Ten Commandments of Saving Money

Ten Commandments of Saving Money

“Do not save what is left after spending, but spend what is left after saving.”

Warren Buffett

Warren Buffett’s quotes are timeless, reflecting his wisdom. His words on saving and investments are inspiring. Saving money is the cornerstone of a sound financial plan. Through discipline and hard work, we can save money to reward ourselves with financial flexibility. By making saving a priority and making your money work for you, you are more likely to achieve financial success.

Key Reasons To Save Money

  • Help to achieve our financial goals.
  • Pay our bills on time and entirely, so we don’t need to carry costly debt.
  • Provide an emergency cushion for unpredictable costs.
  • Set aside funds for our children’s college tuition and our retirement.
  • Make investments, the best way to build wealth.

I like to revisit ancient views of saving money from timeworn texts and stories. There is a common thread across varying beliefs on saving, avoid overspending, and investing for a better financial future. Surveying these words adds a different perspective on finances. In the companion Ten Commandments of Personal Finance, we look at home ownership, investing,  retirement, and debt management.

Ten Commandments of Saving Money:

 

1. Spend Within Your Means

Saving money is an essential financial habit. According to a CareerBuilder report, 78% of American workers are living paycheck-to-paycheck.  Even those with higher incomes of at least $100,000 (nearly 10%)  are having trouble making ends meet.

I grew up in a modest household that saved diligently. As a young girl, I didn’t always understand why we were having financial problems. My mom reminded us often that our needs exceeded our wants, and we had to be careful about spending. Later on, I learned that my parents set up a small retail business that took a long time to get off the ground. Savings became part of our mindset from then on.

Control thy expenditures.”

To set aside money for saving and investing, you may need to cut some costs. To control your expenses, assess what your necessary living needs are. These are predictable monthly fixed costs such as mortgage payments or rent, property taxes, utilities, car loans, typical grocery bills, credit card payments, and any expenses you pay monthly. Remember, these costs are for our needs rather than for our wants and desires.

Be reasonable about satisfying your every want. A rise in earnings may not fully accommodate every gratification we seek. For example, that 10% raise on your $80,000 salary may not significantly help you to buy that luxury car (or chariot in ancient times), you have been eyeing.

 

2. Build A Healthy Emergency Fund

As a result of the coronavirus pandemic, record jobless claims caused a dramatic slowdown of the economy. Although federal stimulus packages have added to state unemployment benefits, there is no guarantee this government aid will be ongoing. 

 Economic downturns are cyclical events you can’t time. They cause substantial financial stresses. Recessions remind us of the need for savings on hand. Having an emergency fund is necessary to pay for basic living expenses for at least six months, if not a year. Having readily accessible funds in liquid funds such as money market securities helps you avoid borrowing money.

Joseph’s Emergency Funds

Emergency funds as a prudent strategy appear in Genesis 41:34-36. In this passage, Joseph interprets Pharaoh’s dream about seven fat cows grazing by a river swallowed up by seven skinny cows. Joseph views the seven fat cows as seven prosperous years for Egypt, followed by seven years of famine. As a result of planning for this disaster, Joseph advises Pharaoh to store grain during the good years to use for more challenging years. Save when you have more for those times you have less due to job loss, illness, or crisis.

Adopting a habit of saving more provides you with more flexibility to allocate into investment and retirement savings. Begin by setting aside small amounts of savings of $1,000 but don’t stop there. Tough times prove that amount is inadequate. Don’t think of these savings as wasteful assets. Instead, it is a means to avoid higher debt levels. As Proverbs 13:11 tells us, “Dishonest money dwindles away, but whoever gathers money little by little makes it grow.”

Having Liquidity is Key

Liquidity refers to your ability to quickly convert assets into cash with little to no loss of principal. When your resources are liquid, you have the financial ability to pay for unexpected costs such as a loss of job, death in the family, or your roof is leaking. Monitor your liquidity levels periodically. 

Monetary assets are among the most liquid of holdings. These assets include cash, cash-equivalent securities or money markets, treasury bills, savings bonds, savings, and checking accounts. True, you won’t earn much income as interest rates are still low, but you avoid having to use your credit cards with borrowing rates in the mid-teens.  Use liquid assets to support your fixed monthly expenses for six months or more. Here are two benchmarks to use:

Liquidity Ratio= Monetary Assets/ Monthly Expenses

Your monetary assets should support your fixed monthly expenses such as groceries, rent or mortgage, utilities, and a car loan for six months. A ratio of 6 means having six months of monetary assets to pay for your basic needs of food, rent, utilities, and car loan, if necessary.

 Emergency Fund Ratio

The liquidity ratio is linked very closely to emergency funds. This ratio is essentially a cash fund for emergencies in unforeseen events such as job loss, death in the family, unexpected surgery, or immediate house repair. It works by using a targeted number of months that you believe is ample to support you through emergencies. If you are looking for six months or higher (and this is highly recommended) to set aside money in a high yield savings account or money markets account, then:

Emergency Funds Ratio= 6*Monthly Expenses

This ratio will give you a targeted amount of monetary assets needed to be comfortable for a possible emergency. If your household generates less predictable income, you need to set aside more than six months for a more significant cushion. You can use personal finance ratios as benchmarks to see how you are doing.

3. Pay Yourself First

Start thy purse by fattening

George S. Clason, who wrote The Richest Man in Babylon, is believed to have coined the term “pay yourself first.”  That means you should put away at least 10% of every paycheck into savings. Start to save small amounts working your way up to 20% of income to allocate into retirement savings investment accounts. You can distribute the initial savings to an emergency fund amounting to at least six months’ coverage for essential living costs. Unforeseen events are unpredictable and undesirable but do your planning.

Once establishing this fund, use some savings stashes to invest for retirement and taxable investment accounts. Putting away some money may be difficult at first, depending on your spending habits.

Savings should be one of the most essential parts of your household’s financial goals. Adopt a “Pay Yourself First” attitude. Your monthly budget should call for savings to be at least 10% of gross income.

Savings Ratio = Savings/Gross Income

Savings refer to money in the bank, liquid funds, deposits, money markets, and other liquid funds, such as your emergency fund. Gross income is your total source of income on your budget and includes what you earn, side businesses, bonuses, dividends, and interest income.

Your savings rate should be at least 10% of gross income. It may be challenging to do when you first start to work. As your salary or what you make rises, it should get easier to put money away for savings. A healthy savings ratio of 20% would be a bonus (pardon the pun).

4. Track Your Spending By Budgeting

Spending more than your means is a bad recipe that leads to borrowing more. It is far more profitable to save money and allocate to investments that yield 5% returns or more than having to borrow at mid-teen rates with credit cards to pay for your overspending habits. “Whoever works his land will have plenty of bread, but he who follows worthless pursuits will have plenty of poverty.” (Proverbs 28:19).

Track your spending carefully by budgeting according to your priorities. Bava Metzia 42a instructs us, “A person should always divide his money into three: one-third in the ground (for the future), one-third (invested) in business, and one-third in possession.” That may be an ancient way of splitting your funds. There are several ways to budget, such as tracking your expenses, creating a monthly budget, or using the 50/30/20 rule. The 50/30/20 budget uses 50% of aftertax or net income for your needs, 30% of net income for your wants, leaving 20% for saving money and paying off debt.

Budget In Any Reasonable Manner

Budget in any reasonable way that allows you to control your spending. It is easier now than ever to track your spending using various (free or fee) apps such as Mint, Personal Capital, PocketGuard, and YNAB for zero-based budgeting.  Alternatively, scrutinize your credit card bills and build your own excel spreadsheet.

Our spending changed dramatically during the pandemic. Our bills for grocery and household goods were higher than usual. On the other hand, we saved more from cutting out retail shopping, dining except for occasional outdoor places, hair salon appointments, gas, tolls as we stayed closer to home. While I appreciated the extra cash, I like the return to normal, even as Covid cases are rising.

5. Avoid Lifestyle Inflation

As our income grows, we often increase “essential costs,” leading to lifestyle inflation. While we are allowed the occasional latte and extravagant dinners, we need to keep our spending in check. You shouldn’t deprive yourself of everything. However, fulfilling every desire is no longer a special treat.

“Keeping up with the Jones”  and conspicuous consumption often refers to material goods we may accumulate to fit within a particular social class we admire.  We compare ourselves to our neighbors or colleagues at work.  As a result, people fall into the trap of spending on a better car or house simply to enhance their prestige and social standing. Targeting social status may be costly and divert resources better used for investing your money for more incredible long-term wealth.

It is pretty common for people to spend their raise and bonus as soon as they receive it. Temptation runs high to buy something special upon getting a raise and bonus after a year of working hard. I often bought something special to reward myself for hard work. However, you soon realize your pay hike is pretax and shrinks on an after-tax basis. If you need some things, make a list of what you believe is essential if you had some extra cash.

Overspending And Materialism

Overspending leads to materialism and lifestyle inflation that is hard to maintain. Mishlei Proverbs 13:7 tells us, “There is one who feigns riches but has nothing; one who feigns poverty but has great wealth.”  According to Psalms 128:2 “You shall eat the fruit of your effort–you shall be happy and it shall be well with you.” This text reminds me of another favorite book, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko.

Stanley and Danko profiled and compared millionaires in two categories: those under accumulators of wealth (UAW) and the prodigious accumulator of wealth (PAW). The UAW’s were individuals who had a low net wealth compared to their high income because of spending to maintain their status. On the other hand, PAWs managed their wealth better, often living in blue-collar neighborhoods and buying used cars. It is an eye-opening account of the good and bad money habits of the wealthy.

 6. Bargain hunting or Shopping Addiction?

Shopping is often a fun activity to do with friends or on our own. Marketing experts count on our emotions when we shop. Be aware of the biases we wear when shopping. Retail expert Mark Elwood has written about the psychological benefits of seeing bargains. He points out that stores like Best Buy use Goldilocks pricing or three-tiered pricing from low to high prices. The store hopes you will buy the middle option with higher pricing than the low-end but not necessarily feature-worthy enough to pay more.

We should not pay the list price for anything but make sure it is a real bargain. There has been a lot of worthwhile academic research about bargain hunting being a form of shopping addiction. 

There is the thrill of getting a deal,  even when we may not want that item.

Impulse Shopping vs. Compulsive Shopping

Overspending can cause financial difficulties if you are subject to impulse or compulsive shopping. There is a difference between the two though often seen interchangeably. Impulse buying happens more frequently when a consumer has a sudden urge to buy on the spot without much deliberation. We all do this from time to time. Compulsive buying, on the other hand, happens where one experiences an uncontrollable urge to buy. We may trigger negative feelings relieved by that purchase. This kind of shopping may be more like a shopping addiction that potentially needs therapy before financial hardship occurs.

7. Compounding Growth

Start saving for retirement in your 20s through your employer’s sponsored 401K plans. Deposits in small amounts in retirement accounts regularly benefit from tax advantages and compound growth over a long horizon. Automate these savings out of your paychecks. As such, your contributions are tax-deferred. Employers often match a portion of your contributions. Match contributions are extra money you can earn from your company. Separately, establish an IRA (Roth IRA) for further retirement savings. Target your contributions to amounts capped by the IRS for maximum growth for retirement. Avoid withdrawing from these accounts as you may then trigger penalties and taxes you will need to pay.

As a goal, try to contribute to your 401K plan to the maximum level, which is $19,500 in 2021.  Some years it may be hard to do, especially when you are experiencing a job loss. Resist withdrawing money from your retirement account as there is usually a 10% penalty and taxes to do so before you turn 59.5 years. Withdrawing retirement money will put a dent into your retirement fund that will be painful longer term.

One of my favorite quotes in The Richest Man is this: “It behooves a man to make preparation for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he no longer be with them to comfort and support them.”

Compounding Works Best When Investing Early

The power of compounding interest, linked to the time value of money, will benefit you the most if you save and invest early. Let your earnings accumulate and grow rather than withdraw cash from your accounts. It makes a big difference if you start saving for your retirement ten years later than your friends or if you invest for ten years and then stop contributing to your 401K retirement account. It is difficult to catch up by doubling the amount if you start investing later on.

As soon as your child is born, start saving for college through a 529 plan. These plans vary but are available in virtually every state. Like retirement accounts, they have deferred tax benefits and may have contribution limits. Check with your respective state program for details.

 8. Make Savings A Priority

Saving money is hard work and not necessarily natural for many of us. To make it a good habit, take steps to automate your savings. Most banks will allow you to automatically transfer a set amount of money from one account to another account. Your employer will be able to automatically deduct a percentage or a set amount of your paycheck to deposit into accounts such as retirement or investment accounts. Essentially, you are adopting a “pay yourself first” attitude so that you can allocate money into different buckets, especially for unforeseen expenses.

In recent years, there have many headlines about insufficient savings by Americans for years. As the outbreak of the virus caused lockdowns, most of the country stayed home. The personal savings rate rose dramatically to an unusual 32.2% in April 2020 as consumer spending dropped significantly. Over time, it will likely come down to the more normal 7%-8% range. Spending versus saving is a common trade-off with lots of tension. Motivate yourself to save by setting short-term and long-term goals proactively. Reduce spending you can’t afford. Money trade-offs require you to consider the best balance for you and your family.

Saving As A Good Habit. How Long Does It Take?

I had always heard that it took 21 days to break a bad habit. As a member of Weight Watchers, which is ALL about breaking bad eating habits (and it works for me as I am down 30 pounds and declining!), they always refer to the 21 days. However, I did not know of the 21-day origin.

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

More research indicates that it takes a longer time to form a new habit than 21 days. A 2009 study published in the European Journal of Social Psychology by Phillipa Lally, a health psychology researcher at University College London, indicated it took 66 days on average (in a range of 18 days to 254 days) to form a new habit.

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

What About A Savings Challenges?

I have been skeptical about savings challenges. Like diets, they work for many and can be fun, especially if you do so with others. The question is whether the challenge can result in having long-term effects. I think any challenge that can motivate someone towards a good habit with lasting results has my endorsement. There are so many good savings challenges to consider. I tend to favor the 52-week challenge, which may help you build some money along with good habits. On the other hand, the no-spend month reminds me of a fasting diet and seems too difficult to attempt for most people with families or busy lives.

I often have turned to using cash only and leaving my credit cards behind. Paying for meals at restaurants or window shopping without cards has rewarded me by limiting my consumption to cash. I am not a big shopper or enjoy going into stores unless I am going purposefully for a specific outfit or electronics. My daughter, Alex, is often upset with me, encouraging me to buy something for myself. She wonders why I don’t love shopping as much as she does. Now that she is working two jobs that she loves this summer, she has become quite a hoarder herself and has asked me about my stock picks. (Okay, I am proud of her!).

9. Don’t Obsess About Money

Maintain balance in your life, and don’t just focus on wealth accumulation. According to Proverbs 21:20, “Precious treasure and oil are in a wise man’s dwellings, but a foolish man devours it.”  While no one seeks to become poor, there are dangers of solely wanting to be rich. “Keep your lives free from the love of money and be content with what you have.” Hebrews 13:5

Martin Luther King Jr. worried about the obsession with money in his famous speech called False God of Money. He said, “We attribute to the almighty dollar an omnipotence equal to that of the eternal God of the universe. We are always on the verge of rewriting the Scriptures to read, ‘Seek ye first money and its power and all these things will be added unto you,’ or ‘Money is my light and salvation, what shall I fear.”

King himself lived frugally, leaving little money for his family. However, he saw other goals like working hard, investing in education and having faith as far more critical.

Price Versus Quality

Being financially secure is important. The alternative is stressful. However, don’t be frugal for frugality’s sake. Consider price versus quality in your buying considerations. The cheapest thing may not be of the best value. Indeed, there are some items where quality doesn’t differ, and I  will pay the best price. I like buying private label products such as Kirkland sold in Costco, discounted from the branded items.

However, quality matters more when buying furniture, mattresses, a car, or a home. We have been burned by looking to get a bargain and not balancing quality. Buying solely on a price basis is foolish for these products or services that I intend to use for a while. That doesn’t mean I am averse to getting a bargain by negotiating.

10. Be Charitable

According to Jewish law, one cannot impoverish oneself by distributing all of one’s wealth to charity. However, one can leave one-third of his estate to charity in their will. A minimum of one-tenth of one’s income belongs to God per measure handed down from the Patriarchs as Jacob himself said to God, “Of all that You give, I will set aside a tenth to You” (Genesis 28:22). Giving 10% of your net income a year is a virtual goal—those who can.

According to HW Charles in The Money Code: Become A Millionaire With The Ancient Code, “Those who love people acquire wealth so they can give generously, after all, money feeds, shelters and clothes people.”

We should strive to be as generous as possible to those in need.

Final Thoughts

I found inspiration from timeless scriptures when writing this article.  Sometimes ancient words remind us that money management was always a challenge to overcome.  Choose success by your actions in saving money. 

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The Pros And Cons of Credit Cards

The Pros And Cons of Credit Cards

“Once you get into debt, it’s hell to get out. Don’t let credit card debt carry over. You can’t get ahead paying eighteen percent.”

Charlie Munger, Vice-Chairman, Berkshire Hathaway

 

For me, credit cards have always been a double-edged sword, a fight between good and evil, or in Biblical terms, a blessing and a curse. Growing up, my parents predominantly used cash, using their retail business’s checking account to pay bills. I was the first in my family to go to college and the first to have a credit card. My parents celebrated the former and not so much the latter. They only accepted cash from their customers, refusing to believe in the benefits of the credit card. That’s where I probably get my reluctance to use credit cards instead of cash at times.

They may have been onto something though it may have been something else altogether. My mom, I still believe, may have been irked by the fact that women, on their own, could not get their cards until the passage of the Equal Credit Opportunity Act of 1974. Before that, women needed to have a man (husband or father) cosign for a credit card. How was it fair that my Dad, not my Mom, the brains behind all our finances, could get a credit card? Just saying why I think my Mom, until the day she died in 2000, never had any interest in a credit card (pardon the pun!).

The Credit Card Landscape

Credit cards are a financial tool. But like buying a new buzz saw, you need to use it with care. Some people collected credit cards like baseball cards when I was growing up. That seems like a formula for disaster to me. Clearly, we are not yet a cashless society with nearly 1 in 4 people unable to get approval for a credit card due to lack of credit history or discipline. Roughly 33 million people in the US are unbanked or underbanked, meaning they largely use financial products outside the banking system.

When COVID hit our shores in March 2020, new card applications dropped 40%. Inquiries for all kinds of loans–auto and mortgages–dropped substantially as our priorities changed during the pandemic.  The irony is that the use of credit cards increased out of necessity due to fear of touching cash on the risk of getting a coronavirus-related infection. That behavior is just another example of the strange happenings in 2020. Growth in new card applications should resume in 2021. 

Credit Card Statistics:

  • About 176 million or  67% of Americans have a credit card with about 3.1 cards per person.
  • The average card balance is $5,897 per person end of 2020.
  • Roughly 58% of cardholders carry some kind of balance.
  • The average FICO score for credit cardholders was 735.
  • The current credit card interest rate averages were 14.58%, but for those with fair credit scores, the rates rise to 23.13%For new credit cards.
  • The average rate was 17.87%.

 

Advantages of Credit Cards

 

1. Convenience

Compared to cash, credit cards are a suitable financial product. Before COVID, retail businesses were increasingly not accepting cash from customers. Credit cards provide fast payments, transfers between accounts, and withdrawals.

There are far more shopping options with a card. It is easier to make, change, and cancel travel, hotel, and car rental arrangements.  When traveling overseas, credit cards allow you to realize currency conversions automatically.  Let’s face it, carrying a lot of cash is hard –bills and change– around in your pockets, jingling around. That said, I do like window shopping without my wallet, so I don’t feel tempted to spend money unnecessarily.

2. Build Up Your Credit

For those who lack credit history, like young people, becoming an authorized user on your parents’ credit card is a rite of passage. This is an excellent way to build up a credit history so long as your parents’ credit scores are strong. Otherwise, it won’t help your credit situation at all.  Most states do not have minimum ages for your child to become an authorized user. I’d suggest you teach your kids about the responsibility of using a card safely and responsibly first.

Getting a new card may be a second chance to improve your credit score. You have missed payments, hurting your credit score in the past. If you are ready to be responsible, you should consider getting a secured card, putting some cash on account. You don’t need a massive number of cards to strengthen your payment history and length of credit history. Understand common credit mistakes and how to avoid them.

Related Post: 6 Ways To Raise Your Credit Score

3. Easy To Track Spending

You should regularly review your credit card bills helps you track your spending. It is easy to do (except when you know you spent a lot of money) and an excellent way to improve your financial discipline. Although spending cash is the best way to feel pain immediately, regular examination of the amounts you are consuming is a realistic way to correct yourself. The credit bills provide a purchase record when making returns.

One particular month, I recall seeing a very high bill with several items that seemed uncharacteristic of me. It was a posh store with a great salesperson.  Looking around,  I realized that the dress  “I had to have” was still in the bag with the tags on along with new shoes. Who did I buy that for? Not me, apparently so I returned those things and stayed clear of that salesperson.

4. Automate Your Payments

Paying your bills, especially credit cards, are so much easier when you use the automation feature. Most cards have this feature that you can set on or before the due date so you are not late on your bill payments. Also, consider paying more than once a month if the lower amounts feel better to digest. As payment history accounts for 35% of your credit scores, automating payments is one way to help you not miss the due date.

5. So Many Perks

Having a credit card may entitle you to perks. Typically, the card use may provide perks such as cashbacks, rewards, airline points, merchant discounts, hotels, travel insurance, welcome bonuses, access to tough-to-get tickets, and free museum passes. Before signing up a specific perk, make sure it aligns with your needs. One time I ordered four tickets for Hamilton on Broadway for my family, only to realize they were preview tickets for the opening in LA, 3000 miles away. The issuer reimbursed us and waived the fees.

6. Protections For Consumers, Not Necessarily For Businesses

Credit cards offer several features for consumers. When you lose cash, it is gone forever. The good news is that money is typically not attached to your personal information, like the loss or theft of your credit cards. Some cards provide zero-liability fraud protection. In a fraud situation, just notify your issuer to cancel your card. Alternatively, the issuer can get you a new account number at no charge. Safety is important.

Typically, when you lose your credit card, your losses are capped at $50 so long as you let the issuer know promptly. There may be a higher fee and responsibility for any charges that aren’t yours if you delay reporting them. I once thought I lost my card, I called the card company quickly to find that my card fell out of my wallet into a nook in my bag. Paying the fee was a fine for a lesson learned to at least look for your card first.

Cards often have spending limits. Occasionally, you may want to lift the limit if you know you may be spending more for an overseas trip, for example, where you plan to shop for jewelry. A cardholder can let their issuer know that they want to “opt-in” to allow for transactions that may put you over your credit limit. You can let them know the specific dates you’ll be traveling. Spending limits are a good feature, especially if you’re prone to overspending.

The Credit CARD Act of 2009 enhanced more protections for consumers that do no apply to businesses. With this law, issuers need to notify consumers of significant interest rate hikes at least 45 days beforehand. Also, fees, previously hidden, must be better disclosed clearly. There are some other practices that improved with the CARD Act discussed here. Still, it is always important to read the tiny fine print, especially when it comes to credit cards.

Disadvantages of Credit Cards

 

 

1. Overspending Leads To Higher Debt

Spending beyond your means can be the root of all evil related to your finances. Credit cards enable people to shop impulsively.  Having a card rather than a finite amount of cash gives you the ability to borrow more than you should. Overuse of your card leads to carrying high-cost debt on your balances. Paying double-digit interest rates on these balances can be overwhelming.

The convenience of using credit cards as compared to cash may encourage higher spending, according to studies. In the now-classic MIT study by Drazen Prelec and Duncan Simester, MBA students held an auction for tickets to sporting events. One event was a desirable basketball playoff game, and the other was a regularly scheduled baseball game. Those participants were encouraged to buy tickets using credit cards spent up to 100% more than those paid in cash. They called this the credit card premium.

Other studies seem to validate the MIT findings that we tend to spend more with a credit card than cash. For me, spending cash for purchases gives me an immediate pain instead of a nearly month delay of having to pay my credit card balance.  to me, mental accounting bias and overspending

2. Irresponsible Use of Your Credit Card

When you pay your card bill in full every month, you don’t pay any interest. Your credit card provides a lot of benefits without the pain of paying high interest costs. Unfortunately, many people just pay the minimum amount due at the end of the month, carrying a balance forward. The issuers prefer cardholders to carry balances as it is a lucrative income stream for the companies. 

At an average balance of $3,000 with an average interest rate of 16%, it can take 16 years to pay off that balance at the monthly minimum rate, roughly 3%-4% using a credit card interest calculator. That assumes that you haven’t used a credit card during those years. It is a vicious cycle. The magical powers of compounding that work so well when investing or saving for retirement works against you when you are paying interest charges on interest accumulated. If you cannot use your card responsibly, you should work hard to reduce your spending. Some people have too many credit cards, maxing out their limits, losing control of their spending.

Watch out for the particularly punitive penalty interest charge when you are late on your credit card payment. The penalty interest rate could be as high as 29.99%, above your regular interest rate, and may stay in place for some time.

3. Lower Your Credit Score

Just as you may raise your credit score, misuse of your credit cards can destroy your score. Missing payments, applying for credit too many times, and using more than the 30% limit of your available credit all can hurt your scores. Even closing a credit card account, you don’t use will result in a decline in your score. Your credit score reflects your creditworthiness to lenders, landlords, and other professionals and could negatively impact you.

4. Read The Fine Print

Just like any contract you sign, make sure to read the terms and conditions of the credit cards you are considering. Despite legislation to protect consumers, issuers are well known for hiding information about their perks, fees, charges, and other liabilities from consumers. In recent years, consumers have been able to compare credit cards more quickly. Among my favorite sites are WalletHub, NerdWallet, and CreditCards.com, which have a ton of good information on credit card features.

Be aware that you are usually subject to mandatory arbitration if you have a dispute with your card issuer. This has been relaxed in recent years but is still in the terms and conditions. It is one of my pet peeves and a project I assign my law students to look at the fine print. The average consumer can’t fight the legions of arbitration attorneys that support card issuers.

Exercise Financial Discipline By Using These Rules:

  1. Shop wisely for a credit card, finding the perks that most suit you.
  2. Read the terms and conditions carefully even after you made your selection.
  3. Pay your credit card bill in full, so you don’t carry a  balance.
  4. Have an ample emergency fund, so you don’t put high unforeseen costs on your card.
  5. Spend below your means always and make savings and investing a priority.
  6. Don’t close any credit card. Instead, cut your card in a million pieces or simply put it in a drawer.
  7. If you have multiple cards, decide how to use them for different categories and don’t max out their limits.
  8. Avoid cards with annual fees unless they have essential features you will use.
  9. Don’t get addicted to credit cards. Limit the number of cards you have.
  10. When it comes to paying your card bills, automate and don’t procrastinate. The penalty rate is punitive for a reason.
  11. If your child is an authorized user of your credit card, teach them how to use the card wisely and safely.
  12. Be aware of behavioral biases of spending more when using your credit card instead of cash.
  13. Review your credit card bills for errors, poor judgment on your part, or correct impulsive spending.
  14.   Use cash for some of your discretionary spending.

 

Final Thoughts

Credit cards serve an essential purpose as a financial tool in an increasingly cashless society. Used wisely, the advantages of credit cards will outweigh their disadvantages. Practice financial discipline in all aspects of money management. We have had our druthers about using credit cards, learned a hard lesson or two.

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How Stock Market Games Can Teach Investing

How Stock Market Games Can Teach Investing

“Tell me and I forget. Teach me and I remember. Involve me and I learn.”     

Benjamin Franklin

 

Want to learn how to invest in the stock market without losing money? Stock market games are a great way to practice whether you are a beginning investor or investing for awhile. These games are an example of learning by doing, also known as experiential learning and practical learning tools.

I am passionate about teaching people, especially young students how to invest in the stock market. Playing the stock market game can speed your learning and allow you to make painless mistakes. Investing is one of the best ways of creating and building wealth for your future. It can be your ticket to financial security and can be mastered as a lifelong skill. 

Investing can be daunting for experienced investors, let alone for those who are just starting. On the other hand, virtual games that can ease your entry are free, fun, readily available, and user-friendly. They offer participants a faster learning curve to build investment skills and better financial habits.

A Generational Opportunity?

During the pandemic, we have seen a significant rise in stock volumes in 2020, with year-to-year volumes up nearly 100% in early  2021. Much of the higher volume seems to be coming from retail trading. As a result of rising interest, young people have been opening up a record number of accounts at Robinhood and Webull. Webull has a virtual trading platform for those not ready to invest real money yet.

This trend may signify a generational opportunity of young individual investors participating in the market as a path to building wealth. These new investors can build their future wealth by first learning how to handle risks, market volatility, ensure portfolio diversification, and financial concepts. Engaging in stock market games can help you build your confidence, skills, and knowledge.

Why Investing Early Matters?

You should start investing early in life to have a long time horizon as possible for these reasons:

  • Leverage the power of compound interest  (interest on interest) earned on your initial investment for significant returns in your retirement and investment accounts.
  • Take on more significant risks when you are young and able to absorb the bumps and bruises of downturns.
  • Motivate yourself to save more, spend less so that you can grow wealth.

Investing is a viable means to accumulate wealth and enjoy financial comforts. The earlier you start to save money for investing purposes, the better.  Parents should begin talking to their kids about money when feasible, exposing them to investing basics and developing good financial habits.

Simulated Games Are Suitable For Virtually Everyone

Young people can get a big jump on investing by playing virtual stock market games with parents, friends, investment clubs, classes, or even on their own. Stock market simulated games are an excellent way to practice and gain experience in investing before you commit your own money.

I have used these virtual games for years to teach my college students about stock investing, critical financial concepts, and terminology. The games are fun to learn virtual trading and investment strategies in a realistic setting without risking a dime.

Digital Natives

Generation Zers come from an environment enriched with simulations and games. They are perfect candidates to learn how to invest from virtual stock market games as interactive tools.

As digital natives, they are on always-connected with cloud-based digital technology from birth. They often prefer video and simulated games to traditional modes of learning. However, virtual games are user-friendly and can appeal to anyone, even digital immigrants like me. As a result,  I use Market Watch Virtual Stock Exchange by Dow Jones for my college students and my kids at home.

How The Games Work

At the start, I customize settings. Each player gets $1,000,000 to invest in many US stocks, foreign stocks, mutual funds, and Exchange Traded Funds or ETFs. Some games allow the trading of foreign currencies, cryptocurrencies, options, and other securities. 

 My college students build their $1 million investment portfolio to buy at least $800,000 of stocks and keep $200,000 or less in cash. They can actively trade daily on the game or purchase and hold on to stocks in their portfolio as a long-term strategy. 

Investing Versus Trading

Most games allow for margin trading, short selling, and options trading for more advanced players. From my perspective, I favor the games as a lesson in investments rather than for trading purposes. Returns tend to be better for the long term in retirement and investment accounts.

As much as I applaud young investors in the market, I grew concerned about the market frenzy that pushed GameStop shares to ridiculous levels. So I wrote this letter to young investors concerning the dangers of short-selling and margin trading you can read about here.

They use the stock market game for a wealth of resources about the markets and the economy, but they research all publicly available information.

Why Use A Simulated Game For Investing?

 

1. Active Learning Of Investing Basics

Games are a fun and educational way to learn to invest, a pivotal way to accumulate wealth. There is a greater level of engagement and motivation when you are learning a skill through simulation. Players can quickly fill and modify their portfolios by buying and selling stocks with ease.

Many people avoid investing, believing it is too complicated, and fear losing money. Those are valid concerns. That’s a prime reason why getting your feet wet with the game allows you to get more comfortable. Trying out trading and investment strategies is less intimidating.

There are many articles and videos on the sites to understand differences in risk/reward trade-offs better and measure your tolerance to make more risky purchases. Feeling gains and losses are real enough and allow you to pivot in different ways.

2. Diversifying Portfolios Reduces Risk And Growth

When creating a virtual basket of stocks, players should diversify their portfolios in different industries. For example, in reality, you would not want to hold all fast-growing technology stocks or all safer utility stocks, but rather a blend of different kinds of companies. When building a portfolio, you may favor a mix of growth stocks, value stocks, stocks with above-average dividend yields in different industries. Virtual investors can become attuned to market information that may affect one stock or particular group more than others.

Avoid Concentration Risk

My son Tyler was playing a simulated game in a stock market club and put all of his money in one stock–Amazon–when it was rising significantly. He was so excited that he was doing the best in the club until one day Amazon reported quarterly results that missed analyst expectations.

Apparently, the company announced a rise in capital spending for their data business. Amazon shares crashed and became “dead money,” a term investors use to mean that the stock’s performance will drag for a while.

For Tyler, it was a learning experience about why diversification was important in your portfolio. Concentrating all your money in one stock is a dangerous strategy. It is not good to put all your eggs in one basket.

3. Macro Factors Investors Need To Know

Beginning investors need to understand external or macroeconomic factors that may impact the market. Players should be reading relevant financial news to learn about important events that can sway the market significantly. Learn what makes the market tick. How does the market react when the Federal Reserve takes action on interest rates, economic changes, inflation, and international events (eg. China)? Just understanding what is relevant to your stocks is a big lesson.

4. How To Deal With Market Volatility

From the relative safety of playing a virtual stock market game, players can better understand that market volatility happens regularly. The most experienced investors are often surprised about dramatic changes usually caused by headline risk or recession worries.

By virtual investing, you become more aware of rhythms in the market and prepare for a volatile market. As such, you can explore strategies to deal with turbulence without the loss of real money. Ask yourself: are you better off trading actively in a weak market or sticking to a buy-hold plan? Games allow you to experiment with cash without the fear of losing it. 

Market Volatility During The Pandemic

Many investors quickly baled when the pandemic’s effects hurt our economy, causing a dramatic market downturn in March 2020. However, the market proved its resilience by resurging and reaching record levels later in the year. Those investors who sold their holdings learned a lesson about riding out storms.

5. Competition With Your Peers Is (Almost) Realistic

Never let a chance to compete with your peers go to waste! Students love to compare their rankings. Most games rank players daily and allow you to see each other’s stock purchases, performance, and ranking.

My students tell me that they check their rankings daily, if not more often. If they lose a top-ranking, they often get upset. I need to remind them that it is virtual money. We discuss strategies in class. They can research what stock (or stocks) pulled their performance down and decide if they should buy more with available virtual cash to reduce their cost basis.

You can form teams within the game structure simulating portfolio managers who consult with each other. Young people can engage in collaboration, collegiality, and problem-solving within their group. These are excellent soft skills to build for your careers that employers love to see. 

6. Building Confidence And Self-Esteem

The reality of picking stocks and learning some investing basics is a big confidence booster. Students playing a stock market game say:

  •  It was fun learning how to invest.
  • They plan to open an investment account (eg. Robinhood or Webull).
  • Virtual investing has helped them to become more confident in their abilities.

Investors tend to value savings to deploy for investment purposes. If so, and it provides you with an incentive to save more, that is a worthwhile accomplishment.

Popular Simulated Stock Market Games

There are at least 5 games to choose from that allow for competition, awards, alternative securities, and provide resources for players. Here are some of my favorites.

1. Marketwatch Virtual Stock Exchange

MarketWatch is a top financial and news website owned by Dow Jones. The Virtual Stock Exchange game can be customized by an administrator such as a parent or teacher providing $100,000 or $1,000,000 in private or public mode. The game provides rankings for each player. Administrators like me can customize trading parameters. Participants can trade stocks, global stocks, mutual funds, and ETFs.

Players can find and trade stocks in real-time and build their own portfolios They can create, watchlists and have access to articles, videos, and charts. There are advanced trading options with specific orders such as at the limit price or less or stop order,  meaning an order to buy or sell a stock once the price reaches a specified price. There are nearly 40,000 games currently in play.

Integrating The Game 

For the past 10 years, I have administered several games a year with my finance students, integrating the game with my finance curriculum. As a result, I have an easier time teaching how the Fed influences the financial markets. They update excel spreadsheets for prices, yields, and valuation, learning relevant financial concepts.

  In recent years, the game has become more user-friendly with more resources. Student feedback has been overwhelmingly positive. They have fun watching their rankings relative to their peers, finding out why their stock performance has outperformed or underperformed. They find the game quite realistic and are eager to set up their own investment accounts.

2. The Stock Market Game

Although geared for teachers and students, anyone can participate in The Stock Market Game individually or as a team, including a family. Participants can trade their own $100,000 investment portfolio. The portfolios can be a mix of stocks, bonds, mutual funds, and cash. Players can participate in a competition or in a non-ranked session. This game is created by the educational nonprofit organization, the Securities Industry, and Financial Markets Association, or SIFMA.

SIFMA touts a 2009 FINRA study of The Stock Market Game providing positive results on students in grades  4-10 who played the game, scoring higher on investor knowledge tests.

3. Wall Street Survivor

Partnering with AOL, Seeking Alpha, and The Motley Fool, Wall Street Survivor is among the most popular simulated games available. You can start with anywhere from $10,000 to $10 million in virtual money. There is the option to join a public or private league or create your own league. This site is resource-rich and provides courses, videos, newsletters, starter guides, and articles. I particularly like that they have resources to analyze a business and its financial statements. As a former analyst, the resources make my heart sing.

You can earn badges and vie for real cash prizes of $2,000 monthly. You practice trading and take quizzes to reinforce your knowledge. According to their site, they have over 1 million users. Wall Street Survivor has a cryptocurrency game as well.

4. How The Market Works

This site has been around since 2004 and is good for classes, groups, and individuals. While tailored toward beginning investors, there are advanced resources that participants can use including Wall Street Analyst Ratings, financial news, company financial statements, and technical charts. You can buy global stocks, mutual funds, ETFs, options, and even commodity futures. Customization of games, competitions, and flexibility in cash balances are all available.

5. Investopedia Stock Simulator

The respected financial site Investopedia has its own comprehensive stock simulator. You can start with $100,000 in virtual cash. Participants can join an existing game or create a customized game of their own, trading stocks, options, margin trading, and adjustable commission rates. Players are ranked, can research their investments, and earn rewards for completing various activities. You can connect with over 700,000 traders and investors globally.

 

 Final Thoughts

If you are new to investing, stock market games are a great way to gain experience in a simulated setting without the risk of losing your own money. These free games are fun on sites rich in resources to learn at your own pace or as part of a team.

You can create portfolios, learn concepts and build confidence along the way. The games have enhanced the investing capabilities of my college students, many of whom are now active investors on their own. It is my passion to teach students how to invest. 

Have you ever participated in a simulated stock market game? If so, what was your experience? I encourage you to try one of the games with your friends or family as a first step to investing for real. Thank you for reading! Please subscribe to The Cents of Money and join our growing community!

 

 

Webull Review: What You Need To Know

Webull Review: What You Need To Know

Everyone should have an opportunity to build wealth. Learning the basics of investing and understanding the risks is an excellent way to pave your way to a successful financial future. It wasn’t easy to invest or trade stocks until recently without paying commissions to eat away at your profits.

The plethora of zero-commission brokers has leveled the playing field for more affordable investing. Webull can be a good choice for many and an alternative to Robinhood.

I should confess upfront that I tend to prefer investing rather than trading as the way to go in building wealth. That doesn’t mean holding onto long positions through thick and thin. No, leaving positions on autopilot can be risky. You should also know I am scornful of the practice of margin trading. I’ve watched friends go up in smoke from paying exorbitant interest that put them out of business.

 

What Is Webull?

As a relative newcomer, Webull is joining the competitive field of online trading that appeals to young traders. I applaud the rise in young retail investors participating in the markets. Webull offers commission-free online trading as a mobile-oriented broker. Like other mobile apps, Webull’s trading platform appeals to traders who have some financial markets’ experience and seek advanced features, including in-depth and real-time market data.

They are a legitimate player in online trading by constant improvement in the tools they offer to their subscribers,

Webull Background

Founded in 2017, Webull has about 15 million registered users in early 2021, gaining greater customer acceptance despite its lower profile than Robinhood. Comparisons to Robinhood are inevitable. When Robinhood halted trading temporarily in the GameStop frenzy, their users jumped ship to Webull, which had resumed trading more quickly.

Webull is growing its customer base quickly, which may account for the rocky beginning that I share with you below.

How To Get Started Opening A Webull Account

Setting up a Webull account is straightforward. You can sign up with your email address or your mobile number, and you will receive a verification code. Make sure you select your preferred brokerage account. You can choose a cash account or a margin account. Next, add your personal information, your profile, and answer regulatory and security questions. You will need to upload your proof of identity using a passport or a state-issued ID card. Both sides of a driver’s license suffice for identification.

Webull promotes free stocks (from $5-$250), which require a $100 deposit. I received two free stocks. You will need to link to a bank to fund your WeBull account with an ACH bank transfer. Technically, there is no minimum amount required unless you set up a margin trading account that requires at least a $2,000 deposit.

Before they transfer money from your bank to your Webull account, they will deposit two tiny amounts (like $0.09 and $0.33) into your bank account. You confirm the deposit amounts to Webull. There is a 24-hour delay in the posting. The next day, I found the deposits and attempted many times to let Webull know.

My Experience – An Unnecessary Delay

At this point, I reached out to customer support with emails and calls. Each time I called, I was on hold for 45-60 minutes. Come on, guys! My customer support person was always the same, Doug, and I wondered if there was only one person. Doug was super friendly, apologetic, and similarly stumped as to why my deposit verification wasn’t working, which held up my trading account’s funding.

This setup didn’t take hours; it took days! Finally, tech support intervened, and they fixed my account. Signing up via an email account rather than a mobile version was the culprit, but that should not make a difference. I get that they are mobile-oriented, but some of us still prefer bigger screens.

The delay in customer support occurred as Webull was signing up many customers. During the GameStop frenzy, volumes soared, and some customers left Robinhood when trading halted in some stocks. I have since learned that Doug will have company as they are adding people to customer support now.

Payment For Order Flow And Retail Trading

The SEC requires that Webull disclose it engages in the practice of “payment for order flow.” Webull, Robinhood, and many small brokers receive compensation for directing orders to market makers for executing the equity and options trades. These brokers realize cost savings and enhance their ability to handle high order volumes to offer zero-commission trading.

Trading volumes for stocks and options have been exploding as more individuals open trading accounts. This activity overwhelmed many small brokers. The average daily volume in equities has grown from 7 billion in 2019 to 14.7 billion in early 2021. The higher proportion of routing to these market makers (i.e., specialists on both the buy and sell of a trade) indicates that retail trading accounts for tremendous volume growth.

2021 Pros of Using Webull

No Fees Or Minimum Deposit

Webull offers commission-free trading with no required minimum amount, except for $100 to receive your free stocks. Zero commissions extend to unlimited day trades and options trades (no charge per trade or contract) and other tradeable securities they offer. There are no annual fees or charges for inactivity.

They do charge $75 for either closing an account or if you want to transfer your Webull elsewhere.

Free Stocks

Webull runs continuous promotions offering free stocks valued from $5-$250 per share once you drop $100 in your account. It is improbable that you will receive a free high-priced stock. I received two stocks: an AMC share valued at $8 and a Southwestern Energy (SWN) share valued at $4.38.

Tradeable Securities

The company has expanded its offerings, but there are some limitations. You can choose among hundreds of ETFs for diversification purposes. Webull allows trading during extended hours during pre-market hours (4:00 am – 9:30 am) and after-hours (4:00 pm – 8:00 pm). That you can is not a reason that you should as markets have less liquidity and more volatility.

Webull’s Offerings

  • Stocks
  • Options
  • ETFs
  • Gold
  • Cryptocurrency
  • ADRs (i.e., American Depository Receipts)

You can open a traditional IRA, a Roth IRA, or Rollover IRAs on Webull, and “more IRAs are in the works,” according to their website. Currently, they do not offer mutual funds, money markets, or bonds, which are big holes for those who may want diversification.

Easy-To-Use Customizable Dashboard

Forty-five or more widgets populate the dashboard to satisfy simple to more complex needs. The company has continuously improved its dashboard to allow traders to analyze trends and market information for a better experience with faster load times. Clients can configure their trading panel to fit their investment strategy.

Stock Charts

There is a rich assortment of high-quality stock charts with technical indicators from the most simple to advanced trading. You can display prices using Moving Averages, line, bar, Candlesticks, Hollow Candle, Heiken Ashi, or Colored Bar. You can draw, manipulate, compare two charts. I focus on fundamentals more than charts, but I plan to work on this skill.

Stock Screens

Webull’s stock screens are the typical ones such as top gainers, most active, stock earnings actual and estimates, dividends, splits, and Advances/Declines. Clients can look at markets by location: US, Hong Kong, London, Toronto, and all major global markets. I found these screens easy to find and use and all on one page with some toggling.

You can screen by market, sector, and market capitalization. There is a nifty IPO center showing activity in the primary market. The dashboard doesn’t display a SPAC center, but I bet that may come soon if there is interest in such a display.

Fundamental Analysis Tools Could Better

Investors can use fundamental analysis tools that may seem rudimentary to many. I am dating myself, but my first view of the markets was on a Quotron. I recall a librarian snipping news off a teleprompter giving us earnings results, dividend hikes, management changes, and other information.

The current fundamental analysis tools available to Webull customers indicate financial statement highlights, cash from operations, earnings estimates per stock, analyst ratings, short interest, institutional holdings and by ETF, and order flows. I use this information when making purchase decisions, looking for market sentiment changes, and it is easy to find.

Fundamental investors need more tools, such as downloading SEC documents and research reports from Ned Davis and Thomson Reuters.

Technical Indicators

The site has several technical tools to satisfy more advanced traders. Webull offers capital flow analytics to show the inflow and outflow positions in the market. These indicators show money coming into a specific stock or sector. Among the technical indicators is Simple Moving Average, Exponential Moving Average, Bollinger Bands, MACD, Volume, and Relative Strength Index (RSI).

Level I And Level II Trading

Level I and Level II are two different trading screens used in stock trading. Traders use these screens for direct access to real-time market data, such as the last trading price, the current bid and ask price, daily high and low, and trading volumes. Webull provides Level 1 trading data that gives traders all buys and sellers with actual “bid and ask” orders currently in the market.

Level II trading is market data powered by NASDAQ’s TotalView and is essentially NASDAQ’s order book. It adds a substantial dimension by showing the number of buyers and sellers at different price levels. Webull offers Level II trading for free for three months and is $1.99 per month after the trial period when you sign up for a new account. Robinhood provides this service free only to its gold members who pay $5 per month for this and other extras.

Webull offers other paid plans for premium data from regional markets like Hong Kong Stock Exchange, Toronto Stock Exchange, and London Stock Exchange.

Trading Platform

Webull gets a lot of respect and credit for its trading platform, available on mobile and desktop formats. A browser-based and downloadable desktop platform is accessible with advanced or customizable charts, screeners, and many technical indicators.

The platform is attractive for traders who want advanced features. You can set up watch lists, price alerts, and voice commands.

Margin Trading Available

I am not a fan of margin trading, especially if young traders are inexperienced with the practice. For those who are more mature and capable of handling its risks, margin trading is available without requiring an additional subscription or membership fees. To qualify for margin trading, you need at least $2,000 in your account.

The stated margin rates on Webull’s site appear to be in line with other providers. Rates vary by the margin loan size. The highest level of 6.99% is for a small loan up to $25,000, declining to 3.99% for a $3+ million loan. Margin interest is calculated daily and paid monthly. Be aware that these are stated margin rates, and brokers often raise rates or change requirements when markets get volatile.

Short Selling

When investors or traders sell short, they take a short position instead of a long position when purchasing a stock. For a short position, you need to borrow the shares, paying margin interest for the loan. The cost associated with a short sale is the fee for borrowing that stock. Webull’s fee changes every day for every available stock and is charged daily.

I cannot stress the risks of short-selling and margin trading. When markets get volatile, brokers can raise their requirements regarding how much money traders have to put down using leverage or margin.

Security and Safety

Being secure and safe investing your money on an online trading site is a primary concern. Webull is regulated by the SEC and FINRA. As a member, SIPC covers up to $500,000 per account per brokerage firm, and up to $250,000 may be in cash. Two-factor verification and encryption of your personal information and passwords are worthy safety features. They also require you to set up two different passwords for different functions.

That said, users should do their part in protecting their accounts to the greatest extent possible.

Virtual Trading and Competitions

When you initially have your account, you can do virtual or paper trading for free without depositing any money, using some or all of their tools. For the beginner, this feature is desirable for those who want to practice and feel comfortable with their website.

As far as I know, Robinhood does not have simulated trading. I use simulated stock market games to allow students to invest and trade stocks in my classroom, so I liked seeing this feature.

And there’s more. Webull has Paper Trading Competitions, encouraging participants with prizes up to $300 going to everyone who has a positive return at the end of each week.

There is a private Twitter feed where users can comment on individual stocks, creating a community vibe for those new to trading, starting with the simulation.

2021 Cons Of Using Webull

Investment Limitations

There are some gaps in Webull’s offerings, notably mutual funds, OTC stocks, and bonds. They have been steadily building their products since 2019, offering options and cryptocurrency trading currently. As of yet, they do not offer fractional shares or pink sheet stocks, and on the latter, I hope they never do.

The ability to have an IRA account on Webull is terrific. However, they will need to have mutual funds for such accounts for diversification.

Cash Management

Webull doesn’t pay interest on uninvested cash or have a partner bank to handle this option. Robinhood pays interest on idle money, and Reddit’s comments indicated that some users stay with them for that reason. Although interest rates are super low now and perhaps not as urgent, it will be a product Webull will need to have soon as interest rates rise.

Prefer Better Educational Support

With the influx of young individual investors who joined firms like WeBull to trade for the first time since the March lockdown, it is essential to have educational support. I find WeBull’s educational material sorely lacking for their clientele, especially in advanced trading. When it comes to academic support, more is better in the financial world.

When you are trading and investing, you may run across many financial concepts and jargon you need to know.

Needs Better Customer Support

It may be just my personal experience that I had so much trouble reaching customer support, but I doubt it. When I called customer support, the minimum wait was 45 minutes to as long as 109 minutes. (Yes, I was counting!) That is unacceptable, especially when I tried to move the money into my account that had left my bank. I was persistent, but other potential users may give up.

On one of the long waits, I perused Webull’s name on the web and found they have an “F” rating on Better Business Bureau (BBB), with numerous complaints. So I looked at several brokers’ ratings on BBB and was not surprised that many have F’s, including Robinhood or low grades (C minus) for Fidelity and Ally Invest. TD Ameritrade appears to be an outlier with an A-minus.

I will say that when you do get a live person on WeBull’s customer service, they are patient and helpful. They need to add more live customer support.

What Can Webull Do Better

Webull seems to continue to broaden their products to their credit, and they should add mutual funds, bonds, and fractional shares.

They should partner with a bank to offer interest on idle cash.

Webull needs to strengthen customer support for kinks that are inexplicable, like my experience and educational materials.

Who Is Webull Best For

Webull’s paper trading option can benefit beginners who aren’t quite ready to pay for their trades. Their platform is best suitable for those in the intermediate level who want simplicity or desire more advanced trading. I use my Webull as an alternative broker to do some trading and investing separate from my financial advisor and other accounts.

Full-time day traders who require far more advanced systems would probably find WeBull’s platform lacking in some areas.

Final Thoughts

Webull is emerging as a legitimate competitor and alternative to Robinhood, growing its customer base to a potential number two spot among online brokers serving retail traders. This relative newcomer in the zero-commission online trading world continuously broadens its products to satisfy its customers and leverage its trading platform.

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

Getting Stimulus Money? Spend This Money Wisely

Getting Stimulus Money? Spend This Money Wisely

The third and possibly final stimulus check from the federal government is on its way. Most people will get their stimulus money via direct deposit to tens of millions of bank accounts. If you and your family qualify for the most extensive distribution, you likely have some immediate or future needs. Whatever you decide to do, strategize to spend this money wisely.

Stimulus Checks And Extended Unemployment Benefits

Did you get your stimulus check yet? The maximum tax-free amount is $1,400 per individual ($2,800 per married couple if jointly filing), and $1,400 per dependent, including those ages 17 and up. The federal government extended unemployment benefits with a $300 additional supplement to state benefits through September 6, 2021.

Typically, unemployment benefits are fully taxable. However, the IRS gave a tax break by allowing taxpayers to exclude up to $10,200 ($20,400 for married couples filing jointly) benefits on their 2020 taxes for those who made less than $150,000 in adjusted gross income (AGI). As stimulus checks were going out to households, the IRS announced tax returns are now due on May 17 this year instead of April 15.

How To Use Your Money Depends On Your Needs

Every household varies as to their need for this money. For instance, lower-income families are more likely to devote much of their spending to living necessities.

In a June 2020  US Census study,  adults in households with income between $75,000 and $99,999 were more likely to use their stimulus money to pay off debt or add to savings compared to households overall. In contrast, 87.6% of adults earning $25,000 or below planned to use their stimulus payments to meet their expenses.

The stimulus money is part of more considerable fiscal support targeted to boost consumer and business spending. As the economy grows, more people will work.

The Fed has accommodated our weak economy with low-interest rates and continued liquidity. These efforts will stimulate our economy and help our financial markets, but they may cause higher inflation. Fears of higher inflation have added volatility in the stock market.

Some believe higher economic growth and inflation may be transient, causing some stock market opportunities ahead. Chair Powell seems to be staying on course of a stimulative monetary policy and will tolerate higher inflation over the 2% target. 

Is This A Financial Windfall?

Merriam Webster  defines windfall as “an unexpected, unearned, or sudden gain or advantage.” A windfall can range from being a sum of $1,000 to something far more significant. This money may result from an inheritance, legal settlement win, salary bonus, or a winning lottery ticket.

A small windfall, newfound money, or stimulus money can serve a similar function by bringing you a step closer to your financial goals. That is a win for you whether you direct the money to help you with your day-to-day expenses or cushion your retirement nest egg.

Strategize What You Need Now And For Your Future

Strategize before spending your additional money by paying what is most urgently needed now.  The funds should improve your financial situation. Most people receiving checks have had a difficult time making ends meet. They may have lost their jobs, had their hours cut, or their job remains in jeopardy.

You may need to shore up your finances now. Are there holes in your budget that need mending that you can take care of first?   Pay your bills, reduce your debt to manageable levels, eliminating high-interest credit card debt. Should you have money left over, save for emergencies.

On the other hand, if you have little to no debt, devote your extra money to where you can catch up on retirement savings and investing.  Allocate where you can boost your financial future–replenish your emergency fund, retirement, investing– by adding to where the money can potentially grow.

Our Recommendations For Spending The Money Wisely  

 

1. Prioritize Your Everyday Bills

If you have outstanding household bills for your rent, mortgage, or utilities that need attention, consider negotiating with your providers. Ask if lower rates are possible or stretch out due dates. You want to avoid being late paying bills and affecting your credit score. It never hurts to try to do that at a time when people are most understanding.

Staying current on your bills can relieve the angst. And you don’t want to pile on late charges and add to your debt load.

2. Paying Off Your High-Cost Debt First

When you carry a lot of debt–credit cards, car, mortgage, student loans, or personal loans–can be overwhelming. Your stimulus money may not stretch that far. Interest rates are low for mortgages, car, and student loans, so your best bet is to reduce your credit card balances. Card issuers typically charge 15%-16% interest rates, and the compounding effect makes that balance grow faster.

It may be tempting to spread the cash proceeds around to all of your loans but target the most detrimental cost first.

3. Neglecting Any Car Repairs?

During COVID, you may be using your car less. If you are not following through with tune-ups, you can damage your vehicle in the long run. Do you have any car repairs you postponed but now can bring into the shop? Your repair guy will likely welcome you back.

4. Replenish Your Emergency Funds Or Start One

Many people have withdrawn money during the past year. They may have had to close businesses, leave jobs to take care of their family, or lost their jobs. It is time to reassess your emergency savings. Refill this fund so you can cover six months of your basic living needs should something unforeseen happen. A job loss, pet surgery, an unexpected illness, or car accident can mean higher costs beyond your budget.

Replenishing these savings can give you peace of mind. Those unexpected events do happen, as many of us learned the hard way last year.

Make sure to keep this money in liquid assets such as a higher-yielding savings account that is readily accessible. These days there is very little income to earn from low yields. But, economists are expecting higher interest rates as the economy strengthens. Therefore, use short-term securities like CDs so you can roll this money into higher yields when they are available.  

5. Add To Your Retirement Savings

Whenever you have extra money from a bonus, overtime, or raise, consider adding some of this money to your retirement savings. Notably, a 401K employer-sponsored plan or an IRA and Roth IRA makes sense. If you don’t have a retirement account, this is a good time to do so. 

Technically, your tax-free stimulus payment is unearned income. As such, it may be tricky to deposit money into your Roth IRA directly. Therefore, you may want to substitute earned money from other accounts, replacing those dollars with your stimulus money.

It is worth the effort to do so. Putting some money into a Roth IRA makes it a triple tax-free win. You aren’t paying taxes upfront. The contributed amount grows tax-free, and when you withdraw money after your turn 59.5 years.

Be Aware of Contribution Limits

You can have both a 401K and an IRA, but there are IRS contribution and income limits you need to be aware of so you can get the full deduction. Be mindful of those income limits for traditional IRA and Roth IRA for 2020 and 2021. They vary according to whether you are the single or head of the household, married, filing jointly, a retirement plan at work covers one or both spouses.

Contribute generously up to the maximum amount allowed:

The 2020 and 2021 limits are $19,500 for 401K and most 400 plans, and with a catch-up limit, $26,000 for employees aged 50 or over.

Total contributions for 2020 and 2021 are limited for all traditional IRAs and Roth IRAs to $6,000 or $7,000 if you’re age 50 or older.

6. 529 Savings For College

These accounts have federal tax benefits, like retirement accounts. Open a 529 savings account to set aside some money for your children’s college fund. Earnings on investments grow on a tax-deferred basis and tax-free when you withdraw money for educational costs. Generally, there are no contribution limits except for the $15,000 cap to qualify for the annual gift tax exclusion.

Each state has its own plan, and you don’t need to reside in the state to use their program. You may think that they are young and it is too early to think about their future, let alone college, if they are still at the crawling stage. The truth is that time goes by quickly, and before you know it, they are in high school. Don’t let this valuable time slip away without putting money into this fund. It will help your children to avoid borrowing heavily for college tuition.

7. Allocate Your  Savings To Investing

In a perfect world, all of your extra money should go toward investing. If you have a strong financial foundation with manageable debt, you should invest the money. Add to your investments or opening up an investment account for you or your kids.

Any savings you have from stimulus checks to a significant financial windfall should go to your investment accounts. That is if you have taken care of other needs. Invest early and have a plan in mind which considers your risk tolerance, timeframe, and diversification. 

When you are beginning to invest, you may not know where to start. Buying individual stocks can be very rewarding but can be risky. Consider low-cost index mutual funds or exchange-traded funds (ETFs) if you are uneasy purchasing individual stocks. Buying a pool of stocks is a popular way to own securities with diversification, avoiding concentration risk.

Professional portfolio managers actively manage mutual funds. They are constantly evaluating and choosing securities for the fund’s specific investment approach. Mutual funds are available for stocks, bonds, precious metals, other securities, varying risks,  and varying geographic markets. 

Active managers earn annual fees or expense ratios of your investment and are responsible for the fund’s performance. If you invest $1,000 in a mutual fund with a 1% expense ratio, you pay $10 per year towards the fund’s expenses.

Active Versus Passive Investing

Investors who buy actively managed funds pay higher expense ratios than passively managed index mutual funds that track a market-weighted portfolio. The latter index fund replicates the S&P 500 index via computers for a fraction of the fees, averaging 0.20%-0.50% expense ratios, below the typical 1%-2.5% costs of active managers.

You can buy a low-cost index mutual fund or an ETF consisting of a basket of securities, such as money markets, stocks, or bonds depending on your risk appetite. ETFs are similar to mutual funds but tend to be cheaper and more liquid. If both are available, I usually buy the ETF version. There are many funds with terrific choices, such as Vanguard, who pioneered indexed funds.

8. Give To Others

It is always a good time to give charitable donations to others. We always target giving 10% of our income to charitable contributions, but we have done more to offset the time we couldn’t do so. Everyone has their reasons for giving what they can and may stem from religious or ethical sources.

The minimum of one-tenth of one’s income belongs to God per measure handed down from the Patriarchs. As Jacob himself said to God, “Of all that You give, I will set aside a tenth to You” (Genesis 28:22). Giving 10% of your net income every year is a desirable goal—those who can do that.

Giving, like expressing gratitude, is among the most worthwhile healthy emotions to feel. Being grateful can even help us with our finances.

As part of 2021 $1.9 trillion American Rescue Plan, Biden extended the favorable tax deduction treatment in 2021 that was available last year. Taxpayers who take the standard deduction rather than itemize their tax deductions may set aside $300 (or $600 if you are married and filing jointly). The IRS suspended the typical limit of 60% of adjusted gross income for the amount of the charitable deduction made in a year.

The IRS has temporarily suspended limits on charitable contributions for those who itemize deductions on Schedule A. Check with your accountant whenever it relates to your taxes. 

 

Final Thoughts

Use your stimulus payment or windfall by spending the money wisely to improve your financial situation. It’s a personal decision based on your needs now or in your financial future. Strategize before spending this additional money so you can get the most of it. Hopefully, you are turning the corner to better times.

 

 

 

 

 

 

 

 

 

Ten Commandments of Personal Finance

Ten Commandments of Personal Finance

We revisit ancient views of money on ten central tenets of personal finance from timeworn texts and stories. Surveying these words adds a different perspective on finances whether you are celebrating the upcoming holidays or not. There is a common thread across varying beliefs on handling money, saving, overspending, debt accumulation, and investing.

Ten Commandments of Personal Finance:

 

1. Financial Planning

A financial plan is essential to achieve your short-term and long-term goals. According to Proverbs 21:15, “The plans of the diligent lead to profit as surely haste leads to poverty.”

Understanding your priorities is an essential first step. With hard work, you can accomplish what you want so long as you know your preferences. Our goals are not always clear to us, especially when we are young. “Complete your outdoor work in order and prepare your field; after that, you may build your house.” (Proverbs 24:12).

Making a plan doesn’t happen overnight. Set reasonable priorities incrementally as you engage in deep thought and conversations with your partner. It is often hard to address many features of a sound financial plan on your own. Reduce some of the risks upfront, whether you are investing in stocks or starting a business.

 One of my favorite books, Richest Man In Babylon by George S. Clason provides some guidance. “Gold slippeth away from the man who invest it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.” Avoid recklessness when investing.

Consult A Fiduciary

Consider a financial advisor who as a fiduciary must act in your best interests rather than his or her own. Such an adviser can provide a framework to help you with your goals for retirement saving, investing and estate planning. “For by wise guidance you can wage your war. And in the abundance of counselors there is victory.” (Proverbs 24:6).

2. Saving More, Spending Less

Saving money is an essential financial habit. According to a CareerBuilder report, 78% of American workers were living paycheck-to-paycheck. The report found almost 1 out of 10 workers making $100,000 were having trouble making ends meet. When facing a weak economy, rising job losses cause financial stresses. For those reasons, having an emergency fund is necessary to pay for at least six months of basic living expenses. Having readily accessible funds in liquid funds such as money market securities helps you avoid increasing debt.

Joseph’s Emergency Funds

Emergency funds as a prudent strategy appear in Genesis 41:34-36.

In this passage, Joseph interprets Pharaoh’s dream about seven fat cows grazing by a river swallowed up by seven skinny cows. Joseph views the seven fat cows as seven prosperous years for Egypt, followed by seven famine years. As a result of planning for this disaster, Joseph advises Pharaoh to store grain during the good years for use in more challenging years. Save when you have more for those times you have less due to job loss, illness, or crisis.

Adopting a habit of saving more provides you with more flexibility to allocate into investment and retirement savings. Begin by setting aside small amounts of savings of $1,000 but don’t stop there. Tough times prove that amount is inadequate. Don’t think of these savings as wasteful assets. Instead, it is a means to avoid higher debt levels. As Proverbs 13:11 tells us, “Dishonest money dwindles away, but whoever gathers money little by little make it grow.”

3. Track Your Spending By Budgeting

Spending more than your means is a sour recipe that leads to borrowing more. It is far more profitable to save money and allocate to investments that yield 5% returns or more than having to borrow at mid-teen rates with credit cards to pay for your overspending habits. “Whoever works his land will have plenty of bread, but he who follows worthless pursuits will have plenty of poverty.” (Proverbs 28:19).

Track your spending carefully by budgeting according to your priorities. Bava Metzia 42a instructs us, “A person should always divide his money into three: one-third in the ground (for the future), one-third (invested) in business, and one-third in possession.”

That may be an old way of splitting your funds. There are several ways to budget, such as tracking your expenses, creating a monthly budget, or using the 50/30/20 rule. The latter budget is Elizabeth Warren’s rule of thumb using 50% of aftertax or net income for your needs, 30% of net income for your wants, leaving 20% for saving money and paying the debt. Budget in any reasonable way you can control your spending. Consider these budgeting methods.

Avoid Lifestyle Inflation

Overspending leads to materialism and lifestyle inflation that is hard to maintain. Mishlei Proverbs 13:7 tells us, “There is one who feigns riches but has nothing; one who feigns poverty but has great wealth.”  According to Psalms 128:2, “You shall eat the fruit of your effort–you shall be happy, and it shall be well with you.” This proverb reminds me of another favorite book, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko.

Stanley and Danko profiled and compared millionaires in two categories: those under accumulators of wealth (UAW) and the prodigious accumulator of wealth (PAW). The UAWs had a low net wealth compared to their high income because of spending to maintain their status. On the other hand, PAWs managed their wealth better, often living in blue-collar neighborhoods and buying used cars. It is an eye-opening account about the good and bad money habits of the wealthy.

4. Manage Your Debt Wisely

The successful millionaires practice budgeting and bargaining. They avoid debt accumulation to lower their risks.  According to Proverbs 22:7, “The rich rule the poor and the borrower is slave to the lender.” Manage your debt wisely. Pay your bills on time and in full. Don’t carry high credit card balances. You need to pay your card balances in full, not merely the minimum, or your debt will be accumulating quickly because of compounding growth.

Managing your debt and developing good credit habits are essential in your financial life. Learn how to avoid common credit mistakes in a recent post here.

Related Post: How To Pay Down Debt For Better Financial Health

5. Retirement Savings

Start saving for retirement in your 20s through your employer’s sponsored 401K plans. Deposits in small amounts in retirement accounts regularly benefit from tax advantages and compound growth over a long horizon. Automate your tax-deferred contributions to come out of your paychecks, and employers often match a portion of your contributions. The match contribution is like extra money you can earn from your employer. Separately, you can establish an IRA (Roth IRA) for further retirement savings. Target your contributions to amounts capped by the IRS for maximum growth for retirement.

One of my favorite quotes in The Richest Man is this: “It behooves a man to make preparation for a suitable income in the days to come when he is no longer young, and to make preparations for his family should he no longer be with them to comfort and support them.” Providing insurance should be arranged for your family to cover potential risks. “We cannot afford to be without adequate protection.”

6. Diversify Investments

Allocate some of your savings into investments. Whether you have a financial adviser to guide you, manage your assets, and diversify to reduce your risks. Don’t put all your eggs in a basket unless you are using Easter eggs for a holiday hunt. Ecclesiastes 11:2 says, “Put your investments in several places-because you never know what kind of bad luck you are going to have in this world.”

The financial markets go through turbulent times. Reducing risk by diversifying your assets into stocks, bonds, real estate (including home ownership), and money market securities is the best way to weather those stormy times. Diversify within each class of investments to avoid the pitfalls. That means having some stocks with growth portfolios and those with healthy dividend yields.

Bull Market To Bear Market In Record Time And Then…

Since the beginning of the pandemic, the stock market has been volatile. We saw severe moves,  going from a bull market to a short bear market. There has been fiscal support, sending out the third stimulus checks and extending federal unemployment. 

The Fed has stimulated the economy with lower interest rates and substantial liquidity. Fears of high inflation are now on the table concerning investors. Stock investing is always challenging to predict. It is even more challenging to time the market.

Stay the course rather than jumping in and out of the market. For long-term stockholders, staying the course rather than panic selling seems to be a better path. A more robust economy will likely fuel corporate earnings growth.

7. Don’t Obsess About Money

Maintain balance in your life without a focus on just wealth accumulation. According to Proverbs 21:20, “Precious treasure and oil are in a wise man’s dwellings, but a foolish man devours it.”  While no one seeks to become poor, there are dangers of solely wanting to be rich. “Keep your lives free from the love of money and be content with what you have.” Hebrews 13:5

Rev. Martin Luther King Jr. worried about the obsession with money in his famous speech called False God of Money. He said, “We attribute to the almighty dollar an omnipotence equal to that of the eternal God of the universe. We are always on the verge of rewriting the Scriptures to read, ‘Seek ye first money and its power and all these things will be added unto you,’ or ‘Money is my light and salvation, what shall I fear.”

King himself lived frugally, leaving little money for his family. However, he saw other goals like working hard, investing in education, and having faith as critical.

8. Add Knowledge And Skills 

Become a lifelong learner adding knowledge and skills. “Wisdom is a shelter as money is shelter but the advantage of knowledge is this: wisdom preserves those who have it.” (Ecclesiastes 7:12). By investing in yourself, whether learning a skill, a language or knowledge, you grow in confidence and are valuable to others. “Lazy hands make for poverty, but diligent hands bring wealth.” Proverbs 10:4

Work hard and persevere in your job, your career, and your profession. As a result of the coronavirus and social distancing, we see many people who do not have the luxury of working from home. I speak of doctors, healthcare workers, grocery store clerks, bus drivers, and untold heroes working hard to save lives or are engaged in essential jobs.

“The Street Sweeper”

Dr. King valued those who worked hard. Another favorite King quote, “If a man is called a street sweeper, he should sweep streets even as a Michaelangelo painted, or Beethoven composed music or Shakespeare wrote poetry. He should sweep streets sp well that all the hosts of heaven and earth will pause to say, ‘Here lived a great street sweeper who did his job well.”

9. Be Ethical

We have a responsibility to be ethical to others. That means not to scam, steal, or be dishonest. Respect others’ property. Wastefulness is shameful according to the Torah and should destroy any useful objects according to Deuteronomy 20-19. Destruction is only forbidden when it is without purpose. For example, only trees that you know do not yield food may be destroyed.   We should not borrow anything without permission. According to Leviticus 5:23, “He must return the stolen article, the withheld funds, the article is left for safekeeping, the found article.”

10. Be Charitable

According to Jewish law, it is forbidden to impoverish one’s wealth by the distribution of all of one’s wealth to charity. However, one can leave one-third of his estate to charity in his or her will. A minimum of one-tenth of one’s income belongs to God per measure handed down from the Patriarchs as Jacob himself said to God, “Of all that You give, I will set aside a tenth to You” (Genesis 28:22). Give 10% of your net income per year as a desirable goal. Those who can, should.

According to HW Charles in The Money Code: Become A Millionaire With The Ancient Code, “Those who love people acquire wealth so they can give generously, after all, money feeds, shelters and clothes people.” We should strive to be as generous as possible to those in need.

Final Thoughts

Ten commandments of personal finance come from timeless scriptures. Sometimes ancient words remind us that money management was always a challenge. That said, you can learn money lessons wherever you look. Choose financial success by your actions in dealing with money. Determine your priorities and set out to accomplish them. The building doesn’t happen overnight. Many have lost jobs and the means to pay bills. It will take time to get back to normal. In the meantime, stay healthy.

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