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3 Simple Steps To Scrubbing Your Budget

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Staying on budget is not easy.

It can be very difficult to stay committed to a bunch of numbers on a piece of paper or spreadsheet, but budgets are actually quite helpful. They are a snapshot of your financial situation at a given time, a road map that tells your money where to go.

Budgets shouldn’t feel super restrictive — like a diet that takes away all the foods you love with any taste. Deprivation always leads to overindulgence, so don’t take away everything you enjoy. Give yourself some leeway. Restrictive budgets are the fastest way to blow a budget. Here are 3 steps you can take to set a budget and make it much more realistic.

Step 1: Write it out

Start by writing your saving goals, then listing your monthly expenses and lastly anticipating how much you’ll need for spending money. Yes, I said spending money. If you like to buy coffee at the breakfast cart every morning there needs to be a line item in your spending money; if you are a smoker, your cigarette habit should be there as well. Addicted to shoes? Add a line item for how much you think you’ll spend per month on shopping.

The goal is to account for every possible place your money could potentially go.

Step 2: Review Actual Spending

Now this is where things get interesting. To see if the new budget you created is realistic you will need to assess your previous spending patterns. Download your bank statements for the last three months and go through them in detail. Assign each spend to a budget category and add it up. Did you spend close to what you think your coffee budget is or did you spend more? Are there items you spent on repeatedly that don’t have a line item in your budget? Maybe it should.

Step 3: Make Adjustments and Trade-offs

Now that you have what you think you spend and what you actually spent side by side, it’s time to make some adjustments and trade-offs. Were you shocked by any of the actual spending numbers, like your monthly coffee or shoe spend?  Consider giving yourself an allowance for that line item in cash so you don’t go over.

Are there items that you missed completely? What are you willing to reduce to accommodate for that addition to your budget?

Following these 3 steps will help you get your finances in order, while also giving you space to live. Would you be more willing to stick to a budget that accommodates for lifestyle?

Let us know in the comments below.

Wealth For Life

Teaching Kids How to Invest in Stocks

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stocks (Image: iStock.com/andresr)

Jackie Marshall wanted to offer adults a simple way to give meaningful, age appropriate gifts to young people, by delivering tangible gifts along with or connected to shares of a company’s stock. She also wanted to help educate the young people in her life about how every day products can translate into corporate profits and dividends.

The result was JackieTrust, which teaches financial literacy through gift giving or “stuff and stock.” So, whatever the child has an affinity for, they get the commercial product and the stock that is tied to it. “If they love sneakers, we look at Nike. If they love Mickey Mouse, we look at Disney,” explains Marshall.

The Stuff and Stock Approach

 

Marshall encourages the use of DRIPs (Dividend Reinvestment Plan). With a DRIP, the dividends or earnings that you receive from a company automatically goes toward the purchase of more stock, making the investment in the company grow little by little. What’s also great about DRIP is that it’s not necessary to purchase a whole share of stock. The investor deals directly with the company, and the corporation keeps detailed records of share ownership percentages. The dividends that an investor receives from a company goes toward the purchase of more stock, making the investment in the company grow over time, within, say, a Custodian/UTMA account.

The way the “stuff and stock” works is, for example, “If the child is fascinated with golf, we would look at a golf gift—[the stuff]. Some possibilities are kiddy golf clubs, money golf balls, mini-golf outings, and golf clothing,” says Marshall. “We then look at any DRIP that offers golf supplies. JackieTrust could bundle a putt-putt outing with a share of Callaway stock, for instance. Now, every time that child sees a golfer using Callaway clubs, it’s recognized as stock that he or she owns, [and make them] want to know how their stock is performing.”

Connecting Interest to Stock Ownership

 

“JackieTrust always begins with what is of interest to the young person,” adds Marshall. “We connect their interest to stock ownership. We determine a preliminary list of child friendly gifts belonging to companies offering DRIP.”  By nature, DRIPs encourage long-term investment rather than active trading. Therefore, the child and/or the parent will be constantly reviewing the DRIP.

The seed for JackieTrust was planted 12 years ago, when Marshall’s eldest nephew was born. “I didn’t want to give him traditional gifts. I wanted to give him something meaningful and valuable—meaning, it would appreciate [in value]. So, I began to investigate how to best to give him stock. From there, I started providing lessons about the stock market. I started teaching other adults and their children,” she says. Marshall officially incorporated JackieTrust in 2013.

“As an investment and educational tool, buying stock in a way that is easily understood by children teaches financial literacy, stock market savvy, and how to grow wealth. Investing will also assist in developing math skills, as kids watch and evaluate how their investments grows over time,” adds Marshall, who is not a stock broker, but a financial educator with a master’s in math education.

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6 Strategies to Profit in Any Market

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market (Image: Wikimedia)

 

So how should you respond to a market milestone?

Before we answer that question, let’s review the Dow Jones Industrial Average making history this week by closing above 19,000 for the first time. As a result, analysts have stated that the blue chip index is now on course to surpass the annual performance of the S&P 500 for the first time since 2011. The Dow has advanced 9.2% this year versus the S&P 500’s 7.8% gain.

The index has risen more than 1,000 points over the past 12 trading days due to a post-election rally, which has boosted shares of industrial and financial services companies. Just a few weeks ago, on November 4, the Dow had slid below 1,800. This was just days before the election, and world markets proceeded to plummet the day Donald J. Trump was elected president.

The market usually tumbles with the uncertainty of a new president. For example, from the election of President Obama in 2008 to his first inauguration, the S&P 500 plunged roughly 20%. Today, investors should be ecstatic about their returns during the Obama Era: the S&P 500 has been up—around 265%—since he has taken office.

No one can predict the performance of the stock market going forward.  There are some immutable facts, though. The markets will continue to be driven by uncertainty and volatility. Having said that, investors who don’t participate in sound, long-term equity investing are missing out on a wealth-building opportunity. If you check historical records, you’ll find that the average annual return for the S&P 500 has been about 10% since its inception in 1928 through 2014.

At BLACK ENTERPRISE, we have always advocated in investing for the long haul. In fact, we have made it one of our “Wealth for Life” principles:  I will devise an investment plan for my retirement needs and children’s education.

As people take note of this historic milestone, it is a good time for us to give you some down-to-earth investment advice regardless of market activity. Based on our interviews with countless investment experts over the years, we share these basic but powerful strategies for investing in any market:

 

1. Don’t Time the Market

 

In other words, you shouldn’t become too exuberant during huge market advances, like the one we witnessed on Tuesday, or panic during market dips like those days before the election.

Our rule-of-thumb: engage in disciplined, long-term investing. It’s true the past can never fully predict future outcomes, but it serves as a valuable reference. Gain professional advice on how to build a long-term portfolio, based on your risk tolerance level and financial goals.

2. Engage in Dollar Cost Averaging

 

By investing equal dollar amounts at regular intervals, it enables you to purchase more shares of quality companies when the stock price drops, which is a likely event in today’s capricious market. In fact, most mutual funds can be set up as automatic investment accounts.

We also can’t stress enough the value of contributing to employer-sponsored 401(k) and 401(b) plans. It’s a systematic way to build your retirement nest egg. As many of you know, funds are deducted from your paycheck, and you get to invest in an array of investment offerings with tax-free dollars. An added bonus is that, in many cases, your employer will match a portion of your contribution—the maximum is currently $18,000 per year.  Since these tax-deferred vehicles are designed for retirement, you’ll face stiff penalties and tax liabilities if you withdraw funds before age 59 and a half.

3. Look for Dividend Stocks

 

With the increasingly unpredictable environment, consider purchasing shares of companies that make cash distributions to shareholders on a quarterly basis. These stocks tend to be high-quality blue chips that can provide you with additional cash flow from a yield of 2% to 3%. Moreover, a regular dividend may provide downside protection.

4. Invest in What You Know

 

It’s the tried and true process of spotting opportunities by targeting familiar companies, industries, and products. They tend to be market leaders with powerful brands, top-shelf management, and best of all,  you will already understand their products and business models.

5. Protect Your Portfolio by Getting Defensive

 

As the economy continues its excruciatingly slow mend, look for stocks that perform in any market. Pharmaceuticals, personal care, household products, food and consumer staples—products consumers purchase in economies weak or strong—will buoy your holdings.

6. Develop an Asset Allocation Strategy

 

Diversifying your investments among two or more asset classes can help you stay in for the long haul. One approach, if you don’t want to manage your own asset allocation, is to invest in so-called target date funds. If you’re about 20 years from retirement, for example, you might pick a fund with a 2035 target date. These funds can provide investors with an appropriate asset allocation for their time horizon, and they automatically change the mix to become more conservative as the target date approaches.

Moreover, regularly monitor your equity portfolio and make adjustments across sectors. For instance, gain some foreign exposure; a good rule-of-thumb is to place between 20% and  30% of your equity holdings in international stocks.

Wealth For Life

Should You Ever Borrow From Your 401(k)?

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(Image: iStock by Getty Images)

Financial experts agree you should tuck money away for retirement and give it as much time as possible to grow without touching it, but knowing you have a lump sum of cash somewhere can be an attractive option to those who find themselves in a financial bind. Should you ever borrow from your 401(k)? Is tapping into your account and taking a loan ever considered a smart thing to do?

According to a 2014 study from TIAA called Borrowing Against Your Future, one in three Americans who participate in a retirement plan have taken a loan out from that savings. Digging a little deeper, more than 40% of those borrowers have taken out two or more loans. So regardless of the advice of financial experts, 30% of Americans are still raiding their retirement accounts when they are short on cash.

Borrow To Pay or Avoid Debt? YES & NO

Forty-six percent of those who borrowed from their 401(k) plans used the money to pay off debt. This can be a smart move considering the interest rate on a 401(k) loan is often much lower than a new credit card or car loan. However, the trick to not hurting your future is to keep making your regular contributions to your 401(k) while paying off the loan. If you can’t commit to both, then borrowing from your 401(k) to pay or avoid debt is probably something you shouldn’t do.

Borrow for Emergencies? NO

Another 35% used their 401(k) loan to pay for emergency expenses. Yet another reminder of why setting up an emergency fund is so important. Too many Americans are under saving and more are now using their 401(k)’s to pull double duty—as a retirement account and an emergency fund. This is not the best use of these funds and you should really move toward setting up an adequate account for all your liquid emergency fund needs.

Borrow to Invest? YES

Is it smart to use your 401(k) to purchase a home? Or start a business? These seem to be two of the most acceptable reasons to financial experts for borrowing from your 401(k), depending on your overall financial situation. It can be a smart move since the repayment period is eligible to be stretched out for up to five years, payments are automatically deducted, and the interest rate is typically low.

Other things to consider

You also don’t have to qualify for a 401(k) loan, so if your plan allows loans and you have the funds available you can borrow from it without hurting your credit score. A 401(k) loan can be one of the quickest, simplest, low-cost ways to get cash you need in hand. Lastly, if you pay back your loan on schedule and continue to make regular payroll contributions to your 401(k), you will typically see little to no impact on your retirement savings goals.

Unfamiliar with how 401(k) loans work, read more about it here. Borrowing From Your Retirement Plan.

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Don’t Let Black Friday Put You in the Red

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Black Friday (Image: flickr.com/joanieofarc)

 

By the end of this week, legions of turkey-stuffed shoppers will engage in their favorite  annual post-Thanksgiving event, Black Friday. So, just how many people participate in this holiday shopping ritual? According to the consumer site WalletHub, the National Retail Federation forecasts total sales to reach $655.8 billion, an increase from nearly $631 billion in 2015. The Washington Post reported 61.7% of consumers, or 151 million people, bought products either online or in-person last year, and 73% of those who shopped over that long weekend made in-store purchases on Black Friday.

BLACK ENTERPRISE has received a great deal of information from consumer finance experts and websites, to help individuals spot bargains and engage in smart holiday shopping.

In fact, WalletHub released a series of holiday reports that may prove invaluable to consumers like you:

Our editors also received advice for Black Friday shoppers from smart shopping expert Erin Warren, via email. Warren is a contributor to the cash back shopping site, Splender. Here are a few of her tips:

  1. Compare Prices: Remember that the “sale” price doesn’t always represent the “best” price. Some retailers offer a sale price on a given product for a limited time, while others discount the same item every day. Warren suggests using price comparison tools and websites like PriceBlinkPriceGrabber, and InvisibleHand as well as the shopping app Bakodo, which enables you to scan the barcode of an item and make cost comparisons with brick-and-mortar and online retailers.
  2. Load Up on Coupons: In addition to coupons from local newspapers, check emails for coupon codes and seek out online resources as well. Remember that a number of retail websites have printable product coupons and promo codes for discounts, and free shipping when you make online transactions. Make sure you register for daily bargain alerts from sources, ranging from Facebook to manufacturer sites.
  3. Take Advantage of Digital Store Sale Circulars: In Warren’s email, she shared that a mobile app, like Flipp, can digitize circular ads from hundreds of retailers and enable you to spot the best deals. The benefit of this digital format is that its accessible anywhere via smartphone. You can also make online purchases, and combine it with rewards programs or cash back offers from shopping sites.
  4.  Find Value Through Cash Back Sites: Hundreds of popular and well known stores allow you to receive money back, simply by making your online purchases through these sites. You’ll typically gain between 1% to 5%  of your dollars back on each purchase. In fact, some retailers run promotions that can bump that figure as high as 15%.  If you buy products from such sites–and use coupons, gain free shipping, and apply points from credit card loyalty programs–most assuredly, you will gain the gift of steeply reduced prices.

 

 

 

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4 Steps To Help Manage Student Loan Repayment

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student loan (Image: istock.com/fstop123)

 

The pressure of student loan debt can be stressful for African American students, who are more likely to borrow larger amounts of money than their white counterparts to support the cost of college. Despite the challenge of managing student loan debt, a college education is undoubtedly worth the investment and there is hope for graduates who need to manage it. To support the efforts of African American students and families interested in postsecondary credentials, certificates and degrees of value, the White House Initiative on Educational Excellence for African Americans (Initiative) has released a fact sheet that explores the black-white student debt gap and highlights federal resources students and families can use to support the cost of college, as well as navigate options for student loan repayment.

 

The Student Loan Debt Gap

 

According to a new Brookings Institution study, on average, black graduates owe about $7,400 more than their white peers upon graduating with a bachelor’s degree—and that figure only paints part of the picture. The report also found that the black-white student loan debt gap more than triples in the four years after graduation. Four years after graduation, black graduates owe an average of $25,000 more than their white counterparts. Factors contributing to the $25,000 student debt gap include differences in repayment patterns, the black-white wage gap and other employment related disparities.

Below are four steps every student should take to effectively manage student loan debt.

The U.S. Department of Education’s College Scorecard is an interactive college comparison tool that provides reliable data to help your college search. Using the College Scorecard, you can access information on college costs, average amounts borrowed, loan default rates and employment post-graduation. This information should be used to help you determine which institutions may be a good fit. Financial burden should not be used to deter you from applying to an institution and for financial aid.

Complete the Application for Student Aid (FAFSA) and compare financial aid packages during senior year of high school. Submit the FAFSA (free and available now) senior year to ensure you are matched with a financial aid package. To get an estimate of your federal aid before completing the FAFSA, use FAFSA4caster, a free calculator that gives an early estimate of your eligibility.

Once you receive your financial aid packages from schools, compare them by finding the net cost of attendance for each school. The net cost is the amount that students and families must pay out-of-pocket with money earned from work or student loans. It can be found by subtracting grants and scholarships offered in the package from the total cost of attendance. The U.S. Department of Education’s Financial Aid Shopping Sheet is designed for use by institutions but is a useful layout for comparing financial aid packages.

Avoid sticker shock when repayment begins by monitoring your student loan balance throughout college. Become familiar with the types of federal loans you have, your balance, interest rates, and student loan servicer by visiting the National Student Loan Data System. You will need to use the FSA ID from your FAFSA submissions to access your information. If you have non-government or private loans, they are not listed on NSLDS. Information on non-federal student loans can be accessed through a copy of your credit report. Federal Student Aid offers the Consumer Financial Protections Bureau as a resource for assistance with non-federal loans.

Explore repayment options as graduation approaches. Create your repayment plan with an understanding of all options that are available. Familiarize yourself with the repayment terms of your loans to see if you qualify for savings on interest, options to pay more than your required monthly payment, or loan forgiveness, cancellation, or discharge. Federal Student Aid offers several tools and resources to help you determine which repayment plan will work best for you, like the Repayment Estimator, which can show what your monthly payment would be under different plans. Income-driven repayment plans are an option that can adjust with your income, and can significantly lower monthly payments.

Other repayment options may even help you decide on a career path. For example, the Public Service Loan Forgiveness program forgives any remaining federal Direct Loan debt after the borrower works full-time in public service and makes monthly payments for 10 years. A similar program is available for teachers. The federal student aid website offers a breakdown of these programs, as well as other loan forgiveness, cancellation, or discharge options.

David J. Johns is the executive director of the White House Initiative on Educational Excellence for African Americans. He is an international public speaker, domestic policy advisor, community builder and strategist.

Darnisha Johnson is a Congressional Black Caucus Foundation intern at the White House Initiative on Educational Excellence for African Americans. She is a first-generation college student and a communications major at Bowie State University.

Career

Think Like a Mayor: 4 Effective Life Management Strategies

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mayor Atlanta Mayor Kasim Reed (Image: Wikimedia)

 

I’m pretty sure most of you have had your fill of politics for a while. I’m telling you, however, that you will gain powerful advice from the following two savvy government leaders worth applying immediately. I recently had the opportunity to attend an event in which Henry Cisneros, the celebrated former San Antonio, Texas mayor and Housing Secretary during the Clinton administration, moderated a fireside chat with Atlanta Mayor Kasim Reed and current San Antonio Mayor Ivy Taylor, the first African American woman to hold that position.

Although the discussion was actually designed for financial professionals and government officials to gain insight into how mayors make decisions, I discovered relevant nuggets from the conversation on life management, which I had to share with members of the BLACK ENTERPRISE. So, whether you’re dealing with occupational obligations or complex personal finance issues, thinking like a mayor can help you act in a more effective manner.

 

1. Bring Your Best Self to Everything You Do

 

Cisneros asked Reed, who has been mayor for seven years, how he managed daily activities, and balanced them against emergencies that required 100% of his focus. For one, Reed told the audience that, “I really don’t believe that there is such a thing as work-life balance, when you’re in the role of mayor. There really is only work-life integration. What I think about when I wake up [is that] my job is to give all of myself to that day, [which runs at about] 12 to 14 hours.”

He receives as many as 500 requests for meetings every month. It usually takes an individual 60 to 90 says to get on his schedule for a 30-minute sit-down.  “I owe them my best self,” he asserts, sharing his cardinal rule of giving constituents  undivided attention and full respect.  “[Individuals who eventually get on my schedule] really don’t care whether there was a shooting, or [that] I comforted a widow of a police officer. They have been waiting for their time to engage with the leader of the city.”

He adds, “I think one of the most important traits you have is will. That means, if something horrific happens, you have to be able to give your best judgment and best thinking to that moment, close it off, and go through the next part of the day.”

Taylor, an urban planner by training, agrees. “I would say that I enjoy the diversity of issues that come across the mayor’s desk,” she says. “I think that’s the fun part of the job. I would agree with Mayor Reed [about] trying to ensure that you’re present on each and every issue.”

 

mayor San Antonio Mayor Ivy Taylor (Image: Facebook)

 

2. Create a Fluid Environment in Which to Execute

 

While Cisneros maintains that mayors must skillfully juggle their responsibilities, Reed has a different tactic. “I think of it as fluid movement. I don’t think of it as juggling,” he maintains. “I think of it as, ‘This is what is going on, at this part of my day, right now.’”

Taylor also believes in building flexibility into the management process.“I tend to see the connections between a lot of the policy issues that we’re working on, and I think it helps me to keep that overarching, long-term view and not just get grounded or held back by the immediate urgent fires or hot issues that are going on,” she says.

Although Reed appreciates long-term planning, he allows for shifting priorities. “I used to think that police, security, and public safety were 10% to 15% of my portfolio. It’s now 30%.”  If you take Reed’s approach to finances, it would be akin to studying trends and events, which can alter the investment environment for a given sector or economic outlook, and re-allocate assets accordingly.

 

3. Learn the Art of Persuasion to Get Things Done

 

To ultimately achieve your personal and professional goals, you need access to, among other elements, financial resources and buy-in from your constituents–family members, colleagues, benefactors, and partners. One of Reed’s mentors, renowned public servant and former Atlanta Mayor Andrew Young, shaped his philosophy of negotiation; serve as the “bridge for compatible forces.”

Reed elaborates on his steps for getting things done, stating that the mayor’s role, in large part, is shaping public will.  “Fundamentally, you have to set the tone for where you think the city should go, and then you have to get out and persuade,” he asserts. In all areas of your professional and personal life, clearly share your vision and follow suit.

 

Henry Cisneros, former San Antonio mayor and Housing Secretary Henry Cisneros, former San Antonio mayor and Housing Secretary (Image: Wikimedia)

 

4. Make Sure Advisors Help You to Stay in the Game

 

When Reed and Taylor view project development, they focus on how it connects short and long-term agendas, and, at the same time, do not diminish the effectiveness of their respective administrations. So, how does this process apply to you? Make sure that you don’t veer off-course in, say, your financial planning. Doing so can sabotage your future. Find advisors who are in sync with your objectives.

Says Taylor, “[I feel frustrated] when people can’t get the larger picture. I feel that way with teams in various areas, whether they are focused on the environment, education, or public safety. As a planner, I connect the dots and get folks to see how various issues are interrelated.”

Reed offers a more blunt assessment, “When you start a meeting, make sure that what people ask you to do is not going to get you beat.”

BE Money

5 Reality Checks You Must Face to Fix Your Finances

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reality check Image: istock.com/Christopher Futcher)

One of the challenges of financial education is trying to get through to people who refuse to believe that water is wet, and think the rules of smart money management do not apply to them.

The problem is not that there’s an exception to every rule, but that people always want to believe that they’re the exception. The result: they fall victim to the same money mistakes over and over again, always hoping that this time will be different. If this is you, or someone you know, here are a few reality checks.

1. Fake it ’til you make it is FOOLERY! Too many of us are living the life celebrated in the hip-hop ditty “Still Fly” by Big Tymers: “Got everything in my mama name, but that’s okay, ’cause I’m still fly.” This “hood rich” mindset says that you need to look rich by any means necessary. This includes doing things that will destroy your finances, such as paying bills late (if at all), abusing credit, overspending and piling up debt, believing that if you look the part, wealth will somehow be magically attracted to you.

(A faith-based variation on this theme, “name it and claim it,” justifies buying things that are clearly beyond your means, like a brand new luxury car, as an act of faith in God, who will miraculously give you the means to pay for it, because you are “blessed and highly favored.” I’m no theologian, but I believe deliberately and unnecessarily overextending yourself financially in order to trigger a divine bailout is testing God in a way the scriptures specifically tell us not to do, as Jesus says in his response to the temptation of Satan in Matthew 4:5-7.)

Reality: Wealth is about delaying gratification, saving and investing, and living within your means. That doesn’t mean you have to look broke, busted and disgusted. But it does mean that you need to live according to a budget, and buy only what fits into it. Don’t drive yourself to the poor house trying to fool others—including yourself—into believing you can have it like that just by looking like you do.

This is one of the most important reality checks you need to accept: Don’t fake it ’til you make it. Focus on making it, so you don’t have to fake it.

2. There is no “secret” way to get rich. You see—and long (lust) for—what other people have. The big house. The fly car. The designer clothes. The perfectly maintained weave. “How did they get so rich?,” you wonder. “What’s their secret?” The answer: There is none. I repeat: There is none.

Reality: There is no secret, magical, miraculous way to get rich quick—wealth building is a marathon, almost never a sprint. Unfortunately, people’s desire to believe otherwise makes them vulnerable to all kinds of financially destructive choices, from falling for misleading sales pitches to being outright scammed by con artists. For the most part, the ways you can get rich boil down to about a dozen or so options, give or take—Ken Fisher identifies ten in his book, The 10 Roads To Riches: The Ways the Wealthy Got There (And How You Can Too!), one of my favorites. All of them require some combination of time, hard work, discipline, focus, sacrifice, self-education and a willingness to accept risk and delay gratification in order to get wealth, and perhaps more importantly, to keep it. None of them are secrets.

Stop looking for the secrets of the wealthy, and begin focusing on their habits and choices, by reading books such as Dennis Kimbro‘s The Wealth Choice: Success Secrets of Black Millionaires, or the classic The Millionaire Next Door: Surprising Secrets of America’s Wealthy by Thomas Stanley and William Danko. Yes, both books have the word “secrets” in their titles. But their point is that the wealthy don’t know things that you don’t know; they do things that you don’tor won’tdo.

3. What you see is not what you get. What you see: He or she drives a late model foreign luxury car, has an impressive job with a well-known company, wears only the latest designer labels, pops bottles in the VIP at the club and always seems to be traveling abroad. What you don’t see: He or she is living with momma or crashing with friends rent-free, stays over-drawn on their checking account, has a credit score in the low 400s (due to not one, but two bankruptcy filings since graduating from college), and is just one step ahead of the repo man.

If you go by what you see, you’ll do stupid things, like co-sign on a purchase, allow easy access to your credit, lend money, or worse, co-mingle your finances by moving in with and/or marrying them. Then I have to watch you on some nationally syndicated television court show making a fool of yourself trying to get justice—or at least stop damage to your credit and get some money back. Even a great job with a big title says nothing about whether or not a person is living beyond their means, owes back child support or is in trouble with the IRS.

Reality: If you haven’t seen their credit reports, bank statements and other financial documents, you don’t know how financially stable a person is. And if you aren’t close enough to have intimate knowledge of each others’ financial information, you don’t know each other well enough to put your finances at risk. This is especially important advice for those evaluating prospects for dating and romantic relationships. Do not trust what you see. Go by what you know.

4. Income does not equal wealth. When most of us think about improving our financial situations, the first thing we think is that we need a raise, a promotion, a better job, more education–in other words, a bigger paycheck. Put more simply, we believe that income and wealth are the same thing. They’re not. It’s good to get paid as much as you can for the expertise, effort, talent and results you deliver, whatever your profession. However, while people with higher incomes do tend to have more wealth than lower- and middle-income people, the size of our paychecks actually explains only about 30 percent of wealth disparities among households. The rest is primarily determined by two things: savings and investment.

Reality: To improve your finances, you have to commit to spending less than you make, regardless of income, and consistently saving and investing the difference. In other words, you must live below your means, at least temporarily, in order to build wealth. If you literally spend every penny you get, you will not be wealthy, no matter how big your paycheck gets. (For proof, just check for news of the latest bankrupt pro athlete or celebrity.) It’s not just how much you make, but what you do with what you make that determines your wealth and your capacity to build and retain it.

5. You can’t improve your finances without living on a budget. I know you think you can. You want to believe you’re actually doing it right now. But you can’t, no matter how much, or how little, money you have.

Reality: People looking to accumulate and maintain wealth know three things at all times, not in their heads, but on paper and/or their computer:

What their expenses are for the year, for each month and often by the day. They have a plan for their spending, so they know their household costs and obligations like the back of their hand.

Exactly where their money goes. They never look up at the end of the month surprised that they are out of money, wondering where it all went. They understand, to the penny, how their money is spent, and what they spent it on.

Where they want their money to go. They have specific goals for spending, saving and investing their money, and have allocated funds in their budget to achieve them according to a real schedule. For example, good money managers know exactly how long it will be before they pay off that car note—and have a plan to assign that money to another goal when that monthly expense is freed up.

Does budgeting take time? Sure it does. But as the saying goes: Time IS money. You have a choice: invest your time to make money, or waste both.

Most people don’t like to face up to reality checks when it comes to money. But ignoring them could lead to financial nightmares.

Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert,  personal growth/relationships coach, and co-founder of Grown Zone, a relationship education business focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.

Blogs

Should You Focus On Reducing Debt, Saving Or Investing?

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Should you focus on debt reduction, saving or investing? It’s one of the most commonly asked questions of those seeking help with improving their finances.

It’s a trick question. The fact is, paying down debt is an investment—in fact, everything you do with your money is. The only question is what the returns will be on the investment choices you make with your money. Everything you do with your money—from spending and saving to giving and gambling—causes you to become either more wealthy or less wealthy. However, debt reduction is one of the best investment decisions you can make, because every dollar of debt you eliminate frees up funds for saving and investing in assets that can appreciate and earn interest for you. And if you’re being charged interest on your debt burden, as the overwhelming majority of us are, debt reduction is the only investment with guaranteed returns. There are two primary reasons this is the case.

First, every dollar you have to devote to servicing debt payments is one less dollar you have to save toward your financial goals, whether that’s a down payment on a home, financing a college education or launching a business. For example, if you are carrying a total of $8,000 in credit balances—just below the average credit card debt per household for 2012—that’s money no longer available to you for other financial goals. If you used your credit card to invest in purchases that helped to improve your financial situation—for example, to finance a trip to another city to land a big contract for your business—then it may have been a worthwhile investment. But if you’re like too many of us, you used your credit card to purchase depreciating assets—clothes, dining out, entertainment, etc. If you used credit to finance those payments without immediately paying down the increase in your balance created by those purchases, that was a bad investment.

Second, and more to the point, is that for every dollar of debt you pay down, you free up money you are currently devoting to paying interest and fees for the privilege of carrying that balance. For example, if you’re paying $100 a month on that $8,000 balance, with an APR of 15%, you’ll pay nearly $2,400 in interest payments over the next two years alone. Paying down the debt immediately frees up that money for other uses, ranging from shoring up your emergency savings to making larger contributions to your 401(k) or other retirement savings accounts.

This is what I mean when I say that debt reduction may be the only investment with a guaranteed return. If you have the choice of investing $3,000 in a mutual fund with annual return of 8%—a very solid rate of return—or using that money to pay down a credit card balance with an interest rate of 12%, pay down the credit card debt. That way you save the money you were previously using to make credit card payments and interest, and can begin using it to invest in a mutual fund. In other words, you are paying down debt in order to finance your investments. More over, no one can say for sure that the mutual fund that delivered an 8% return in 2012 will maintain that performance in 2016—you’ve heard it before: past returns are no guarantee of future performance. However, it is guaranteed that paying down your credit cards will eliminate the interest payments that you’re making.

So here’s my bottom line: You must pay yourself first, starting with building up an emergency fund equal to at least 9 months of your annual household expenses, in case of loss or extended interruption of income. You must save for retirement, contributing as much as you can every month to a 401(k) or other retirement savings vehicle. But other than those two exceptions, make paying down your high-interest debt your top investment priority today, so you can free up more money to build up your savings and investment portfolio over time.

This blog is dedicated to my thoughts about money, entrepreneurship, leadership, mentorship and other things I need to get #OffMyChest. Follow me on Twitter at @AlfredEdmondJr.

Billboard

Female Breadwinners Leading Households and Families More Than Ever

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black people at dinner Black People Don’t Tip

Let’s face it, when the bill comes some people are just hesitant to leave more money then necessary. Sometimes that person happens to be black. Other times that person might be White. While black people may be notoriously associated with under-tipping, the fact remains: everybody does it.

The cardinal rule: just double the tax.

As family dynamics and gender roles continue to evolve, it still seems readily assumed that the primary caretaker in a household will be a woman—regardless of whether we work full-time, part-time or not outside the home at all.

[Related: Part 2: A Financial Snapshot of Black America: #BlackMoneyMatters]

The Facts

In most cases this assumption still holds true, in fact over 66% of all caretakers are female regardless of our work status. Simultaneously, however, there is another role for women that continues to evolve and gain traction as a growing trend—the rise of female breadwinners.

A study from the Pew Research Center reported that over 40% of all households with children under the age of 18 were led by a woman as the sole or primary breadwinner. This creates a sticky predicament considering acceptance and normalcy has yet to be established on the subject. Conversations in articles and books continue to develop on how to mitigate the threatened feelings and egos of men faced with the reality of female breadwinners.

Celebrate This New Normal

However, it’s okay to be proud of the underlying efforts that shape this new normal. After all, as a group, black women have conferred a record number of bachelors and master degrees over the past 25 years. We are also the largest group participating in the workforce. As a halo effect, this will mean more of us stepping into leadership roles and breaking glass ceilings. Sure there is still plenty of work to be done in terms of closing the wage and wealth gaps, but becoming highly educated and ‘bringing home the bacon’ can only help our journey towards new progress in these areas.

Women Still Pull Double Duty

Yet women haven’t moved out of the kitchen and into the workforce entirely. As a whole, we are still responsible for the majority of chores in our households. In fact, breadwinner women still take on a disproportionate share of the housework as compared to their partners, thus bringing home the bacon and cooking it too.  Why is this, considering the vast leaps we’ve made in other areas? One source suggests that as roles have changed men haven’t paid attention to how they can get more involved and should consciously look for opportunities to help pick up the slack.

The Solution For Better Balance 

A more realistic solution is for women to simply start asking for more and get specific. There is a lot we haven’t asked for in our rise as breadwinners and matriarchs. So ask for that pay raise and leadership role at work and ask for help with housework and caring for the children. Empower your voice to unequivocally help tip the scales towards better balance at home and equality at work.

Blogs

When It Comes To Your Money, Are You A Hot Mess?

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Image: File Image: File

Are you a hot mess? No, really.

Sometimes we’re so busy living life, grinding and chasing our dreams that we don’t recognize that we need to periodically stop, reassess and pull ourselves together. As a result, we get caught slipping. There’s nothing like stopping in front of a mirror and really seeing yourself, only to find that you need a makeover, because you are a hot mess!

This scenario also applies to your finances. There are times, ideally once a quarter, that you need to stop and take a hard look at your financial habits. Now that a new season has officially begun, here’s an exercise to assess whether or not you are a hot mess and, if so, provide the wake-up call you need to pull yourself together and make better money choices.

Ladies, take out all of your purses, and add up what you paid for them, as well as the value of everything you have in them, including cash, cosmetics and the balance owed on all credit cards. If the total value of your purses and their contents is more than the amount of money in your retirement fund, you are a hot mess—especially if you have no retirement savings!

Gentlemen, take your favorite hobby or pastime—for example, gaming. Add up the value of your game console(s) and all of the video games you’ve rented or purchased. Throw in the cost of that high-definition flat screen and your cable or wireless connection. If the total spent on your video game habit is higher than your emergency savings fund (which should be equal to at least six months of your living expenses or half your annual pre-tax income), you, too, are a hot mess!

It’s time to look in the mirror and reassess your financial priorities. I mean that literally: Sit in front of the mirror, with your pay stubs and all the cash you have on hand, as well as all of your bills, bank statements and credit cards, and ask yourself: Am I serious about changing, even if it’s just one habit, one day at a time, in order to improve my finances? If the answer is yes, make a commitment to yourself to start immediately to think and do differently with your finances, and expect your situation to get better, because it will.

If the answer is no, please understand: If you won’t change your mind, you can’t change your money. If you know you’re a hot mess and won’t do anything about it, you are just trifling. You need to check yourself, before you wreck yourself. Because ignoring your financial problems is just not a good look.

Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert,  personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.

Magazine

Strategic Moves For a Rich Retirement

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Wealth for Life principles-Dec/Jan2016-Reginald-Kim-Rich Reginald and Kim Rich learn how to save for retirement and pay for education costs (Image: Lonnie C. Major)

“Should I borrow from my retirement savings to help pay my children’s college tuition?” It’s a question posed often to financial planners. And their response is a consistent, “No.” There are many reasons why. The older you are, the more difficult it is to replace the money you have saved, especially in an era of layoffs and job uncertainty. And, there is no way to make up for the power of compound interest on your savings, which Albert Einstein called “the eighth wonder of the world.”

Still, that doesn’t make it the right way to do it.

Reginald and Kim Rich, aged 57 and 55, of Bowie, Maryland, put three sons and a daughter through private schools and then college with a combination of luck, scholarships, and loans. He is a recently retired firefighter and EMT. She is a nurse, and is several years away from retirement.

Though the financial path through college was different for each of their children, Reginald and Kim never once thought about touching their retirement savings. As a result, they have in excess of $400,000 in separate 401(k) savings plans, in addition to Reginald’s pension and non-retirement savings.

“I was always told if you want to be comfortable (in retirement), do not touch it,” Reginald says. “Once we retired, we wanted to still live comfortably,” says Kim.
Their four children range in age from 22 to 36. The youngest, their only daughter, recently graduated from the University of Maryland, meaning all four children are now college graduates.

When Reginald joined the fire department in Alexandria, Virginia, he contributed enough to his 401(k) to get the full employer match.

“A lot of the information I got came from the advisers at the fire department. They said to put away money. If you can’t put in the max, do something. That’s what got me going,” he says.

Kim’s story is similar. She worked at Kaiser, which had financial advisers talk to staff. She too listened.

The toughest time was when they were paying private school tuition for the two younger children while at the same time paying college tuition for the two older ones. At the time they were earning about $60,000 each, per year.

Their oldest child attended Bowie State University, financed with a partial scholarship and Parent PLUS loans. He graduated 10 years ago and is now a mail carrier and music teacher.

Their second son received a partial athletic scholarship to play basketball at Lee University in Tennessee, but it increased to a full scholarship for his last two years. He is now a scientist doing stem cell research.

“We could not afford it with two in college and two in private schools,” says Kim. “We had to pay the remaining out-of-pocket. And we had to do a Parent PLUS loan.”

(Continued on next page)

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Billboard

When It’s a Free Gift, It’s Going to Cost You

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free gift (Image: iStock.com/ziquiu)

Want to get better control of your spending? Stop being bamboozled by the word ‘free.’

A gift is free. Period.

A ‘free’ gift is going to cost you: money (i.e., you have to buy something else to get it), time, space in your home, attention, an e-mail address—something. Even if the gift is not actually worth anything.

And an absolutely free, complimentary gift will really set you back.

[RELATED: Five Money Experts Millennials Should Follow]

Basically, the more ‘free’ something is, the more it’s going to cost you to get and/or keep it. In many cases, you’ll be paying forever. (Or you’ll learn that it’s not really yours at all. Like your Facebook account.)

How can you tell what’s really a gift? You give it—without making a big deal about how free it is.

There is no such thing as a free gift. The exceptions to that rule are rarely worth anything. So before you accept one, be sure you know exactly what it costs, what it’s worth, and if you can truly afford it.

If there is no real value to a thing beyond possessing it, that’s not a gift, it’s a burden. Say, “No, thank you” and keep it moving. And keep a tight grip on your wallet.

Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert,  personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.

Education

Meet The Game Changing Founder Of The Wealth Factory

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Angel Rich (Image: File)

Angel Rich is looking to build a financial literacy ecosystem, as the co-founder and CEO of The Wealth Factory Inc. The Washington, D.C.-based firm designs financial literacy and workforce development education technology games. The system walks users from birth to retirement in 12 interactive modules to exceed the Personal Finance Common Core Standards, tracking individual performance in real-time. Each module simulates a standard, such as budgeting, saving, investing, credit management, banking, auto financing, financial aid, taxes, real estate, entrepreneurship, academic planning, and career readiness.

Rich, along with co-founder Courtney Keen, started out with an online game called Credit Stacker. It simulates a credit reporting and scoring system to help students better understand how to use credit wisely. The program also allows teachers to create custom learning experiences for each student. They have since turned it into a mobile app. The  goal is to release the next 15 levels of Credit Stacker, and implement it seamlessly into everyday life.

The Wealth Factory was named the ninth best ed-tech company of 2015, by the National Alliance of Public Charter Schools.  It won a $10,000 small business grant from Industrial Bank, the oldest and largest African American-owned commercial bank in the metropolitan Washington, D.C. region. Earlier this year, it also snagged a $10,000 grant from the JPMorgan Chase, to further develop its financial literacy mobile apps. In addition, The Wealth Factory was the $10,000 People’s Choice winner at the 43North business pitch competition this fall.

A Rich Background in Finance and Tech

 

Rich was raised in Kingman Park, Washington, D.C. to a family that worked in life insurance sales. The Hampton University graduate studied at the University of International Business and Economics in Beijing. In 2009, Forbes recognized Rich for winning Prudential’s National Case competition and selling her groundbreaking gen-Y marketing plan. As a global market research analyst for Prudential, Rich has conducted over 70 financial behavior modification studies. Rich resigned to start The Wealth Factory as part of the Startup Weekend NEXT pilot cohort, under the author of Startup’s Owner’s Manual, Bob Dorf, in January 2013.

Today, The Wealth Factory’s mobile game is available on Google Play and Apple, having received 23,000 downloads since its launch in July. It’s available in four languages and in 40 countries. The app is free, but Rich says that the revenue model is to generate money on the back-end from advertisers in addition to contracts, including one with the Department of Health and Human Services. The Wealth Factory is also the official financial literacy tech partner company of the D.C. Department of Insurance, Securities, and Banking.

“While I keep up to date with the current mobile games in the market,we are financial planners. I started my career with PNC in their wealth management group, where I oversaw $300 million. I also spent time in the charter school network, creating and  implementing curriculum,” says Autumn Leatham, chief strategy officer.

Leatham says the gaming aspect came about because, “We realized [that] kids today live on their phones.”  So, this became a way for kids to “learn something and have fun, at the same time.”

Billboard

Just in Time for Halloween: 5 Frightening Money Mistakes That Can Haunt Millennials

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millennials (Image: iStock.com/johnnorth)

What is more bloodcurdling than ghouls, goblins, or the zombie apocalypse? Answer: The financial outlook for an overwhelming number of millennials.

I wish I was kidding. Recent TIAA surveys have found that the finances of most are in a spine-chilling state of disrepair. For instance, far too many lack short and long-term plans or have put aside even a cent for emergencies. When some get around to reviewing critical financial matters, they often find more tricks that will sabotage their financial futures, rather than treats that produce wealth-building opportunities.

Just in time for Halloween, Amy Podzius, a director in TIAA’s field consulting group, sent me an email with her list of scariest millennial money gaffes. She maintains that, “While the chilling thrill of Halloween will soon come and go, money mistakes can cause a year-long scare (or more), if one isn’t careful.”

Check out her frightening five:

 1. Accumulating Terrifying Credit Card Debt

 

Balancing housing and living costs is no small feat, and it’s tempting to use plastic to pay for things that seem a bit out of reach.

Podzius’ advice: “Exercise discipline with credit cards and keep balances to a minimum. Also, track monthly expenditures to avoid overspending, and use that process as a guide to create and commit to a strategic budget plan.”

2. Racking Up Hair-Raising Education Costs

 

With the rising cost of college tuition, many must use loans to pay for education. Podzius suggests borrowing judiciously at the undergrad level, to stave off a horrific debt load. As for grad school, weigh job placement rates and average starting salaries against financing and student aid options. An alternative plan could be to attend grad school part-time or find work as a researcher or teacher, so you don’t fall deeper into ‘the student loan hole.’

3. Making the Grave Decision to Sacrifice Health Insurance

 

“While you might dress up as a superhero for Halloween, you aren’t invincible,” asserts Podzius. She advises those who currently don’t have parent or employer-sponsored health coverage should assess when they can immediately enroll into a plan, to shield their wallets from nightmare scenarios. Remember, a low-premium, high-deductible policy is far better than no protection at all.

4. Fearing the Ghosts of What’s to Come

 

Many don’t consider nail-biting expenses tied to life events—such as weddings, honeymoons, or down payments for homes—just to name a few. Save diligently and plan ahead to avoid being haunted by rash financial decisions. And don’t let the future give you the jitters; save and invest now for retirement, so the power of compounding can work in your favor.

5. Being Unprepared for Real World Nightmares

 

Whether your car breaks down or you’re laid off from a job, you must be ready for life’s unpredictable turns. Keep in mind that mom and dad won’t be able to bail you out forever. Says Podzius, “Protect yourself by building up a solid emergency fund that covers three to six months of your living expenses.”

So, follow these recommendations to keep the financial hobgoblins at bay.

Billboard

6 Ways FinTech Will Improve Your Financial Life

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FinTech

More than 10,000 payments executives, engineers, and entrepreneurs gathered in Las Vegas this week to attend Money 20/20, the massive fintech event connecting financial services and payments innovation with mobile, retail, marketing, data and technology. Although I was unable to attend the conference this year, I followed some transformative financial developments via social media and video news reports.

Amid demos and keynotes, Richard Cordray, director of Consumer Financial Protection Bureau, appeared at the event to discuss—as expected—the need for industry oversight, but also share how fintech is reshaping financial lives.

“The possibilities opened up by powerful technologies and novel approaches are enabling new services and transforming how payments and lending are conducted. So we want to understand how we can influence and channel this wave in positive directions,” he said, citing that the federal agency has handled more than 1 million consumer complaints, using tech to make such information available and design web-based tools to help individuals make better financial choices.

His Money 20/20 appearance coincided with the CFPB’s release of its initial Project Catalyst report on market developments from established financial institutions and fintech startups. As such, it also provided an overview of Project Catalyst’s “work to promote consumer-friendly innovation” and the need to ensure consumer protections are “built into emerging products and services from the outset.”

Cordray shared that among the top priorities of the four-year-old initiative has been close engagement with hundreds of companies, entrepreneurs, and other fintech innovators through its Office Hours program “to better understand emerging market innovations, what does and does not work for consumers, and potential challenges facing innovators.”

The agency released the following findings on how fintech companies can improve the financial lives of consumers like you:

 1. Expand access to credit:

The CFPB estimates that roughly 45 million Americans have either no credit history or one that is either too scarce or too stale to merit a score. Project Catalyst has learned of a number of innovators seek to facilitate “responsible access to credit” by exploring options such as accessing alternative forms of data and analysis to determine a given applicant’s creditworthiness. Moreover, it has identified fintech firms developing tools to improve consumer engagement related to addressing accuracy and clarity issues in credit reporting.

2. Provide safe financial recordkeeping:

Project Catalyst has discovered innovative tools to help families “better manage their finances and weather financial shocks.” These tools, however, require them to allow companies to access their financial records, typically stored at various financial services institutions. CFPB officials have been concerned by reports that some institutions try to limit or shut off access rather than explore ways to make the process safe and secure.

3. Support savings: 

Some companies offer services designed to help individuals build emergency savings by determining how much they can afford to save based on income and expenses and then automating their savings choices. Others have developed apps that enable consumers to automatically transfer money to savings accounts.

4. Improve cash-flow management:

According to Project Catalyst, some fintech companies are developing innovations to help address the time lag in cash flow tied to income and expenses. Eliminating such challenges helps consumers avoid incurring bank overdraft fees and other expenses. Through some automated services, workers can gain access to accrued wages before payday while other vehicles deduct a portion of employee paychecks to facilitate timely payments of recurring bills.

5. Increase student loan refinancing options:

In 2013, the CFPB reported on the fact that the lack of student loan refinancing options locked consumers into higher rates. Since that time, Project Catalyst has found fintech companies that offer borrowers with exorbitant student loan debt the ability to take advantage of the current low-interest rate environment.

6. Update mortgage servicing platforms:

Project Catalyst identified firms that are working on how “to adopt or build more modern technology platforms to improve loan servicing and make them more flexible and user-friendly. Others are looking at machine learning to detect early on when borrowers are likely to suffer financial distress in order to take steps to reduce defaults.

Wealth For Life

Millennial Women Face Major Gender Gap in Their Financial Wellness

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millennial women (Image: iStock.com/g-stockstudio)

Young women are struggling to gain control of their financial destinies. Reports continue to show overall that full-time working women get paid 78% of what white men earn; that is just 63% if you are an African American female, and 54% if you are Latina. So, it takes women 15 to 18 months to earn what white men earn in twelve months.

A recent study by Wells Fargo shows the gender pay gap is widening for millennial women. The median annual household income for millennial men is at $77,000, compared with $56,000 for women.

The harsh reality is that women generally have lower lifetime income than men from which to build up their retirement income. It is estimated that by age 65, women will have lost an average of $431,000 in lifetime earnings owing to the gender pay gap. For millennial women, just 53% have started saving for retirement, compared to 71% of millennial men.

Employers Work to Close Gender Gap

More employers are focusing on pay equity and flexible work environments, allowing employees to better integrate work and life. Employers are increasingly offering both female and male employees access to financial mentorship programs, which they can use to ensure that they are prepared financially for important work and life choices, according to Financial Finesse, a provider of unbiased workplace financial wellness programs nationwide.

Liz Davidson, CEO and founder of Financial Finesse, says there is already a significant retirement gap between millennial men and women. “Although we assume pay parity for the typical 25-year-old, there is a 28% gap in the additional retirement savings needed to cover estimated retirement expenses, primarily due to women’s greater life expectancy,” Davidson explains.

Millennial women need to save an estimated 12.6% of pay to be on track to meet estimated average expenses in retirement. “When you add a career break on top of that, the gender gap in financial security is huge. Women need to know this so they can take steps to minimize the financial impact of important life decisions,” Davidson says.

The Financial Finesse Wellness Report

Financial Finesse conducted a study titled Gender Gap in Financial Wellness Report 2016. The study identifies the groundbreaking gender gap as of greater influence to millennial women’s finances than the pay gap.

Here are three key highlights from the study:

  1. Even assuming pay equity, millennial women are falling short in retirement savings. Based on assumed contribution rates, both younger men and women aren’t saving enough for retirement, but the shortfall for a typical 25-year-old woman is 28% greater.
  2. This difference is exacerbated when women take career breaks. Based on conservative estimates of wage inflation and time out of the workforce, an early career break can cost women $1.3 million in lost savings, with later career breaks costing less, but still having sizable financial impacts.
  3. As a result, millennial women who take early career breaks will need to save 25% during their working years to offset the effects of breaks on their retirement savings.

BE Money

Is Your Financial Mindset About Prosperity—Or Lack?

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Is your financial mindset one of prosperity—or lack?

This is an important question, particularly as we rapidly approach the threshold of a brand new year, because how you manage your finances is a function of how you think and feel about your relationship with money and wealth. I say it often here on my blog for Black Enterprise and I’ll keep saying it: If you can’t change your mind, you won’t change your money.

Your financial mindset matters, because it shapes your financial habits and the outcomes they produce. Authors, experts, scholars and financial educators who study, research and teach about wealth, ranging from Dr. Dennis Kimbro and Sabrina Lamb to Hill Harper and Robert Kiyosaki, agree on this.

For example, in her book, Do I Look Like An ATM?: A Guide to Raising Financially Responsible African American Children, Lamb—also the founder and CEO of WorldofMoney.org, a non-profit financial education program for youth—identifies the thought patterns and behaviors of those with a financial mindset of prosperity, as compared with that of those with a mindset of lack:

The prosperous financial mindset focuses on earning, saving, investing and donating. A mindset of lack is focused on earning, rarely saving or investing and almost never donating.

The prosperous take full responsibility for their own financial circumstances; a mindset of lack avoids or takes no responsibility for their financial situations.

The prosperous focus on spending less than they earn; the lack mindset accepts spending more than is earned.

The prosperous frequently ask, “How can I earn?”; the lack mindset asks, “Can I have?”

A prosperity mindset expects to pay for goods and services. A mindset of lack actively expects and prefers goods and services that are free or provided at no cost to them. [Note: See “Why I Hate The Hookup.”]

Those with a prosperity mindset joyfully pay for goods and services. The lack mindset challenges and resents businesses and service providers who charge for their goods and services.

Those with a prosperity mindset will only earn money positively. The lack mindset might be okay with earning money negatively.

The prosperity mindset uses words like “successful” and “prosperous.” The lack mindset vocabulary frequently includes words such as “poor,” “free,” “hard times,” and “don’t have.”

Whether you agree or disagree with Lamb’s mindset-comparison model, how you think and feel about money does impact how you handle (or mishandle) your money. Your financial mindset, and your willingness to change it, is a key factor in your ability to make better decisions in order to set and achieve your financial goals.

Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert,  personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.

Billboard

Protect Your Wealth: Are You Surrounded by Enrichers or Drainers?

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enrichers Image: iStock.com/monkeybusinessimages)

Are you surrounded by enrichers or drainers? Your friends and others you associate with can significantly influence your beliefs, emotions, and choices, when it comes to your money.

One of my best friends, who is actually like a brother to me, Black Enterprise Chief Content Officer Derek T. Dingle, once gave me a great piece of wisdom a while back, “There are only two kinds of people in this world; those who enrich you, and those who drain you.”

I believe this is also true, when it comes to our money. You’re surrounded by people who either encourage good financial habits or who sabotage your ability to reach your financial goals.

When it comes to building and protecting your wealth, it’s important to know who your friends are. Here are a few clues:

They Only Come Around When They Think You Have Money

 

If your social interactions seem to revolve around pay days, tax refunds, and year-end bonus season, and friends are scarce when funds are low, that’s an obvious red flag. If they can’t think of any way to socialize with you that does not involve spending money, they’re drainers, not enrichers.

They Ridicule Your Efforts to Cut Back on Spending, Boost Your Savings, and Otherwise Positively Change Your Financial Habits

 

If their response to such changes is to call you “cheap” or “stingy,” then they’re not enrichers. Even if they don’t want to give up expensive dinners or weekly shopping sprees, they should be encouraging and supportive of you, as you sacrifice to achieve your financial goals.

They Treat You Like an ATM

 

However, they only make withdrawals, never deposits. If they’re always borrowing and/or you’re always treating, they’re drainers.

If you’re the person your circle of friends comes to when they want money, here’s how to stop being a human ATM:

Never Lend Money You Can’t Afford to Give Away

 

When anyone asks to borrow money from you, always ask yourself what would happen if they didn’t pay you back. If you really need to get the money back—to pay a bill, buy food, get to work, pay your mortgage or car note, reduce your own debt, and so on—you can’t afford to lend it.

Only Lend From Discretionary Funds

 

That’s whatever you have left over after you’ve put money toward your savings, your debts, your emergency fund, your retirement fund, and you’ve paid all of your bills and expenses. Not having money left means no lending.

If You Really Care About Your Friends, Encourage Independence; Don’t Enable Dependency

 

Constantly bailing others out of financial jams doesn’t really help them. If someone is always in financial trouble, help them by directing them to online resources, like BlackEnterprise.com or DebtAdvice.org. Whatever you do, stop making their money problems your responsibility.

The truth is, money habits are only partly a result of one’s level of financial education. The rest is driven by our behaviors and personalities that, if left unchecked, can do a real number on your finances. For example, you could be a “money martyr,” a person who just doesn’t know how to say “no” to family and friends. As a result, they come to recognize you as their personal banker and emergency fund. If you lend without demanding repayment, always pick up the meal tab or pay for gas, and even commit one of the cardinal sins of money management—cosigning on loans—you will not only attract drainers, you will create them.

While your intentions may be good, you are probably doing damage in two ways. First, you are likely hurting your own credit, creating debt and depleting your savings. Second, you are creating a culture of dependency among the people you care about, sabotaging both their willingness and ability to take care of their own wants and needs. You will naturally become part of a community of drainers, not enrichers.

Never put the needs of others ahead of your own financial obligations and goals. If you must (and if you can truly afford it), put a specific amount for family and friends into your monthly budget and never give beyond that amount.

Black Enterprise Executive Editor-at-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationships coach, and co-founder of Grown Zone, a relationship education initiative focused on personal growth and healthy decision-making. Follow him on Twitter at @AlfredEdmondJr

BE Money

National Retirement Security Week: 3 Habits of Successful Retirees

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Retirement (Image: iStock.com/monkeybusinessimages)

 

Making sure you have enough money in retirement is a huge challenge these days, especially with people living longer.
Research from the nonprofit, Transamerica Center for Retirement Studies, shows:

  • 45% of baby boomers expect to experience a reduced standard of living in retirement.
  • 83% of gen-Xers anticipate that they’ll have an even harder time achieving financial security than their parents.
  • Just 18% of millennials foresee a bright future in retirement.

“Sadly, those results aren’t surprising, because we often hear from people who have real concerns about outliving their money,” says investment adviser Joshua Mellberg, the founder of J.D. Mellberg Financial. “A lot of this is because so many aspects related to a traditional retirement have changed. For one, people are living longer, which means they need either to save more money, and find ways to make what they have saved last.”

The fact that defined benefits or company pensions sounds like folklore—a tale of generations—is causing today’s workers anguish, in addition to skepticism about the state of Social Security. But, Mellberg believes those planning for retirement should concentrate on trying to control the things that they can.

Mellberg shared what he sees as three habits that successful retirees often display worth imitating with Black Enterprise:

1. They Live With Some Urgency

Successful retirees seize each and every day, to stay healthy and happy. You can apply this to all aspects of your life; from what you do during retirement, to the way you save money throughout your working life.

“A sense of urgency can call you to action, so you’re more likely to prepare for a great retirement,” Mellberg says.

2. They Aren’t Afraid to Take Risks

“You also don’t always want to live your life on the safe and boring side,” advises Mellberg.

One way some retirees minimize their financial risk, is using a portion of their savings to purchase an annuity, which provides them a set amount of income for life—much like a pension.

“Once you know your retirement income is in order, you can be free to take some risks in other areas of your life, and pursue your lifestyle goals,” Mellberg says.

3. They Retire Based on Assets, Not Age

Traditionally, when people think about retirement, they pick a target age, rather than a target amount in their portfolio. However, that may not be the right approach.

“While you might have a certain age in mind, it can be more worthwhile to create a retirement plan that’s based on your finances,” Mellberg explains. “That will give you a much better chance of having enough money to last the rest of your life.”

Anyone nearing retirement needs to understand that there are steps that can be taken to help put them in a more secure position financially, so that they can thrive—not just survive. “Retirement is supposed to be about enjoying yourself after a lifetime of work, not counting pennies, as you try to survive,” Mellberg adds.