn arrives. There are several ways to save for college besides a 529 plan like a Coverdell Education Savings Accounts and UTMA. Saving for college early gives you a headstart in growing funds through the power of compounding  while enjoying deferred tax benefits. Virtually all states have their own plan though you are not limited to your home state. There are a variety of funds to choose from including target date funds.

Retirement Savings And Earn Company Match

Save for retirement as early as possible. By setting money aside early you benefit from compound growth, that is, interest on interest. You may defer tax payments or reduce tax costs long term. Learn how your employer-sponsored 401 K plan works with respect to matching contributions which can be quite valuable. A company 401 K match may be a certain percentage like 6% of your salary with the firm matching dollar for dollar (or 100% which is generous) or something less of the amount you saved.

These contributions are like “free money” so don’t leave these dollars on the table. Open up a Roth IRA account to complement your 401 K retirement plan. You want to max out these amounts. Invest this money in a variety of investment choices offered by the plan.

Don’t delay savings for your 529 plan or retirement plan because of you are overwhelmed by the various options. Opt-in to a plan. You can make changes later on.

Health Care Savings Accounts

Find out if you have a flexible savings account (FSA) or a health savings account (HSA) available through your employer. Both plans can help you purchase qualified healthcare costs through pre-tax earnings contributions. The HSA is available either through your employer or if you are self-employed. You cannot have both plans.

The FSA plan sets lower contribution limits than HSA, and if you don’t use it by year-end, you forfeit what’s left in the account. The employer controls the FSA, while the individual controls the HSA.

The HSA plan has higher contributions, covers a broad range of medical expenses, and is more flexible. Unlike the FSA, it does not have a “use or lose” feature. Instead, if you don’t spend the remaining amount that year, it rolls over. The HSA is portable, so if you leave your company,  you can bring the account. You can earn interest on your HSA like any savings account. However, if you use those funds on unqualified items you will pay a penalty, and, if you are below 65 years, you may need to pay taxes as well.. 

Managing Debt Wisely

Pay your bills on time and in full so that your balances are not being charged interest. When you pay only the minimum amount required by the credit card companies, you are paying far more in interest for what you charged on your card. Give your cards a rest until you can pay it all every month.

Use shorter borrowing periods for car, student loans and home loans to lessen the interest amount.The shorter the time frame on your car,  home mortgage or student loans, the lower your total respective cost will be  Yes, you are paying more per month but over a shorter period of time. Perhaps you can increase your down payment.

Know your respective interest rates, fees, penalty rates and terms on all borrowings: mortgage, car, student loans, and credit cards. When interest rates decline as they did in 2019, refinance your rates.

Use Credit Cards With Care

Credit cards provide an essential convenience and help us to build our creditworthiness. However, if you only pay the minimum on those balances, you are incurring high interest rates on what you owe. This is when compound interest becomes your enemy, and you are paying interest on interest. Keep your balances as close to zero as possible.

Use cash more when possible. It can be a motivator to spend less and help us negotiate lower prices when bargaining. You feel the burn instantly as to seeing it on your monthly bill.

When using payment provider services like Venmo and Zelle, know the differences in your liabilities. Credit card holders are usually liable up to $50 for unauthorized charges if you report your card as stolen. User protections for P2P vary so check carefully for coverage.

When working on debt payoffs, eliminate debt with highest interest rate first. I understand the psychological benefits of the snowball method and if it that is an effective motivator for you, go for it.

Avoid payday loans should go without saying. however, if this is your only choice, work with a financial counselor as soon as you can.

Control Your Spending

Comparison shop for everything you buy or sign up for: groceries, clothes, cars, homes, applicances, and services such as financial advisors,  insurance, banks ,credit cards. Be as informed as possible about points, rewards and cash-back offerings that encourage more spending than necessary.

Negotiate when and wherever possible. This goes for shopping and the interest rates on loans. However, learn to negotiate for higher compensation as well.  Opportunties are sometimes waiting for you to be more proactive in the bargaining process.

Know your wants versus needs. You don’t need everything to survive. Many items we say we need are really wants we desire like a long vacation or luxurious clothes.

Don’t go grocery shopping without a detailed list. This was a game-changer for us when my husband would come home with loads of unnecessary items all the time. Use per-unit pricing to compare items. Find coupons online.

Window shop with friends and buy when alone.

Be aware of numerous biases playing with your decision making.

When car shopping, buy certified pre-owned cars which have been completely inspected, repaired and may have original factory warranties remaining on its life. Do your oil changes and maintenance check ups as required.

Building And Managing Your Credit

Review your credit report periodically. It is available for free from AnnualCreditReport.com on an annual basis. You can also get one free report every 12 months to review your credit reports from each of the credit bureaus: Equifax, Experian and TransUnion. Then you can review your report more often especially when there are issues.

If and when you find errors, have the issues corrected as quickly as possible. Here’s how you do it.

Your creditworthiness is essential for more than just borrowing. Your prospective employer, landlord, utility provider and potentially significant other may want to know how you handle money too. By the way, background inquiries are usually soft inquiries that do not affect your score. However, hard inquiries happen when you are signing up for a new credit card or trying to refinance your mortgage loan  and will negatively  impact your score.

Know how the five key categories impacts your credit score. Your FICO scores are based on the following percentages:

  • Payment History – 35%
  • Credit Utilization – 30%
  • Length of Credit History – 15%
  • Credit Mix – 10%
  • New Credit – 10%


Your Child As Authorized User

Parents can help their children build up their credit by authorizing them as users on their cards. Think carefully about your own credit score. If it is low, it may actually hurt their score and defeat the purpose of being on your card. Know your child’s age and maturity, their ability to be responsible and setting up spending limits. There are virtually no age limits so it is up to parents to decide when their child is ready to have access to a credit card.

Yes, it is worthwhile for kids to get a credit boost. However, make sure you are not exposing them to fraud or identity theft, one of the downsides of children having a credit card. You will need to monitor their credit report along with yours.

Before getting them a credit card, talk to your children about money, spending and saving as a means to convey the need for good financial habits. The card is for their needs, not for paying for their friends’ needs and wants.

Raise Your Credit Score

The better the credit score, the lower your borrowing rate and the better on getting credit card deals regarding rewards and cash back. There are a variety of ways to raise your credit score or avoid inadvertently lowering it.

Don’t close any credit card accounts as this will ding your score. Instead, put these cards in a safe place like a drawer and don’t use them.

Keep your credit utilization rate well below 30% of total available credit. It may be beneficial for you to open an home equity line of credit(HELOC). If you have equity in your home you can take out a line of credit up to that value. This will expand your available credit, improving your utilization rate.

Certain programs are becoming popular that may help you boost your score for free or a low monthly amount. For example,Experian Boost, launched in late 2018 counts on time household payments for services such as telephone utilities tpwards your score. RentTrack And Rental Kharma report on time rent payments to credit bureaus.

If you have poor credit or in need of building up your credit, apply for a secured credit card as a means of boosting your creditworthiness. Become an authorized user on a close family member’s card for a period of time.

Applying To College

Fill out FAFSA, Period

If you are seeking funds for college, there is no downside to filling out the FAFSA (Free Application For Federal Student Aid) form other than your time spent. The form is necessary for federal loans, grants, work study programs and merit based scholarships. Don’t lose these opportunities by bypassing FAFSA. Federal loans tend to have better loan rates than private loans.

Be aware of your respective terms, grace periods, due dates and repayment options. Automate where possible so you don’t miss any payments. Try to target paying back your loans in a shorter time frame than the standard 10 year terms especially if you get bonuses or are getting nice raises.

Consider community or two year colleges which can be cost effective, for those who wish to work while going to school or want an interim step.

Save Money In College

When in college, look for ways to save and make money. College students tend to be better budgeters and track spending based on having less money to spend. As students living in a close environment, you are sharing similar tight money circumstances over the four years at school. College students eat ramen noodles, take public transportation and enjoy more experiences.

Keeping up with the Jones comes later on, after you get your first job and start making money. Try to remember your frugal days at college. Resist lifestyle inflation by having  good financial habits.

Understand Your Company Benefits Plan

Whether you are working at your first job or at the same firm for years, review your company benefits package. What may not have been of interest to a 20 plus year old, may be desirable now. Companies are increasingly adding to their compensation plans that can be customized for your life stage. Among the standard benefits plans are retirement plans, health care insurance, tuition reimbursement, insurance, flexible spending accounts (FSAs) or health savings accounts, paid vacation, sick time, medical or family leave.

You may need to add more coverage to parts of your benefits offerings such as life insurance. Typically, companies provide you with a starter package which will likely not be enough protection for a growing family. Company plans vary and may be a good reason to choose between two competing offers.

How To Start Investing Early

You can only reduce spending and save so much. Learning how to invest is the best way to outpace inflation, save money for college tuition and retirement, and accumulate wealth. According to a Gallup poll in 2019, 55% of Americans own stocks either individually, in mutual funds or in retirement accounts. This rate is below pre- 2008 recession levels of 62%.

Inflation refers to increases in prices resulting in reduced purchasing value of money. As prices go up say 2%, your money will get less units than it did in prior periods. Through  investing in stocks, you can better maintain your purchasing power. Stocks  tend to generate better returns (based on higher risks) than other securities, outrunning inflation. Stocks grow at a compound growth rate of 9% over the long term (over 90 years), though 2019 has been a banner year with S&P index, including dividends,  registering one of best gains since the 1990’s at roughly 30%.

Stock Market Games

Playing a simulated stock market game is a great way to learn how to invest and get familar with relevant terminology without losing real money. There are a number of free games  available and easy to set up that mirror realistic trading and investing with friends, family or on your own. Many of these sites have tutorials, videos and articles to educate you on the basics and provide strategic tips.

Start Investing With Small Amounts

Put small amounts  like $25-$50 per month into your investment account that you can afford to lose. That is, don’t invest your rent money. Starting small is a good way to get started as you gain a better understanding and confidence. Many large online brokers have lowered or eliminated commissions and initial minimum amounts designed to encourage small investors. Be aware that there may be management fees on your balances.

Buy Exchange Traded Funds or ETFs  which do not have minimum requirements, are available at low fees and provide you with diversification. Most mutual funds require a minimum initial investment between $500-$3000 and higher. For beginner investors, that may be a steep amount. You have many choices of ETFs and low cost index funds. Start with Vanguard’s offerings.

Some Investing Basics

When you begin buying stocks, have a long term outlook. Although commissions are reduced, you can realize better returns with long term investing (over a year or more) rather than trading. There are tax benefits when holding a stock more than one year by way of capital gains and capital losses.

Have some discipline strategies in place for when you should sell or exit a position. If you have a stock that is up 20%-25%, it is a good idea to sell a portion of your gains. A useful rule is “bulls make money, bears make money and pigs get slaughtered.” That is, don’t get too greedy.

Another good rule when investing in stocks, courtesy of Investor’s Business Daily (a great resource!) is to always sell a stock if falls 7%-8% below what you paid for it. The premise of this principle is that by selling at that level you are capping your downside potential. It has worked well for me. On the other hand, another strategy investors use is to buy small portions of stock initially and then buy opportunistically at lower prices to reduce cost basis of your stock.

I consider that all investors, including beginners, should have a basic knowledge about the Federal Reserve and their impact on interest rates, money supply and financial markets. We a have a primer on the Fed for those who want some insights.

Compound Growth And CAGR

One of the most important terms in finance to understand is compound growth. It can work against you when you are referring to a long term debt such as a fixed mortgage when you are paying interest on interest which increases your loan. Here, when investing, it can work in your favor when you are referring to the growth rate of your investment in your portfolio. Keep in mind, while stocks have above average returns, they have down years which can be sharp like during the 2008 recession.

The most accurate way to calculate returns is the compound annual growth rate or CAGR which smooths out returns over a longer period of time. Investors like to compare CAGR S&P 500 index (commonly referred to as “the market”) to their savings account or to that of a specific mutual fund or to their portfolio. This how investors can see how they are doing relative to the market. The formula for the compound annual growth is here. Thankfully, there are CAGR calculators to use.

If you are investing without a financial adviser, you need to do research. There are a lot of publicly available resources available to learn about the company and its businesses, its industry and its risks. You need to understand trends in the market. Expect stocks to be volatile and they may bounce back quickly after a fall in the market. BLOG POST

Diversification And Asset Allocation

Diversification of your stock holdings is important. Don’t put all your money in one stock or one sector of the industry. That is a recipe for greater losses. The best way to achieve diversification is through buying ETFs or low cost index funds which contain baskets of different securities. You want to minimize your risk as best as possible based on your own tolerance.

Not only do you want to have different stocks in your portfolio, you should aim to have different types of investments. This can include money markets, Treasury, municipal and corporate bonds, foreign securities and real estate. You can use ETFs and mutual funds to gain diversification within each asset class. Asset allocation is a means of diversifying these different investments. How you allocate your assets is based on your preference, age and lifestyle. Use a financial advisor or planner to talk through your planning and goals.

How To Choose A Financial Advisor

Meet with a financial planner or advisor to review your financial goals periodically and discuss how to achieve them. A financial planner does much more than selling you securities. Look for someone with a CFP designation. However, that should not be your only criteria. You should feel comfortable with this person and/or team.They should understand your household’s financial situation, lifestyle and your plans regarding children and college, career, retirement, insurance needs and estate planning. Here is how to choose a financial advisor.

Protect Your Family Financially

We love our families. Take proper steps to financially protect them. Providing financial security–besides making a good income, saving, paying off debt and investing– requires protective measures like buying essential insurance coverage and estate planning.

Insurance Coverage Is Essential

Your employer may provide you with some types of insurance as part of your benefits, including life, health and disability but often it is not enough. As your family grows you need to make sure you are adequately covered to take care of your family’s essential living costs and their future plans, including college. There are 8 types of insurance that you need to have proper coverage: auto, homeowners, renters, life,  disability, health, long term care, and  umbrella insurance.

Estate Planning

Prepare for the worst for your family’s sake. There are a number of steps to take for estate planning. Create a will and/or trust according to your wishes. You also need advanced medical directives and a living will as essential documents for your loved ones and health care providers.  Most people resist dealing with estate planning as a difficult topic. However, not dealing with it may leave your loved ones in a confused state during their time of grief. Think of estate planning as a plan of action that you are taking for your family.

Review And Update Your Designated Beneficiaries

An effective and efficient way to distribute our assets is by designating our beneficiaries outside the will through our bank accounts, insurance policies and such. Many of our assets are nonprobate property. As such, they are transferable to survivors by contract immediately upon death rather than under a will.

The advantages of contract transfer over the distribution of assets by a will are less time, cost and more privacy. Transfers to loved ones by a will could take 6 months-1 year if probate is not required. If contested in court, the distribution could take longer. Even worse, your will would be made public through court documents. At a minimum, be aware of the need to have designated beneficiaries for all assets. Review and update your beneficiaries based on life events such as having a new child or other necessary changes.

Invest In Yourself

Education does not end at the schoolhouse door. Embrace learning so you can master skills that are valuable to you. Read more and acquire knowledge so that you are competitive at work, have wider and diverse social circles and can teach others. Avoid procrastination which can be costly and cause unnecessary mistakes. Use time as the precious resource it is so that you may live everyday to its fullest.

Final Thoughts

To achieve financial success in life you need to have a game plan combined with good financial habits. Measure how you are doing with a review of your budget and net worth. They are key documents that help pinpoint where there may be some improvements needed. Financial planning should be discussed among family members. Calculate certain financial ratios, benchmarking your financial health. These ratios are tools designed to evaluate financial strength. As a companion to this article, see our post: 18 Financial Ratios You Should Know.

We hope this has been helpful to you. Thank you for reading and share it if you found it as valuable. Let us know what your thoughts are! Wishing you much prosperity and health in the coming year!






Money Lessons From 5 Favorite Classic Novels

Money Lessons From 5 Favorite Classic Novels

We often can’t see our own mistakes through our rose-colored lenses. Instead, we can see errors more easily made by others when we are less emotional. The same happens when we find colorful characters in fiction who make blunders we know they should avoid. Reading books provide us with teachable moments.


Five Classics Illustrate Money Lessons:

  • Decadence Of Money
  • Social status
  • Reversal of fortune
  • Accounting fraud and corporate greed
  • Virtues of work
  • Financial independence

These factors play a role in impacting the lives of the characters below. Often, we have experienced some of these very same financial issues.


“I shall go on shining as a brilliantly meaningless figure in a meaningless world.”

“Wine gave a sort of gallantry to their own failure.”

I recently finished this novel packed with money lessons. It explores the decadence of money, social classes, socialites, and elitism. The lives of F. Scott Fitzgerald and his wife Zelda likely serve as a model for this work.

Financial Dependence

Anthony Patch has returned to upper-crust Manhattan, having graduated from Harvard. He socializes with his wealthy friends, parties, and drinks heavily. Partying leaves little time for a career or work.  As a presumptive heir to his grandfather’s fortune, he has no motivation to be purposeful. His grandfather, Adam Patch, raised Anthony after his parents died. The elder Patch made his wealth on Wall Street. Grandpa provides Anthony with an ample allowance. However, he has no patience for Anthony’s idleness, drinking, and lack of purposefulness. It doesn’t sit well with Adam, who is for prohibition politics.

Gloria Gilbert is a cousin of Anthony’s close friend, Dick, an author. She is an even match for Anthony by being a socialite who parties, drinks, and lacks seriousness. Seen as a beautiful couple with a bright future, they court (i.e., date) and eventually marry. Their relationship exposes their tendencies: jealousy, selfishness, easily bored, and vanity. Gloria’s friends often ask Anthony about his laziness and lack of goals, to which he asks, “Why can’t I be gracefully idle?”


The Patch couple rent two homes in Manhattan and Westchester, which they cannot afford despite an abundance of money. Given the likelihood of inheriting a lot of money from  Adam Patch, their friends envy them for their headstart towards wealth. However, Gloria and Anthony are wasteful of money and time. These tendencies grow worse as they move through their 20s. They spend heavily on lavish parties, dining, traveling cross country, and to Europe.

Intermittently, Anthony visits his grandfather but comes to hate seeing him. Adam Patch peppers him with questions about his lack of savings, overspending, investing, financial responsibilities, and lack of goals. He wants to understand how the Patches haven’t saved money with an income of $7,500 per year—combining Anthony and Gloria’s allowances.  That they have not saved anything despite an abundant income disturbs his tycoon grandfather.

Adam starts to pursue his grandson’s opportunities even though Anthony insists that he is an author and spending his time writing. That said, he is yet to have published any of his articles.

Work Is No Occupation For The Patch Couple

At one point, Adam finds a job for Anthony as a bond salesman. Anthony tries to sell bonds but finds sales distasteful and quits soon after. Besides, Gloria has no fun when Anthony works because she has to sit around idly and alone. However, they recognize that Adam Patch could live another ten years and have difficulty making ends meet.  Anthony has no financial independence, relying entirely on his grandfather.

World War I has begun, and Anthony goes for military training in the South. He meets a woman, Dorothy (Dot), who is relatively poor, clingy, and does not know about Anthony’s potential wealth. Anthony opens up to Dot, sharing how hard his life has been. Dot is a good listener and doesn’t require much materialism, as Gloria demands. The war ends before Anthony sees action, and he returns to Manhattan and Gloria.

Budgeting Isn’t Easy.

Adam realizes that they need to budget so that they can afford their rent. He starts to record their income and track some of their spendings. They begin to make changes, like moving to a smaller apartment. Unfortunately, they use their savings frivolously as they have the little discipline to manage money. Gloria suggests earning money as an actress through a mutual friend who owns a growing movie studio. Anthony becomes jealous, refuses to let her do so.

They still have the house in Westchester and host a raucous party with dancing, drunkenness, and general depravity. At the height of the party, Adam Patch comes to the house unexpectedly. Adam is visibly upset and leaves with a friend abruptly. The next day, Anthony tries to see his grandfather apologize, but he is ill. Apparently, the party caused Adam’s decline. Within months, Adam Patch dies.


The Patches have counted on Adam Patch’s fortune. They never considered that there was any chance of not inheriting his money. However, at a reading of the will, Anthony Patch learns that he is penniless. Adam’s secretary and very distant cousins received the bulk of $40 million. Gloria and Anthony hired an attorney to file objections to the will. Besides not getting the money, Anthony faced shame as the lawsuit became public given Adam Patch’s stature. The case, including appeals, was expected to take years and many upfront payments for retainers.

Financial Jeopard, He Should Have Had An Emergency Fund

“It was too late–everything as too late. For years now he had dreamed the world away, basing his decisions upon emotions unstable as water.”

The Patches needed emergency fund to provide liquidity. Anthony sold bonds to raise capital. At one point, he sold bonds that were only worth 30% of their par value. As a result of lacking money, Adam took the hit on the bonds. Yet, he still spent money frivolously. He treated his two best friends to dinner even though they made more money in their respective careers. As money became tougher to get, Anthony sunk into an alcoholic state. He spent most of his cash on cases of alcohol and stopped going out with friends.

Tensions were rising for the Patch couple. To raise cash, Anthony begins to write bad checks for rent payments. Then he tries to pawn his watch so he can buy drinks at a bar. He has trouble paying his retainer fees to his attorney as the case makes its way through the court system. It seems to be a hopeless case; he begins to believe he will lose the case. He misses the highest court’s decision because he was drunk and a mess.

The Case’s Decision

Gloria comes back to the apartment to tell him they won the case and get his inheritance. He doesn’t appear to care anymore. It is quite a downbeat ending for the reader. On the other hand, he doesn’t enjoy the win. Did Anthony get his just desserts, meaning that he caused his physical, psychological, and near financial demise based on poor management and discipline? He has never saved, didn’t have an emergency fund, overspent frivolously, lacked goals, and remained idle except for drinking. It is hard to have sympathy for Anthony and his wrecked life at the end.

Advice For The Patches

Anthony did not heed his grandfather’s advice to save money, invest, find a job, and earn an income. However, they would have been in far better shape had they boosted their income. Gloria and Anthony came from wealthy friends and families. They expected their wealth would come in the form of an inheritance. In the meantime, they overspent their allowances “to keep up with Jones.” Today we may refer to that as lifestyle inflation and something to be avoided.

The Patches should have controlled their spending, had a reasonable budget and an ample emergency fund. Adam, his wealthy grandfather, managed his money very well.

Virtues of Work

With a Harvard degree, Anthony would not have had trouble finding a job he liked. Work hard, and you can play hard.

.“Choose a job you enjoy doing, and you will never have to work a day in your life.”  Whether Mark Twain or Confucius said this, it is a sentiment worth aiming for whether you plan to work for ten years or 40 years. Embracing hard work allows you to put away money for savings, investing, and emergencies.

I always valued my work, appreciated its challenges, and a way to give our lives meaning. Sure, there are still days we would instead not be working. However, seek fulfillment from your job and career or make changes. Explore and broaden your interests. Our jobs give us a sense of pride, independence, identity, purpose, a way to meet people, improve our skills, and of course, financial support. The Patches needed a set of reasonable goals and a game plan to execute for financial success.


“For white men to live is to own, or to try to own more, or to die trying to own more. Their appetites are astonishing! They own wardrobes, slaves, carriages, warehouses, and ships. They own ports, cities, plantations, valleys, mountains, chain of islands. They own the world, its jungles, its skies, and its seas. Yet they complain that Dejima is a prison. They complain they are not free.”

Make A Fortune And Marry Your Wife

This historical novel, While not a classic, this historical novel begins in 1799, in Dejima, a small port near Nagasaki, Japan. Jacob de Zoet, has left his Dutch homeland to earn enough money and status to marry Anna, his fiance. First, he gained Anna’s father’s respect and approval to marry his daughter within a six-year timeframe. Jacob, the nephew of a pastor, is a young clerk with the Dutch East Indies Company. He has brought a valued Psalter from home but fears its discovery as a Christian book not allowed in Japan.

Accounting Fraud And Corporate Greed

De Zoet, an educated bookkeeper, stands out for strong moral fiber among unsavory and ethically challenged peers and managers. He is praised, promoted for honest accounting, and as quickly demoted and ostracized for his not wanting to sign off on doctored financial accounts. This novel is a morality tale released in 2010, shortly after the financial crisis. Accounting scandals and greed are not a modern-day invention.

Jacob favors the educated and those with strong moral fibers. He admires the highly trained midwife Miss Orito Aibagawa.  Orito has exceptional skills in delivering difficult babies, having studied under the likable and respected Dr. Marinus.

Jacob’s Highmindness

The Dutch East Indies Company’s members supplement their incomes by stealing money from the company’s accounts, smuggling, and cheating. They act according to their self-interest rather than that of their employer. The men justified illegal activities as they were stuck on a small island all year away from their loved ones. To Jacob, there is no justification for theft of any kind.

Good Versus Evil

Orito Aibagawa is a notable character for being independent-minded and well educated. She has more freedom and respect as a woman in this era. She grew up in a well-to-do intellectual family. However, she had a facial scar, which carries symbolism. Orito is a marked woman once her father dies.  DeZoet devotes his life to save her and others subjected to rape and horrific captivity. There is a lot of cruelty and betrayal in this novel.

Jacob represents the best of characters. His intelligence, strong work ethic, modesty, and sense of morality are great virtues among the chaos.


“It would degrade me to marry Heathcliff.”

Wuthering Heights is one sad story with a cast of characters hard to tolerate. This Victorian novel is rich with morality, love of money and social status, inheritance, and gender income inequality.

Thank heavens for Nelly Deans, as a storyteller to Mr. Lockwood, a boarder to Thrushcross Grange, caregiver to Mr. Earnshaw ‘s children Catherine and Hindley, the orphan Heathcliff. Mr. Earnshaw has taken in Heathcliff, who was homeless with low social status. However, Mr. Earnshaw begins to favor Heathcliff over his son, Hindley, who in turn is consumed by jealousy. Hindley leaves the estate to attend college.


Mr. Earnshaw dies three years later, and Hindley inherits the Wuthering Heights. Once favored and pampered by Mr. Earnshaw, Heathcliff gets demoted to common laborer by Hindley. Hindley shames Heathcliff and becomes revengeful. Hindley marries Francis, and someone Hindley met in college. However, she soon dies in childbirth. Hindley drinks heavily and becomes more abusive to Heathcliff.

Money And Social Class Are Priorities

Catherine loves Heathcliff but marries wealthy Edgar Linton for money. She seeks social advancement, which Heathcliff cannot give her. The Lintons are socially more secure than the Earnshaws. Edgar loves Catherine, who learns to love Edgar.

Reversal Of Fortune

Heathcliff runs away from Wuthering Heights and comes into significant wealth mysteriously. He plans his revenge against everyone, especially Hindley. The latter has been mishandling money due to his despair and alcoholism. As a result, Heathcliff lends him money, and Hindley’s debts grow. When Hindley dies, Heathcliff inherits the Earnshaw estate. Keep in mind that women like Catherine were not eligible to inherit money and property in those days. Hence, Heathcliff was next in line. And that’s not all. By marrying Isabella Linton (sister of Edgar Linton), Heathcliff is now in line to inherit the neighboring Thrushcross Grange.

Heathcliff’s Return

Heathcliff’s return to the Grange unravels Catherine as his demonic love for her is her demise and is ultimately the demise of every character.

The conflict between Edgar and Heathcliff is between good and evil. Heathcliff’s turmoil is everyone else’s torture, except for his nephew Hareton Earnshaw, son of Hindley.

Wealthy Heathcliff But Without The High Social Class

Rising to gentleman based on his accumulated wealth, Heathcliff lacks the manners and dress of one in that social class. The former homeless person was now asserting his power overall, acquiring both estates. Heathcliff is among the most demonic, unhappy, miserable characters in all of literature. Young Catherine, daughter of Edgar and Catherine Linton, marries Linton Heathcliff. Linton is a son of Isabella (Edgar’s sister) and Heathcliff, being among the weakest and most pathetic literature characters.

It was difficult reading this story more than a few pages without wanting to throw the book. It caused that much discomfort. Catherine Linton married for wealth, comfort, and social status and may have lost Heathcliff, the man she truly loved.  Emily Bronte’s descriptions of the moors and scenery were beautiful breaks from its main character’s tirades and violence. I am glad to have read this unquestionably classic gothic story, rich in characters that will live on and on.


“I am no bird, and no net ensnares me; I am a free human being with an independent will.”

“Some of the best people that have ever lived have been as destitute as I am; and if you are a Christian, you ought not to consider poverty a crime.”

The Bronte sisters produced memorable women characters. Charlotte Bronte may have remedied Catherine Linton’s weak character with Jane Eyre. This classic Victorian deals with wealth, social status, and, refreshingly, women’s financial independence.

“Reader, I married him.”

Jane Eyre, orphaned as a child, and a cruel aunt, Mrs. Reed, raised her. She is hired as a governess at the Thornfield Manor to teach Adele Varens, the ward of Mr. Rochester, a sad and dark character. She has strange encounters with Rochester, helping him fall from his horse and saving him from a fire at the manor.

Jane falls in love with him and is surprised when he proposes to her, given her low class. However, she learns Mr. Rochester is married to a woman who has descended into madness and is locked up away at the manor. The wedding ceremony is broken off. Mr. Rochester suggests they go to France and live as husband and wife. That proposal goes against Jane’s Christian values, so she leaves Thornfield with what little money she earned.

Jane’s Newfound Wealth

Becoming penniless again, Jane is taken in by the three Rivers siblings at another home and gets a teaching job. Jane learns that her Uncle John Eyre has died and left her a fortune. She realizes that her Uncle was also uncle to the Rivers, so she splits her inheritance with her new relatives.

Newly rich, Jane seeks to return to Thornfield and Mr. Rochester but finds the estate burned. Bertha, Rochester’s wife, set the fire and died. Now on an equal footing to Mr. Rochester, Jane rebuilds her relationship with him, and they are married. Before her inheritance, Jane had been too intimidated to marry the wealthy Mr. Rochester.

Female Independence

In this gem of a classic, Jane Eyre is a very progressive independent woman at a time when women, as brides, were expected to have a family dowry, property or money, to contribute to her future husband. Jane speaks her mind on parity to Mr. Rochester. We admire Jane for her strong moral character, generosity, and independence well ahead of her time.


“She had not known the weight until she felt the freedom.”

Nathaniel Hawthorne’s classic The Scarlet Letter addresses public shaming, social isolation, conformity, earning money, and feminine resilience. Although it was written in 1850 and based on 1640s Puritan Boston, it remains relevant today.

Hester Prynne’s Strength In Adversity

Hester Prynne was a strong woman, accepting the consequences of her weak moment with reticent dignity. As a result of an extramarital affair in the 17th century, she had a baby (Pearl) out of wedlock. She has further exacerbated her crime by refusing to name Pearl’s father.

After a short inquiry, Hester Prynne is found guilty of adultery.  She is required to permanently wear an “A” on her dress for all to see.  The community is encouraged to shun, shame, and gossip about her. She stands on the symbolic scaffold for three hours, holding her baby while being exposed to public humiliation. Hester refuses to name the father of the child. Her husband is not present and is believed to be lost at sea.


Hester’s proud dignity runs counter to Pearl, her wild child “elf,” whom Hester loves and fears. Pearl is a complex character and represents a form of punishment that Hester endures. Among critical characters in the story are the minister (“good”) and the physician, Hester’s older husband, who returns (“evil”).

Symbols and themes enrich The Scarlet Letter: sin worn inside and outside, good vs. evil, lack of materialism, dreams, night and light, meteors, knowledge, “the Black Man,” witches, civilization versus the forest wilderness, societal outcasts, and strong feminine identity. Hester forgives those who have punished her. She is generous to them with the little resources she has.

Shared Her Meager Resources With Others

Hester worked hard as a seamstress to support her difficult daughter.  By all accounts, she was a devoted mother. She shared her limited finances with others without expectations or recognition for her good deeds. Hester has forgiven the townfolks. Punished by her neighbors, Hester is a dignified person with a strong moral caliber. Instead, it is the community, acting as a mob, whose behavior is immoral.

Strong Female Independence

Hester Prynne is an early example of female independence in literature. As a single woman, she is bold, takes care of herself and her daughter, Pearl. She earns her own money through hard work and shares her money with others. She violated social expectations and cast out of the community. However, Hester’s ousting is freedom and redemption. She is free of social conformity. Ultimately, she returns to the town humbly and happy.

Final Thoughts

I have read and reread these books, finding so much more in these classics as time goes on. There are some books that we shouldn’t pick up until we are at least 40 years old. Sometimes characters such as these are like old friends you are visiting.

Indeed, The Beautiful and Damned, based on F. Scott and Zelda Fitzgerald,  is an excellent example of how not to handle money. At some point, after they were married, Gloria and Anthony decided that they wanted to have the best lives possible while they were in their 20s. They discussed not needing to save money for their old age because they expected to die young. F. Scott Fitzgerald died at 44 while Zelda was in a mental institution at age 30 and then killed in a fire at age 48.

For more: Personal Finance Lessons In Classic Literature

Have you read of these books? Any books you would recommend with similar themes? We are always on the look out for suggestions. We would like to hear from you!


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!


Financial Resolutions For The New Year

Financial Resolutions For The New Year

“There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.”

Albert Einstein

This year has been extraordinary and challenging. The coronavirus has been a cloud over our heads virtually all of 2020. Reshaping our lives has been necessary as we are socially distanced from friends and family, worked remotely, and learned online.

Historically high unemployment has negatively impacted our economy. The Fed has acted aggressively by lowering rates and expanding the money supply to provide liquidity to financial markets.

Early in the crisis, Congress passed The CARES Act with generous financial support for small businesses, hiking unemployment benefits, issuing stimulus checks, enacting pauses in student loan repayments, and other services. President Trump signed the COVID relief bill for $900 billion. However, there is still a significant need to provide more support.

Be Optimistic For The Future

On the positive side, the distribution of approved miracle COVID vaccines is happening. However, as we approach 2021, cases are still rising, so we are not out of the woods. Vigilance remains as the virus is still among us.

Yet there are reasons to be optimistic in 2021. Besides the vaccine rollout, I believe there is a wider consensus that the wealth gap needs to narrow significantly, improved growth as the economy opens up, and the resilient stock market will remain so. The silver lining of the pandemic brought a greater appreciation of science and digital technologies.

Adapt some financial lessons we learned the hard way in 2020 for a better plan in 2021.

Financial  Resolutions For 2021


1. Set Financial Goals

Realizing your financial goals in 2020 may have been impossible to achieve. Vacations shelved, unexpected loss of a job, buying or selling your home. On the other hand, you may feel more determined to revisit your goals for the coming year. Set reasonable financial goals for 2021. The pandemic crisis may impede us in the first few months.

We can learn from our experiences that may have highlighted some of our mistakes, such as not saving enough for unexpected emergencies such as a pandemic. There isn’t a crystal ball to prepare for such events, but you should realize that things can happen to us.

2. Build An Emergency Fund

Having savings on hand for emergencies should be a top financial goal. Establish an ample emergency fund to cover your necessary and urgent living expenses for up to a year. In regular times, 3-6 months may seem plentiful, but in reality, saving for an extended period may have proved necessary in 2020. This money is a cushion for you to feel more financially secure should you lose a job, have a medical emergency for you or your pets, or a flood in your basement.

Invest these funds in liquid investments with easy access. With the low-interest-rate environment, you won’t be earning much income from current yields, but liquidity–the ability to quickly have cash without much loss of value– matters. Think of this as savings, so you don’t have to borrow on your credit card that will make it hard to pay off high-cost debt.

Your fund should be a big enough cushion to pay your monthly bills and costs such as food, rent or mortgage, utility, health care, car, property taxes, and pet care. Ample savings will allow you to sleep better at night. You can read more about the emergency fund and how to invest it here.

3. Have A Budget To Keep You On Plan

To be financially disciplined, you need to understand your monthly budget. Our combined income sources, less total expenses (fixed and variable expenses) equals our bottom line. Many people had significant challenges if they lost a job, had emergency medical costs, or both. When your income, fortunately, exceeds your expenses, you have money to save. This money can be added to your emergency fund, pay down debt, or invest in the future.

On the other hand, if your costs exceed your income, you will need to earn more income, borrow to pay expenses, reduce spending, or a combination of these. Bring down whatever costs you can. Borrowing on your credit cards will put you in a terrible financial bind. The interest costs of credit card debt, averaging 16%, are destructive.

Plan to review the budget monthly.  Some people use spreadsheets; others use apps. Whatever way works for you to plug in your monthly pretax income less fixed costs, mostly your living costs such as rent, utilities, monthly car payments, insurance, typical food/grocery,  and other debt. 

Your variable costs are often discretionary and include dining out, entertainment, travel, and potential costs. Another way to budget is to track your monthly expenses by reviewing your bills regularly. You may be motivated to save once you see how much you spend on things you didn’t need.

4. Spend Less Than You Earn

Manage your spending. Invest your leftover savings. During the pandemic, we had fewer opportunities to spend as we hunkered down in our homes. We didn’t go on vacation, dine out much, and commuted less. On the other hand, we spent more on groceries, subscriptions, and gaming platforms this past year. An October 2020 survey showed that consumers are now paying for seven video streaming services on average. Spending on gaming platforms (e.g., Xbox, PlayStation) rose by 37% in 2020.

One surprise was the amount of saving we were making in the first half of 2020. US personal savings rose to unsustainable rates of 33.7% in April, but remain at reasonably good levels.

People are tired of social distancing and craving to go back to their regular lives. We all want to enjoy living, but we need to be careful about temptations to overspend after a year of deprivation.

There are reasons why we justify spending more than we should. We often prefer instant gratification, living today but not focusing on our future. To be in good financial health, we should be doing both. Our emotional biases impact our purchases, and marketers leverage those tendencies. Our lifestyles and personalities play a significant role in overspending, especially when we want to impress people with our success.

5. How To Spend Less and Save More

When overspending habitually, we need to motivate ourselves to change our ways. When we diet, we often take a break and eat something we know we shouldn’t. If we correct that error, usually no sustainable damage has been done. On the other hand, sometimes falling off a diet means we have given up. The best thing is to dust yourself and get back on to your diet.

If you realize your overspending is harming your finances, you may need some motivation to reduce spending. When your overspending and debt accumulation is severe, you may want to consider therapy or meeting with a financial counselor to help you.

Motivate Yourself To Spend Less:

  • Focus on your financial future.
  • Understand your household budget.
  • Track and review your spending on items you may not need.
  • Be more conscious of how you shop and biases that interfere with your decisions.
  • Negotiate any agreements you have if you are facing challenges.
  • Cancel subscriptions you no longer need.
  • Invest, pay off debt, or add to the emergency cushion with extra savings.


6.  Be Disciplined When Using Credit Cards

Having too much debt will make it difficult for you to achieve financial security and wealth. Make trade-offs that minimize debt accumulation. When credit card issuers charge 15% or higher on your balances, resolve yourself to spending less.

Pay your bills on time each month and aim to pay them in full.  It may mean making trade-offs between buying something you don’t need and may not even want very much. Carrying significant credit card balances is a substantial financial anchor and is a habit hard to break.

Instead, try to reduce your credit card balances to zero, so you never have to pay the issuer any interest owed. I consider credit card debt to be among the most toxic. Use more cash, which often limits your spending, or just buy less until you have more control over this debt.

7. Manage Your Debt Wisely

Like paying taxes, there is a certainty you will accumulate debt in your lifetime: mortgage, cars, student loans, smartphones, and credit cards. But you need to be prudent when you borrow money so that it doesn’t interfere with your wealth accumulation. Where possible, pay down debt, particularly your credit card balances, which can be financial weapons of destruction.

The trade-off for extra savings should go to your emergency funds, high-cost debt, and investing your money.

Find SavingsTo Pay Down Debt From: 

  • Annual tax refunds.
  • Passive Income.
  • Your annual bonus or a raise.
  • Extra savings can help.

Some debt accumulation is associated with borrowing that is more like investing. Borrowing is not always a bad thing especially for good reasons like your college education, furthering your career, or buying your home. As we mentioned earlier, credit cards are incredibly toxic.

 Refinance Your Mortgage

Consider refinancing your mortgage loan, which is at record low rates.  According to Bankrate’s weekly survey, the average 30 year fixed rate mortgage dipped to 2.95%. It doesn’t necessarily mean you will automatically get the lowest rate as lenders will look at your credit background and the property.

Several factors influence mortgage rates: the Fed’s actions, which brought down interest rates, economic indicators, and inflation. Besides, a higher credit score and a lower loan-to-home-value will contribute to more attractive mortgage rates.

Get The Right Mortgage And Car Loans

Make sure you are getting the right loan. If you handle shorter terms for your cars and home, you will benefit by paying less debt. When buying a home, consider the 15 years fixed mortgage vs. the 30 years fixed mortgage. True, the shorter mortgage term will cost more per month but your total cost, when factoring in the interest payments for your home will be lower.

The same goes for a car loan. According to Credit Karma, the average new car loan was 72 months but more people are opting for longer loan terms. Surprisingly and perhaps ridiculously, exotic car financing is more extended, averaging 144 months (Lending Tree). The longer loans stretch out your interest payments and make them more manageable. However, you are paying more for your car when adding in the higher interest, and unless it is deductible for a business’s car, it is not worth it.

Buy what you can afford in a home and car, not for pleasing or impressing others. Drive your car longer and consider buying with more cash as a down payment or in its entirety.

8. Review And Fix Your Credit Report

As part of this new year’s resolutions, make sure to review your credit reports periodically. You can do so for free through AnnualCreditReport.com. You can rotate among the 3 credit bureaus to examine your report every few months.

Lenders rely on our creditworthiness to see our borrowing rates. The higher the score on a 300-850 score, the lower the annual percentage rate (APR) we are charged on car, mortgage, or private student loans. Check for errors you can fix quickly on your report and follow-up with vendors when you spot those issues. These errors can hurt your credit.

9. Raise Your Credit Score

There are few parties–landlords, employers–  that have stakes in our credit scores besides lenders. Improving your credit score can meaningfully help you reduce the total size of your debt (mortgage, car, and other loans) and provide financial security. Have a better understanding of how your credit scores are determined and how to raise them here.

A Better Score Means Lower Interest Payments

A good credit score ranges between 700 and 750.  The difference in the APR based on credit scores are meaningful. The borrower with a 650 score would pay a 5.40 % APR  on a $250,000 30 year fixed mortgage loan. This score would require a monthly payment of $1,404 or $255,440 in total interest paid over the loan’s lifetime. A borrower with a better credit score of 700 would have a lower APR of 4.58% or $1,279 for the same property and pay far lower in lifetime interest payments of $210,440. 

10. Save For Retirement – Max Out Your 2021 Contribution Limits

Your situation at your job may have been more challenging as a result of the pandemic.  What happens to your 401K employer-sponsored plan? If you lost your job, you probably can leave your 401K with your former company to manage it as is. However, you can’t make new contributions or receive employer matching programs. But it is a good place to keep your plan for the time being.

If you changed jobs, and your new employer offers a 401K plan, you can roll it over. If you are not working, you can rollover this money to your IRA to avoid penalties if you are younger than  59.5 years.

If you remain at your job, be grateful. It has been a demanding environment for many people. You may find that if you are working at home, you have extra savings that can be applied to your retirement or investment accounts. If you started a new job, save as early as possible.

A Company Match Is Valuable

For example, your company offers a 50% match of your contributions up to 6% of your salary. Suppose you contribute 6% of your $55,000 annual salary, or  $3,300. Your employer will match 50% for their contribution of $1,650. The employer’s contribution is like getting free money.

As soon as you start working, you should enroll in your firm’s 401 employer-sponsored plan. Automate a specific amount or percentage of the money you receive from your paycheck to be deposited into your retirement, investment, or any savings account.  It’s an easy way to save consistently for your retirement to build this account through compounding.

Save as early as you can to leverage compounding benefits and for maximum contributions.

2021 Contribution Limits -Some Changes

For 2021, there are some changes in contribution limits for retirement accounts from last year.

The 401K contribution limits are the same at $19,500  and the catch-up contribution for plan participants age 50 or older remains at $6,500. Employers can make matching and nonmatching contributions for their employees even if they have already maxed out the account. As such, the overall contribution limit (i.e., employer and employee deposits) is 100% of contribution or $58,000 (up from $57,000), whichever is less. For plan participants age 50 or older, the overall contribution, including the catch-up portion, is  $64,500( up from $63,500).

The IRA limits remain at $6,000 in 2021, with the catch-up provision remaining at $1,000 for individuals age 50 and older or $7,000 in total. The IRS did increase income ranges for the traditional IRA and Roth IRA contributions.

11. Essential Investing Lessons 

It was an unusual year for investors.  Market volatility in 2020 was unprecedented. At the beginning of 2020, we had low unemployment, economic growth, and low inflation. These favorable conditions supported a long bull market which peaked on February 19th. From its market peak to its bottom, the S&P dropped 33.9% spooked by rising coronavirus cases, and we entered a bear market.

However, aggressive Fed actions and Congress’s moves to provide financial support quickly steadied the financial markets. As a result, the bear market was short-lived as S&P 500 resumed its climb despite continued high unemployment pressuring the economy. With the year virtually over, the S&P 500 rose 14.6% year-to-date.

A Few Lessons Learned In 2020

  • Stay the course, don’t bale when the market becomes volatile, looking at the long term horizon.
  • Use extra savings to invest in a down market opportunistically.
  • New winners–stay-at-home stocks, replaced stocks hurt by social distancing.
  • New retail day traders and investors emerged using apps from Robinhood, Charles Schwab, and TD Ameritrade, spending up 65% on average.

These new investors have only seen an upmarket and may be using riskier strategies (eg. options, margin buying, short selling).

We advocate Buy/Hold strategies, rather than short-term trading. We recognize the excitement of day trading and swing trading long term (which are different schemes) discussed here. On the other hand, ‘boring” long investment strategies take advantage of compounding your returns, lower capital gain tax rates if you hold stocks more than a year, and allow you to ride out market volatility.

There are some investing rules we believe you need to know to achieve success such as diversifying and rebalancing your portfolio. The recent rise in the stock market may have resulted in your portfolio being overweight in stocks. That said, with interest rates at historical lows, it may be difficult to find much income in money markets and bond securities at this time. We believe that you should have a mix of high-quality dividend growth stocks and corporate bonds.

12.  Update Your Designated Beneficiaries

Chances are, if you are working, you have some assets. You likely received forms to complete at work, the bank, or online to designate beneficiaries. Beneficiary designations identify who your intended heirs are for most of your assets. These assets represent the non-probate property.  These assets can be efficiently and effectively transferred outside of your last will,  overriding your estate planning documents.

The mistake many people make when designating their loved ones is that their designations may out-of-date or unreasonable. You thought it was cute that your boyfriend selected you (or so he said), so you reciprocated by naming him.

If you don’t review your appointed beneficiaries periodically and at the same firm, you may still have your parents, siblings, and ex-spouse indicated as recipients. Review these forms regularly. You should review your documents after significant life events such as loved ones’ passing, marriage, divorce, and births. Updating your records can usually be done online. We explain more about designated beneficiaries here.

13. Update Your Estate Plans

The pandemic has been a disaster for so many families who lost loved ones. Earlier in 2020, there was an urgency to do your will for the first time or review estate plans. That would be sound advice if you didn’t do so. As mentioned, the distribution of most assets can be for the average person by designating beneficiaries. However, distributed probate assets need to be through a will or a trust.  Probate assets are real estate, cars, and personal possessions such as jewelry, art, antiques, and collections.

Create your estate plan to have control over your asset distribution to your loved ones during your lifetime. Your plan should be as litigation-free as possible, so your loved ones can avoid the often painful and lengthy probate court procedures.

14. Charitable Giving

“We’re in the same storm but not the same boat.”

Unknown Author

Originating from a tweet, This statement was everywhere this year and should not be forgotten. It may have derived from a Damian Barr tweet but it seemed to have disappeared. This year may prove to be significant for charitable giving. The pandemic and protests highlighted the divide between the wealthy or those less fortunate. Those who are lucky should give more this year and any year.

Whatever the cause, charitable giving is a necessity. Others depend on us. As Winston Churchill said, “We make a living by what we get, but we make a life by what we give.”  

15. Be Grateful

Having a grateful attitude is always healthy, especially this year. We became more sensitized to those essential workers who were in harm’s way and grateful to them. The NYC beating of pots and pans became a habitual sign of giving thanks.

Let’s take time to be grateful for our loved ones, friends, colleagues, and those who would appreciate our recognition.  We made it to another year, not an ordinary year. It has been a time when we all shed tears.

Final Thoughts

I will not be unhappy to see this year-end. A dark year will make way for light and optimism in 2021. As my mother often urged us, step with the right foot to have a better time. I told my daughter Alex when she was still a baby that her grandma always said that and was always right. Alex even steps with her right foot (sometimes clumsily) now. Start the year off on the right foot, with financial resolutions to achieve your financial goals.

A happy and healthy New Year’s to you and your family! Thank you for reading!  If you find this of value, do you mind sharing with others as we grow The Cents of Money community? Have a healthy 2021!

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.

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