Can I Vacation with All My Friends?
A recent Wall Street Journal piece by Isaac Taylor titled “I want to Vacation with Friends- but Not All of Us Can Afford It” really hit home for me.
Fresh off a girls weekend that went from an exciting adventure to Sonoma to a relaxing a deeply fulfilling staycation of sorts, I definitely know what this is like.
The article more or less covers how the author wants to go on a big trip with their entire friend group, some seven or eight people. We all know that getting a trip out of the chat is hard, especially with that kind of squad size. What the author eludes to but doesn’t go into great detail about is why their friends can’t all afford to go and what to do about it. The author’s friend group is from college, a time where this friend group was equally “broke” and how now that they’re approaching 30 this is no longer the case across the board.
I think a few things about this article. First, it definitely hits home. I love nothing more than connecting people I love with things I love, and sometimes those things can be expensive! It’s not always feasible to connect everyone with everything, and I think we all know that, but there’s certainly a temptation to try.
Second, I think this is a big lesson about growing up and how things change. It’s unsavory and at times upsetting, but unless you’re willing to bankroll a trip for the whole gang it’s very possible that not everyone will be able to go on your big birthday blowout trip.
Third, it is so important to be talking about this kind of subject on platforms like the Wall Street Journal. We are living in a world where it feels like everyone is living a high life with designer this and luxury that, but it’s just a facade we’re seeing on social media. Most people live a life that is ruled by a budget, whether they actually budget or not. We all know the 5 P’s- Proper Planning Prevents Poor Performance. This comes to our finances as much as anything else!
Lastly, the author closes with how for some friends, a big trip is possible but for others it’s not. The author suggests visiting some friends in their hometowns or lower cost vacations as a way of staying connected. I love this. It’s important to come into each relationship with flexibility and understanding. Over the summer, I told my two best friends from high school “buy a ticket to Denver and I will host you for a weekend.” I figured that pulling the cost of being on vacation out of the equation would make it easier for my two friends to say yes, and I was right. We ended up having a great time reconnecting and spending quality time together. I absolutely didn’t mind shouldering the burden of hosting them and I’m grateful I was able to do so…. but I can’t do this on the reg with every friend I’ve made over the years. Definitely not.
Similarly, I had a girl’s weekend trip to Sonoma in the works with my two best friends from college when one got engaged. Needing to conserve resources, we pivoted from the three of us flying from Colorado and the east coast to Cali to just me flying out east. We lodged at one friends home, at a mix of homecooked meals and restaurant ones, created great core memories and all at a total cost that would’ve added up to a fraction of our Sonoma trip. We agreed that we can visit Sonoma in the future and that quality time was the fundamental objective of gathering so it didn’t matter to us so much as to where we gathered.
Tldr: keeping up with distant or out of town relationships can be hard financially. Being flexible on how you gather can facilitate more times together and more memories made.
Personal Finance vs. Wealth Management
Earlier in April, we discussed the difference between personal finance and wealth management. Today, we’re going to compare personal finance and wealth management.
Personal Finance:
Personal finance focuses on an individual's or a household's overall financial situation, encompassing various aspects of financial management. It involves managing finances, setting financial goals, budgeting, saving, investing, retirement planning, insurance, and estate planning. Personal finance aims to achieve financial stability, security, and success for individuals at various life stages. It's about making informed decisions to optimize financial well-being and achieve personal financial goals. Here at Prosperity we are personal finance coaches.
Wealth Management:
Wealth management typically applies to individuals with higher net worth or substantial assets. It involves comprehensive financial services that go beyond the basics of personal finance. Wealth management includes investment advisory services, tax planning, estate planning, risk management, retirement planning, and often entails a more sophisticated and customized approach. Wealth management services are usually provided by financial advisors, wealth managers, or firms specializing in managing significant assets. The goal is to grow and preserve wealth while addressing complex financial needs and goals.
In essence, while personal finance covers the fundamental principles of managing one's finances, wealth management is a more advanced and comprehensive approach tailored to individuals with higher assets. Wealth management delves deeper into strategies for optimizing investment portfolios, tax efficiency, estate planning, and other sophisticated financial services tailored to higher net worth individuals. So personal finance is your overall situation, money management is the day to day, and wealth management is the big picture long term.
Dating on a Budget
Dating is hard. Period. You’ve got so much going on- finding someone to go on a date with, deciding where to go and what to do for your date, grooming and clothing for your date… and all of that’s before you even go on the date!
When you have financial goals and/or a budget it can be harder than usual to navigate the dating world. Today we’ll go through a few aspects of dating and money and hopefully get you thinking about what’s most right for you and your situation.
First, a question: Do you give dates their own line item in your budget?
I’ve seen this go either way for folks in and out of relationships, there’s no right answer. If you don’t do this, you’re probably pulling from your dining out budget relatively frequently as many dates, especially if you’re going on a lot of first dates, revolve around food. Are you open to reserving eating out for dates? Remember, personal finance is inherently personal, so this is totally up to you.
Next, a rule: Don’t commit to anything you’re not personally comfortable paying for. Same goes for ordering food off a menu, if I’m not comfortable paying for it myself I feel it’s inappropriate to pawn that expense off on someone else.
Another question: Who is paying for the date?
I think this is tricky. Being female, I’ve received feedback that paying for a first date can indicate that I’m not interested. More established couples can build rules such as alternating or having the initiator pay but newer couples definitely have to do some dancing around this one. My opinion: male, female, hetero or otherwise, it’s always polite to offer to pay.
Now, I’d like you to brainstorm, either by yourself or with your potential partner, budget friendly date ideas. Destinations like the Denver Art Museum are an affordable $18 a person. Walks in the park are not just for 2020. Have a list on your phone of ideas ready to go because hot take going for drinks every time gets stale. In my experience, an activity that allows you to do something more than just interview your potential partner head on is more likely to create a comfortable space where you both can feel at ease.
Here’s a recommendation: be transparent about having a budget. It’s not necessarily appropriate to lay your complete financial situation out for your potential partner to see before even going on a first date, that’s definitely not what I’m recommending. But saying something like “I have a $50 budget for our date, how would you feel about switching it up and doing a picnic in Cheesman instead of going for drinks?” can set you up for success. Your potential partner will respect your honesty and may even be relieved for the change in scenery.
Want help navigating your budget and dating? Prosperity can help, contact us today using the button at the top right.
31 Financial Wins for My 31st Birthday
Today is my 31st birthday. While it’s not exactly an important milestone to reach this age, I’ve reached a lot of financial goals over the years. Here are 31 of my favorite wins:
Winning the genetic lottery and being born into a fantastic home with two loving parents who supported (almost) everything I did growing up. It’s important that I acknowledge this privilege. My parents had their shares of financial ups and downs, no doubt about that, but they always encouraged me to explore opportunities to learn and grow.
Saving my allowance as a kid. Developing the habit of being a saver early set me up well for adulthood.
Getting summer jobs in high school. Working as a lifeguard not only gave me a great income, but it gave me meaning and purpose instead of lounging around all summer doing nothing.
Monetizing my skills at an early age. I’m eight years older than my youngest brother, so I developed babysitting skills at an early age. Throughout high school I was always increasing my savings account balance by working Saturday nights. I felt so rich making $10 an hour!
Graduating college in four years. This was immensely challenging, and did come at the expense of some summer school, but hell yeah I beat the odds and got an engineering degree in four years after starting behind in math. Take that, haters.
Lining up a full time job prior to graduation. I didn’t end up loving the job, but I had an offer signed before I walked across a stage.
Negotiating my salary at every new job. I’m no longer at my first place of employment, but each time I changed jobs I changed salaries and it was always for the best.
Negotiating relocation assistance for my first job. This was the only time I moved for a job, so it was the only time I needed it. I didn’t get a ton of money, but what I got helped.
Being friendly to strangers. It doesn’t cost you anything to be nice, but sometimes it rewards you. I struck up a conversation with the man sitting next to me at a breakfast bar, he ended up working at a furniture store and helped me secure financial win #10….
Buying a floor model mattress. Not for everyone, but a great way to save big. I think my mattress was like $1500 or more full retail and I paid under $400 for mine. It was clean and everything, just had been touched by untold numbers of people.
Creating a budget not too long after graduating college. I have my dad to thank for this. Having a budget saved me from outspending my income and set me up for achieving other financial goals.
Getting a roommate. This one’s not for everyone, which is fine. I got a two bedroom apartment by myself when I thought I could afford it, then when reality hit I got a roommate to move in so I could split bills. To this day I prefer the company of a roommate and the financial security they can provide.
Staying out of credit card debt. I opened my first credit card after graduating college, and I’m super proud to say that I have never rolled a balance. Credit card debt kills dreams.
Moving to a cheaper apartment when my lease was up. I found a cute spot in a cute neighborhood and a great roommate to live with. I loved that place and the cost of living there.
Taking full advantage of my brother’s flight benefits. More privilege here! My older brother works in the airline industry and for two years I was his plus one. I didn’t fly for free, but I flew for cheap. I left town 50% of the weekends I was on the benefits, mostly to visit friends and family. Being able to go home for things like birthdays and Mother’s/Father’s day was something that’s hard to put a price tag on.
Moving to Colorado when I had the opportunity to, and shipping most of my stuff through Amtrak. Did you know you can ship cargo on Amtrak? And that it’s cheaper than many other moving options? It took longer for my stuff to arrive in Denver than it did for me to, but it was an awesome option for me.
Buying furniture second hand. There are loads of things on Facebook Marketplace and Craigslist because folks are desperate to offload items prior to moving. With a little tenacity, you can find exactly what you’re looking for. I almost spent over $2000 on a table because I wanted something really specific but I kept tabs on Facebook Marketplace and ended up finding something that worked for only $100!
Developing charitable habits early. I have my parents to thank for this. I want to say that charitable giving is not only monetary, but you can also give your time. I personally have given various amounts of both time and money over the years to organizations that speak to me. Did NPR secure my donation by dangling Hamilton tickets in front of me? Yes, absolutely. Have I built great relationships through giving my time? Also absolutely. Giving charitably is a financial win for my community as much as it is for me.
Set boundaries for dates. I have a few rules that I impose on myself (will blog on this in the future!) and sharing these boundaries with potential suitors has helped filter out men who aren’t good matches.
Revisit my budget regularly. Over the years my income has changed, as has the cost of living. Keeping tabs on my spending habits has helped me achieve so much.
Using budget software. Mint was my best friend for a long time before it closed up shop at the end of 2023, now I use Monarch Money. Using budget software has really helped me stay on budget. I’ll check my budget before making plans and done things like suggest ideas for social gatherings that align with my budget, or ask to change venues from one place to another to align with my spending goals. I would go as far to say I gamified spending and challenge myself each month to spend less than I did last month.
Work as much overtime as possible. In 2017 I had the opportunity to earn about an extra 25% of my salary through overtime. This built my emergency fund…
Having an emergency fund. I found myself unemployed on two different occasions and I’m so proud of myself for not only making it through those challenging times, but doing so without taking out loans or going into credit card debt or asking family for help. I’m not going to say I thrived in unemployment, but I will say I crushed it. Also, never, ever, call it funemployment when speaking with someone between jobs unless they call it that first. There was nothing fun about being financially stressed about the possibility of running out of money.
Paying off my student debt. I did this in a somewhat dramatic fashion, I paid it down to about $10,000 and then cut one big fat check. I was paying over $600 a month towards my student loans, so paying them off in full freed up a ton of room in my budget to work towards other goals.
Celebrating my wins, big and small. Celebrating my financial wins helped me acknowledge how far I’ve come. I sponsored a community meal for paying off my loans, I did a steak dinner with my boyfriend when I hit $100,000 in my savings accounts- the celebrations have varied in size but what mattered is that I basked in each win.
I learned from my losses. There’s nothing better than learning something hard way, right? Maybe not. Some things I learned the hard way: if you don’t budget you do overspend, your attitude’s impact cascades into your wallet if you aren’t careful, there’s nothing fun about unemployment, all hobbies in Colorado are $2,000 to play (or more if you’re not careful), other people are always quicker to spend your money than you are… the list goes on.
Changing jobs when I got passed over for a promotion. There’s a saying that every two years, you should be “up or out” in order to maximize your income. I got my engineering license but I didn’t get promoted, so I jumped ship and got about a 25% raise instead of waiting around for another opening. Bonus: I love my current job! Not that I didn’t like my last one, but this one rocks.
Buying a condo when it was the right time for me. This is a partial truth- the right property opened up a few months before I wanted to buy, but I said screw it and put in an offer that was accepted. Not only did I buy a property I love but I began building equity at 27 by myself. I may one day sell the condo to help buy a home with a partner, using that equity towards a down payment.
Finding payment plans when they don’t cost money. Two specific examples here- my HOA’s special assessment (that’s when your association has expenses like a new roof that regular dues don’t cover and every property owner has to cough up extra cash to foot the bill) and my ski pass. Typically I don’t support the use of things like After Pay or Klarna, but ski passes are hundreds of dollars. It’s helpful for my budget to spread that across a few months instead of paying a lump sum up front. It’s important to note that when you finance a ski pass, they determine your payment plan to guarantee you’re paid in full before the season begins.
Learning to identify the difference between eating out at restaurants due to convenience and eating out for an occasion. This was a labor of love. I grew up with a perception that restaurant food was in some ways “better” than home cooked food because it was cooler or something. I still enjoy restaurants but I enjoy them so much more when I go to them with friends or family for a particular reason. Fast food serves a purpose, no doubt about it, but I don’t feel as good about spending money on something I could have done myself so I try to avoid it.
Stopping trying to fix my car “myself”. I put myself in quotes because me and my Ikea toolkit did very little stuff ourselves and we roped in knowledgeable friends and a boyfriend. In the end, I learned that my ability was not adequate and putting the onus on others was not worth the cost savings. For the record, I learned that changing your oil yourself saves no money in like 2019 but still attempted to repair my car “myself” until 2023. I’m a slow learner on this one, but I finally found a shop I trust and like and that made it easier to hand over my keys.
There are so many financial lessons I’ve learned over the years, these just scratch the surface.
Bonus: This is arguably the biggest financial win of all- I’ve learned to trust myself and my ability to get through any financial curveball life throws at me. I have an emergency fund, a sinking fund, retirement accounts, a condo providing a roof over my head and a can-do attitude. I know I got this. Happy birthday to me!
Is There a Difference Between Debt Consolidation and a Debt Consolidator?
Holy cow, you’d be surprised at how different these two are! Consolidating debt and using a debt consolidator might sound similar, but they refer to different approaches to manage multiple debts:
Debt Consolidation:
This is the process of combining multiple debts into a single loan or credit account. You obtain a new loan or credit line, ideally with better terms, such as a lower interest rate (here at Prosperity we want you to get 7% or lower) or a longer repayment period, to pay off your existing debts. By consolidating, you streamline payments, making it easier to manage your debt by having only one monthly payment to focus on.
Using a Debt Consolidator:
A debt consolidator, often a financial institution or service provider, assists in the process of consolidating debts. They may offer debt consolidation loans or services where they negotiate with your creditors on your behalf to create a repayment plan. Debt consolidators might also provide counseling or advice on managing debts and improving financial habits. They may recommend strategies that are considered drastic, like not paying your minimums so they can negotiate with whoever you owe money to. Strategies like this are reserved for folks who are looking for final options before declaring bankruptcy and here at Prosperity we do everything in our power to help you avoid heading down that path. You should be very careful when working with a debt consolidator as some of the methods they employ can have a big impact on your credit score.
Key Differences:
Debt Consolidation: It refers to the act of combining multiple debts into one, often through a new loan or credit account.
Debt Consolidator: This refers to a service or entity that helps facilitate the debt consolidation process. They might provide loans, negotiate with creditors, or offer guidance on managing debts.
In essence, consolidating debt involves merging multiple debts into a single payment by obtaining a new loan or credit account. On the other hand, using a debt consolidator involves seeking assistance from a specialized service or institution to navigate the consolidation process, which may include obtaining the consolidation loan or negotiating terms with creditors on your behalf. Still confused? Contact Prosperity today and we can dive deeper into this together.
5 Ways to Spruce Up Your Finances For Cinco de Mayo
As we celebrate Cinco de Mayo with colorful festivities, why not add a dash of excitement to our finances too? It's the perfect time to give your financial situation a fiesta makeover! Here are five financial strategies to make this Cinco de Mayo a celebration for your wallet:
1. Create a Budget Fiesta:
Just like planning a lively fiesta, plan a vibrant budget! Assess your finances, set spending limits, and prioritize your financial goals. Allocate specific amounts for different expenses, whether it’s savings, entertainment, or necessities. Stick to your budget as you would follow a party plan!
2. Margarita Mix of Savings:
Mix up your savings strategies like a perfect margarita! Consider opening a high-yield savings account to watch your savings grow faster. Automate regular transfers into this account to ensure a steady flow of savings. Remember, a little twist in your savings routine can add zest to your financial future!
3. Salsa into Smart Spending:
Just as a flavorful salsa complements a dish, smart spending enhances your financial health. Evaluate your expenses—trim unnecessary subscriptions, renegotiate bills, and embrace mindful spending habits. Use cashback or rewards programs to spice up your purchases and save a few pesos!
4. Taco ‘bout Debt Reduction:
Let’s taco ‘bout reducing debt! Use Cinco de Mayo as a motivator to tackle outstanding debts. Consider consolidating high-interest debts, make extra payments, or explore balance transfer options. A debt-free future will surely bring a fiesta of financial freedom!
5. Fiesta of Financial Goals:
Amidst the celebrations, set and celebrate financial milestones! Outline short-term and long-term goals. Whether it’s building an emergency fund, investing for retirement, or saving for that dream vacation, each achievement deserves its own mini fiesta!
So, as you don your sombrero and enjoy the festivities, take a moment to spice up your financial landscape. Cinco de Mayo is not just a day for celebration but also an opportunity to give your finances a festive makeover. Salud to a financially vibrant and prosperous future! ¡Viva la fiesta financiera! 🎉💸🌮🍹
9 Reasons Why It’s Imperative We Talk About Money
Money talk might not be as riveting as the latest Netflix series, but it's a crucial chat to have with our inner circle. Today we’re going to go through nine reasons why discussing money with friends and family matters:
1. Strengthening Relationships: Sharing financial stories creates deeper connections. Discussing money fosters trust and openness, strengthening bonds and building a supportive network. Opening up about your financial wins, losses, goals and dreams can deepen your relationship with just about anyone because it shows you trust them. There are so many people who would rather get naked with someone than ask them about their credit score. By bringing up your personal financial situation with someone, you make yourself vulnerable and therefore show them you’re willing to trust them.
2. Learning Opportunities: Everyone has unique financial experiences! Chatting about money allows you to learn from others’ successes and mistakes, gaining valuable insights and different perspectives. Something the rich know well is that gatekeeping doesn’t get you far- by opening up about your finances, you may be able to teach a friend or family member an important lesson you learned the hard way and spare them the grief. This could happen to you too, getting to learn from someone’s mistake or success will only help you in the long run. Getting a great rate on your HYSA? Why wouldn’t you want to shout it from the mountaintops!?
3. Financial Support System: When life throws lemons, having a supportive circle is like making lemonade. Talking money opens doors for advice, guidance, and even potential financial assistance during tough times. We’re not just talking about an emergency loan when you run out of cash, we’re talking about learning how to call your credit card company and get your rate lowered, or getting help finding new employment when experiencing job loss.
4. Breaking Stigma and Taboos: Talking money breaks down barriers and taboos surrounding finances. It normalizes discussions about financial struggles and successes, reducing stigma and shame. I want to shout this from the highest peak on the tallest mountain- 👏MONEY 👏SHOULD NOT 👏 BE 👏 A 👏 TABOO👏 I totally understand if you’re uncomfortable going into detail about how much you make, the exact amount of debt you carry or how much money you have saved for retirement with the average person in your life. What I want is to build up a world where when we trust people with our secrets, we can also trust them with our finances. I think it’s perfectly normal for friends to know how much each other earns. If I know you are saving up for a new car, I’m far more likely to think up budget friendly outings because I respect you and want to see you fulfill your dreams. Breaking the stigma allows us to respect one another far more than it does the opposite.
5. Shared Goals and Accountability: Discussing financial goals with loved ones helps in setting and achieving them together. Sharing aspirations creates mutual accountability and motivation for success. If you tell someone you’re trying to pay extra towards your student loans, or want to pay off a credit card by a certain date, your goal can become something they cheer for, making the celebration all the more sweeter. There’s not need to be in this alone!
6. Avoiding Misunderstandings: Misunderstandings can sprout from unspoken financial expectations. Open conversations prevent assumptions and potential conflicts over money matters. If you’re on a tight budget because of a financial goal, your friends and family are better able to support you if they know. You never should need to justify setting a boundary but sometimes entrusting a close friend or family member with that information can help them understand why you decline something or do things differently.
7. Mental Health and Well-being: Financial stress can take a toll on mental health. Speaking about money concerns can alleviate stress and anxiety, promoting better mental well-being. If you think this helps, you should definitely check out therapy too! Not being sarcastic here. Talking about things that worry us, in this case money, can reduce the burden. In many cases, a counselor or therapist can be qualified to listen to your financial worries, but sometimes it’s more comfortable to talk with someone we know and trust. Either way, talking is good for you and you should do it as often as you feel the need.
8. Set Boundaries: This was touched upon briefly in number six, but it’s important to circle back and highlight. Sometimes, like around the holidays, friends and family might expect us to behave, and therefore spend, in a particular way. Being transparent about your debt, goals or overall financial situation can help establish boundaries. While a good friend or family member should respect a boundary, like a spending limit on holiday gifts for example, on its own sometimes you may need some additional information to get them to understand and respect a limit you may set. Saying something like “I’d love to participate in the family gift exchange this year but I’m working really hard to pay off my car loan. Can we set a limit of $XX this year?” may be challenging, but what’s even more challenging is living with excessive, self imposed financial pressure because you weren’t transparent. It can be hard to set boundaries of any kind, especially financial ones, but something you’ll learn quickly is that they pay dividends with the peace of mind and bottom line you’ll get out of it.
9. Creating A World We Want To Live In: Would you want your close friend or family member to drown? Obviously not! If they were drowning metaphorically under a pile of credit card debt, hopefully you’d want to help them out in a similar way to if they were in physical trouble. Helping others doesn’t need to be in the form of cash gifts. Think about it though- take your BFF. If you knew they were in a tough spot financially, hopefully you’d think twice about making your monthly catch up session at an expensive restaurant and instead would consider going for coffee or doing a home cooked meal instead. It’s about time together much more than it is where you meet up. By talking about our financial situation with our inner circle and normalizing sharing our struggles and successes with each other we create a stronger sense of community. Being transparent about your financial situation, as you choose to discuss it, will garner respect from those you confide in and hopefully foster an environment where they feel safe and comfortable confiding in you too. Taking initiative and leading the charge to open up the dialogue may be scary, but I promise it’s worth it in the name of stronger relationships.
Remember, initiating money talks might feel awkward at first, but the benefits far outweigh the discomfort. Start small, choose the right moment, and approach the conversation with empathy and openness. Consider breaking up conversations into smaller topics or subjects to test the waters with each important person in your life. Not everyone will be ready to open up in return, so consider prefacing a conversation by saying something like “I want to talk about my personal financial situation with you. I trust that you’ll keep this confidential and don’t expect you to reciprocate right away, but I hope in the future you feel comfortable talking about your finances with me too.”
By fostering an environment where money chats are normal, we create a supportive space for growth, learning, and stronger relationships. So, grab a cup of coffee (at home or at a coffee shop!), gather your pals, and let's break the money talk taboo together! 💬💸✨
If I Really, Really, Really Want Something, Can I Buy It?
We’ve all wanted something expensive at some point in time. Whether it’s a new pair of Black Crow skis or Louboutin’s, something inevitably catches our eye and we have to have it.
Today I’d like to introduce two things: a saying and a rule.
I have a saying that “you can have anything, as long as it’s in the budget.” This saying is aimed to keep us tethered in reality. Theoretically, it prevents us from spending excessive amounts of money on one or a few items when we’re working towards our financial goals. It’s not foolproof, but that’s where the rule comes into play.
My older brother has a rule: if he wants something for six months, he buys it. This delaying of gratification not only makes the purchase that much sweeter, but it also prevents you from impulsively filling your closet, home or digital spaces with too much stuff.
These two things play well together. In waiting six months (or longer!), you can save up for your desired item, creating room in your budget. Looking for $500 to get the latest LEGO Star Wars kit? Save $83 a month by trimming various discretionary expenses like shopping, personal care, eating out and entertainment- a much more manageable number than finding the full amount in one month.
It’s important here at Prosperity that we look at your financial picture holistically and realistically. While we think it is important to feel connected with every financial transaction you make, we don’t support living a life of depravity in pursuit of financial goals. We definitely think a little short term pain, long term gain can be advantageous for certain goals but only if you want them for yourself. We’re happy to help you look at your budget and see if together we can find ways where you can have your cake and eat it too.
Personal Finance vs. Money Management
Personal finance and money management are related concepts, but they encompass different scopes and objectives:
Personal Finance:
Personal finance is a broader term that encompasses the entire spectrum of an individual's financial life. It involves managing and planning one's finances in a holistic manner. It includes budgeting, saving, investing, insurance, retirement planning, tax management, and more. Personal finance focuses on long-term financial goals, such as building wealth, securing retirement, purchasing a home, or funding education. It emphasizes the strategic planning and decision-making necessary to achieve these goals. In essence, personal finance involves understanding financial concepts and applying them to individual circumstances to achieve financial security and success. Here at Prosperity we focus on personal finance coaching.
Money Management:
Money management is a component of personal finance and refers specifically to the day-to-day handling of finances. It involves the tactical aspects of managing income, expenses, and cash flow on a regular basis. Money management includes creating budgets, tracking spending, paying bills, managing debt, and ensuring that financial resources are allocated effectively. It emphasizes the practical skills and habits required to control spending, save money, and avoid unnecessary debt. Money management is about the immediate management of financial resources to ensure financial stability and prevent financial crises.
So basically, personal finance encompasses the broader strategies and goals to achieve financial success, while money management deals with the practical and tactical aspects of handling money on a daily basis to support those broader goals. Effective personal finance requires strong money management skills as a fundamental component.
What Happens When A Person’s Liabilities Are Greater Than Their Assets?
When your liabilities, or debts, are greater in value than your assets, or the combination of your savings, investments and real estate, you have what’s called a negative net worth. We calculated net worth here a while ago, but here’s a refresher:
Negative net worth implies financial instability. It indicates a lack of financial cushion and potentially limited resources to cover expenses or emergencies. But hold up! Let’s take a pause here. Negative net worth does imply financial instability, but it doesn’t guarantee it. For example, some folks graduate from college with student loans. More often than not, upon graduation those people’s net worth will be negative. It IS possible to be stable and have a negative net worth. You can, and should save some cash when you’re in debt to prevent going further into it if something comes up. Still, a negative net worth is scary! If this is confusing or convoluted (we at Prosperity think it is!), consider contacting us to schedule a money date and we can look at your unique situation and come up with a plan that’s right for you.
Now, back to negative net worths. With a negative net worth, obtaining credit or loans might become challenging. Lenders may view you as a higher risk due to your existing debt burden. A negative net worth can also significantly impact your ability to achieve future financial goals. Building wealth, saving for retirement, or making significant purchases might become more challenging. But that doesn’t mean it’s the end of the world! It’s a serious situation, but hope exists. With hard work, a good budget and a plan you can get your net worth back into positive territory. To improve your net worth, focus on reducing debts while increasing assets. Budgeting, reducing unnecessary expenses, paying off high-interest debts, and increasing savings and investments can help turn the negative net worth into a positive one over time.
Should My Child Take Personal Finance in High School?
Absolutely! Personal finance has many important aspects to it that should be taught as early as possible. From the perils of credit card debt to the uses of a credit score, your teen can benefit from learning about these topics in school or by discussing them in the home. By learning about personal finance, students develop critical thinking skills to make informed financial decisions. They grasp the importance of responsible spending, saving for the future, and avoiding debt traps. Personal finance education prepares students to face real-world financial challenges they'll encounter as adults. It familiarizes them with concepts like taxes, insurance, credit, and investing, providing practical knowledge applicable to daily life.
High school is an opportune time to instill good financial habits. Learning about budgeting, saving, and investing at a young age encourages responsible financial behavior that can set a positive tone for a lifetime.
Debating between taking personal finance and microeconomics? They’re not the same thing!
While both personal finance and microeconomics involve understanding economic concepts, personal finance focuses on individual financial management and decision-making, providing practical tools for personal financial well-being. Microeconomics, on the other hand, explores economic principles and behavior at a broader level, analyzing how individual decisions aggregate and impact markets and the economy as a whole. If you still need more information, contact your child’s guidance counselor.
How Can Personal Finance Help You In The Future?
First, let’s explain what personal finance is to make sure we’re all on the same page. Personal finance refers to the management of an individual's or a household's financial decisions, activities, and resources.
It encompasses various aspects of financial planning, including budgeting, saving, investing, insurance, taxes, retirement planning, and managing debts and expenses. Here at Prosperity we help with most of these, but not investing, taxes or retirement planning.
The goal of personal finance is to optimize financial well-being by making informed decisions that align with your short-term and long-term financial goals and aspirations. It involves understanding financial concepts, setting financial goals, creating budgets, managing income and expenses, and strategically allocating resources to achieve financial stability and security. Ultimately, personal finance aims to empower individuals to make sound financial choices to enhance their overall financial health and achieve financial independence.
Now that we’re on the same page as to what personal finance is, let’s talk about how it can help you in the future. Personal finance plays a crucial role in shaping your future in several ways:
Financial Security: Proper financial management ensures you have savings, emergency funds, and insurance coverage. This security net protects you from unexpected expenses, job loss, or medical emergencies.
Achieving Goals: Personal finance helps in setting and achieving short-term and long-term financial goals. Whether it's buying a house, funding education, starting a business, or retiring comfortably, sound financial planning guides you toward these objectives.
Debt Management: Understanding personal finance aids in managing and minimizing debt. It helps in making informed decisions about borrowing and repayment strategies, preventing debt from becoming a burden.
Investment and Wealth Building: Knowledge of personal finance allows you to invest wisely. By understanding risk, returns, and different investment options, you can grow your wealth over time, providing financial stability and potential for future growth.
Retirement Planning: Personal finance empowers you to plan for retirement. By starting early, making smart investment choices, and contributing to retirement accounts, you can ensure a comfortable retirement lifestyle.
Financial Independence: Proper financial management leads to greater autonomy and freedom. It allows you to make choices without being solely dependent on others for financial support.
Adaptability to Life Changes: Personal finance skills enable you to navigate life changes more effectively, whether it's starting a family, changing careers, or dealing with unexpected events. Having a solid financial foundation provides the flexibility to adapt to changes.
Reduced Stress: Good financial habits can significantly reduce financial stress. I know this from experience! Managing money effectively and having a clear plan for your finances provides peace of mind and reduces anxiety about the future.
In essence, personal finance serves as a roadmap for achieving financial stability, meeting life goals, and building a secure future. It's not just about managing money; it's about making deliberate choices that positively impact your life in the long run. Contact Prosperity today if you want to take control of your finances and set yourself up for success :)
Are Personal Finance Apps Safe?
In an era where digital solutions simplify our financial lives, concerns about online security often arise. However, personal finance websites and apps prioritize robust safety measures to ensure your financial data remains secure.
Encryption Protocols: Leading personal finance platforms employ state-of-the-art encryption technologies. They use SSL (Secure Socket Layer) encryption to safeguard data during transmission, ensuring that sensitive information remains confidential.
Authentication and Authorization: These platforms implement stringent authentication processes. Two-factor authentication, biometric verification, or unique login credentials add layers of security, ensuring that only authorized users can access accounts.
Regulatory Compliance: Reputable personal finance websites and apps comply with industry standards and regulations. They adhere to data protection laws like GDPR (General Data Protection Regulation) and have robust privacy policies to protect user information.
Constant Monitoring and Updates: Continuous monitoring for potential threats and regular updates to security protocols are integral. These platforms frequently update their systems to fortify against evolving cybersecurity threats.
Secure Transactions: Secure payment gateways and protocols ensure that financial transactions are conducted safely. Multi-level verification processes add an extra layer of protection to financial transfers.
User Education and Support: Personal finance platforms offer resources and educational materials to empower users. They guide users on best practices for safeguarding their accounts and provide robust customer support for any security-related queries.
Personal finance websites and apps prioritize the safety and security of user data. Implementing cutting-edge encryption, adhering to regulations, and offering user education foster a trustworthy environment for conducting financial transactions. Rest assured, these platforms are committed to providing a secure space for managing your finances online.
Should I Borrow From My Retirement Fund?
In times of financial need, dipping into your retirement savings might appear as a viable solution, it’s your money after all, isn’t it? However, taking a loan from your retirement fund could jeopardize your long-term financial security. Here are some reasons why it's best to avoid borrowing from your retirement account:
Upfront Taxation and Penalty: For every $10,000 you borrow from your retirement account you have to pay an early withdrawal penalty and taxes, you end up with roughly $7,000 in hand. That’s a really bad deal. Almost every other loan option out there is better than this, because you still have to pay back the $3,000 you never saw!
Impact on Retirement Savings: Borrowing from your retirement fund means interrupting its growth potential. The borrowed amount not only reduces your current savings but also hampers future growth due to missed investment returns and compounding.
Loan Repayment Challenges: Retirement account loans come with repayment obligations. Failure to repay within the specified time, usually five years, or upon leaving your job, could result in penalties and taxes. This adds stress to your financial situation.
Double Taxation Possibility: In the case of a 401(k) loan, repayment is made with after-tax dollars. However, upon retirement, withdrawals are taxed again, leading to potential double taxation on the borrowed amount. Let me explain this in a longer format. A 401(k) account is funded with pre-tax dollars because tax is taken when you withdraw in retirement. However, a loan on a 401(k) account will be paid back with after tax dollars and then still get taxed again in retirement. That’s pretty unpleasant.
Risk of Job Loss or Changes: If you leave your job while the loan is outstanding, the entire borrowed amount might become due immediately. This unexpected financial burden can be challenging to manage without stable income.
Reduced Retirement Contributions: While repaying the loan, contributions to your retirement account might be suspended. This diminishes the regular savings habit crucial for long-term financial security.
Missed Market Opportunities: When the borrowed funds are out of your retirement account, you miss potential market gains. This could translate into significant missed opportunities over time. Taking out a $10,000 loan with a 5 year repayment plan means your account will have $10,000 in it in 5 years rather than $10,000 plus gains or appreciation.
Alternative Solutions Exist: Instead of tapping into retirement funds, explore alternative options like creating an emergency fund, adjusting your budget, or seeking low-interest personal loans.
While borrowing from your retirement fund might seem like a quick fix, it could significantly impact your financial future. Prioritize protecting your retirement savings, as they form the bedrock of your financial security during your golden years. Exploring alternative solutions ensures your retirement remains intact while addressing immediate financial needs.
Money Mindsets
Our relationship with money is deeply rooted in our emotions, experiences, and beliefs. Unraveling the psychology of spending unveils the intricate web of thoughts that influence our financial decisions. Let’s delve into understanding your money mindset and its impact on your spending habits.
Emotional Drivers: Emotions play a pivotal role in our spending habits. Emotional triggers like stress, happiness, or social pressures often drive impulsive purchases. Identifying emotions tied to spending helps gain control over impulsive behaviors.
Past Experiences and Beliefs: Our upbringing, cultural influences, and past experiences shape our money beliefs. Some view money as security, while others associate it with freedom or self-worth. Recognizing these beliefs helps comprehend spending patterns.
Behavioral Patterns: Observing spending behaviors reveals patterns that reflect our money mindset. Are you a spontaneous spender or a meticulous planner? Understanding these behaviors assists in making conscious spending choices.
Instant Gratification vs. Delayed Satisfaction: The conflict between immediate gratification and delayed rewards influences spending decisions. Identifying whether you prioritize short-term pleasure over long-term goals aids in aligning spending with financial objectives.
Social Comparison and Peer Influence: The tendency to compare lifestyles and spending habits with others can influence our spending choices. Awareness of how social influences impact spending prevents falling into the trap of unnecessary spending.
Coping Mechanisms: Some individuals resort to retail therapy or spending as a coping mechanism for stress or emotional distress. Recognizing these behaviors helps in finding healthier coping strategies.
Mindful Spending: Cultivating mindfulness around spending involves conscious decision-making. Reflecting on needs versus wants, setting spending limits, and questioning purchases promotes mindful financial habits.
Financial Well-being Goals: Understanding your money mindset aligns with your financial well-being goals. Whether it’s debt reduction, saving for the future, or achieving financial independence, your mindset shapes the path to these goals.
In conclusion, comprehending the psychology behind spending illuminates the intricate connection between our thoughts, emotions, and financial decisions. By understanding your money mindset, you gain control over your spending behaviors, paving the way for wiser financial choices aligned with your long-term goals. Want help? Contact Prosperity :)
Why Tapping into Your Retirement for a House Down Payment Might Not Be Ideal
The dream of homeownership often nudges us towards unconventional ways to fund a down payment. One option that might seem tempting is tapping into your retirement account. However, while it might provide immediate access to funds, here’s why it could potentially jeopardize your financial future.
Early Withdrawal Penalties: Withdrawing from a retirement account before the specified age comes with penalties. For instance, a traditional IRA or 401(k) withdrawal before age 59½ incurs a 10% penalty on top of regular income taxes.
Diminished Retirement Savings: Retirement accounts are designed to grow over time, benefiting from compounding interest. By withdrawing funds, you not only lose the withdrawn amount but also its potential growth, significantly impacting your retirement nest egg.
Tax Implications: Withdrawals from traditional retirement accounts are subject to income tax. This adds to your tax burden for the year, potentially reducing the available amount for the down payment. Typically for every $10,000 you withdraw from your account about $3,000 goes to taxes and penalties while around $7,000 goes to you.
Future Financial Security at Risk: Sacrificing retirement savings for a house down payment might leave you financially vulnerable in the future. The risk of not having adequate savings during retirement could lead to financial stress or reliance on others.
Alternatives Exist: Consider exploring other avenues for down payment assistance. Programs exist that offer down payment assistance, negotiate with sellers, or explore low-down-payment mortgage options. Saving separately for a down payment ensures your retirement funds remain intact.
Strategic Planning Matters: Instead of depleting retirement accounts, strategize a savings plan for a house down payment. Create a budget, cut unnecessary expenses, and divert additional funds towards a dedicated house fund.
Prioritize Retirement Goals: Remember, your retirement savings are meant to secure your future. Prioritize long-term financial stability over short-term gains.
While dipping into retirement savings might offer immediate gratification, it could potentially compromise your future financial security. Exploring alternative options and strategic planning for a house down payment ensures you retain the essence of your retirement accounts: securing a comfortable and stress-free future.
Common Financial Mistakes in Your 20’s and 30’s
Life is a journey filled with financial lessons. Avoiding common pitfalls in your 20’s, 30’s, and beyond is key to setting a solid foundation for a prosperous future. Let’s look at some common mistakes folks make in these decades and see what we can do to avoid them.
In Your 20’s:
Overspending and Neglecting Savings: Avoid the allure of lifestyle inflation. Build a habit of saving early, even if it's a small amount. The power of compounding works best with time on your side.
Ignoring Debt Repayment: Tackle high-interest debt aggressively. Avoid accumulating unnecessary debt and focus on paying off student loans, credit cards, or any outstanding balances.
Neglecting Emergency Funds: Build an emergency fund to cushion unexpected expenses. A safety net ensures you're prepared for life's curveballs without falling into financial stress.
Not Preparing for the Future: Don’t delay saving for retirement. Maximize employer-sponsored retirement plans like 401(k)s and consider additional investment vehicles to grow your wealth.
In Your 30’s:
Not Investing for the Future: This is still important! The magic of compound interest is real. Keep saving for retirement and don’t raid your accounts for a down payment, debt payoff or any other reason.
Delaying Medical Care: Preventative healthcare costs a fraction compared to reactive healthcare. Be sure to go to your annual doctor and dentist appointments and brush those teeth!
Overspending on Lifestyle Creep: As income grows, be mindful of lifestyle inflation. Prioritize savings and investments over excessive spending to secure long-term financial goals.
Beyond Your 30s:
Neglecting Estate Planning: Don't postpone estate planning. Create a will, designate beneficiaries, and establish healthcare directives to ensure your wishes are honored.
Overlooking Long-Term Care: Plan for potential long-term care needs. Explore options like long-term care insurance to safeguard against hefty healthcare expenses in later years.
Ignoring Financial Review: Regularly review financial goals, investments, and retirement plans. Adjust strategies as needed to align with evolving life stages and aspirations.
Remember, avoiding these financial pitfalls requires diligence, foresight, and proactive decision-making. Each stage of life presents unique opportunities and challenges. By steering clear of these common mistakes, you pave the way for a more financially secure and fulfilling future.
Talking Money with Your Partner
Navigating finances in a relationship can be as exciting as it is challenging. Money matters often intertwine with emotions, requiring open communication and mutual understanding. When two lives merge, so do their financial worlds. Navigating this terrain harmoniously is key to a healthy and happy relationship. Here’s a friendly guide on how to navigate the financial landscape together as a couple from early stages of a relationship to long term partnerships.
Start with Open Communication: The foundation of a successful financial journey together lies in open and honest communication. Initiate discussions about money early in the relationship. Share your financial values, goals, and attitudes towards money. Be a good listener and encourage your partner to express their thoughts without judgment. When you’re ready to be transparent about your financial situation with your partner, consider scheduling a money date with Prosperity.
Define Your Financial Goals Together: Sit down and chart out your shared financial goals. Discuss short-term objectives like saving for a vacation and long-term aspirations such as buying a home or planning for retirement. Aligning your financial goals helps create a unified vision for the future. Don’t jump the gun on this though! If you’re in a new relationship, it’s appropriate to plan a vacation together but it may not be time to plan your retirement just yet. Each stage of your relationship may call for the merger of new goals.
Establish a Budget as a Team When You Move In Together: Collaborate on creating a budget that works for both of you. Allocate expenses, savings, and discretionary spending while considering each other’s priorities. Regularly revisit and revise the budget as needed. It’s okay if you don’t share budgets for every category- one person’s personal care budget (hair cuts, nail salon etc…) doesn’t necessarily need to be merged with their partners right when you move in together. As your relationship progresses, some things may begin to merge depending on your personal comfort level. If you have a shared credit card, some clear rules and boundaries should be established prior to opening the account.
Designate Responsibilities: Decide on financial roles and responsibilities within the relationship. Assign tasks based on strengths and preferences. Whether it's bill payments, investments, or budget tracking, sharing responsibilities fosters teamwork. We call this “running point” or “having the football” in my family. While you may be responsible for making the bill payments, your partner is still on the team and should support you in accomplishing this task.
Maintain Individual Autonomy: While merging finances is essential, maintaining some autonomy is healthy. Agree on discretionary spending allowances for each partner to spend without consulting the other, fostering independence and trust.
Navigate Disagreements with Respect: Disagreements about money are inevitable. Approach conflicts with respect and understanding. Find compromises that satisfy both parties. It’s not about winning but finding solutions that honor both perspectives.
Regular Financial Check-Ins: Schedule regular check-ins to discuss financial progress and concerns. These conversations foster transparency and prevent misunderstandings.
Plan for the Unexpected: Consider creating an emergency fund together. Discuss insurance coverage, wills, and healthcare directives to prepare for unforeseen circumstances.
Celebrate Financial Milestones: Celebrate achievements together, whether it's paying off debt, reaching savings goals, or making successful investments. Acknowledging milestones strengthens your bond and motivates future financial success.
Remember, navigating finances as a couple is a journey of teamwork, compromise, and mutual respect. By fostering open communication and shared financial goals, you pave the way for a harmonious and financially secure relationship.
The Gig Economy: A Side Hustle Story
In today's bustling world, the gig economy offers a plethora of opportunities to diversify your income streams and pursue passion projects. Embracing a side hustle not only boosts your bank account but also allows you to explore your interests and skills. Here are some ideas for diving into the gig economy with side hustle ideas.
Freelance Writing or Content Creation: If words flow effortlessly from your fingertips, consider freelance writing or content creation. Offer your writing skills for blogs, websites, or social media content. Many platforms seek compelling content, making it an ideal side hustle.
Online Tutoring or Teaching: Share your expertise by tutoring or teaching online. Whether it's academic subjects, languages, music, or hobbies, online platforms provide opportunities to connect with learners globally.
Graphic Design or Creative Services: Tap into your artistic skills by offering graphic design or creative services. Create logos, marketing materials, or digital artwork for businesses and individuals.
Virtual Assistant or Administrative Support: Provide virtual assistance to busy professionals or entrepreneurs. Offer administrative support, manage emails, schedule appointments, or handle social media accounts remotely.
Delivery or Ride-Sharing Services: Join delivery or ride-sharing services to earn extra income. Flexible schedules make it an ideal option for generating additional funds. Make sure your car meets the requirements before signing up.
E-commerce or Reselling: Consider selling handmade crafts, vintage items, or thrift store finds online. Just be careful about buying things- don’t go deep into debt on things that may not sell.
Pet Sitting or Dog Walking: If you love animals, pet sitting or dog walking can be a rewarding side hustle. Offer your services to pet owners in your community or through online platforms. Personally, this one is not for me but I know loads of animal lovers who do this as a side hustle.
Fitness Coaching or Personal Training: If fitness is your passion, consider becoming a part-time fitness coach or personal trainer. Offer classes, training sessions, or create online fitness programs.
Photography or Videography Services: Capture moments through photography or videography. Offer your services for events, portraits, or create content for businesses and individuals.
Consulting or Expert Advice: Leverage your expertise in a specific field by offering consulting services. Provide advice, guidance, or mentorship to businesses or individuals seeking your expertise.
Embrace the gig economy by exploring these side hustle ideas. Whether it’s your creative talents, professional skills, or hobbies, there’s a side hustle waiting for you. Embrace the flexibility, pursue your passions, and turn your spare time into a rewarding source of additional income.
Talking about Money with Aging Parents
As our parents age, many roles reverse, and delicate discussions, such as finances, may arise. While chatting about money matters might seem uncomfortable, having these conversations can be crucial for their future and your readiness to support them. Here’s a friendly guide to approaching these talks with sensitivity and respect.
Start with Openness and Empathy: Initiate the conversation with an open heart and empathy. Approach the topic gently, expressing your care and concern for their well-being. Assure them that you're there to support, not intrude. Everyone has a different relationship with their parents, so you may be successful in your attempts to broach this subject but it’s possible you may not be.
Choose the Right Moment: Timing is crucial. Pick a relaxed and private setting, free from distractions. Avoid initiating these talks during stressful moments or when they're preoccupied. My mom and I love late night heart to hearts, that’s a window of opportunity that I’d consider capitalizing on.
Frame the Conversation: Begin by discussing your own financial plans. Share your experiences or decisions about retirement savings, wills, or healthcare directives. This approach can make the conversation feel less intrusive and more reciprocal.
Ask Open-Ended Questions: Start with open-ended questions to encourage dialogue. Inquire about their financial goals, retirement plans, or whether they have an estate plan in place. Be patient and allow them to share at their pace.
Listen and Respect Boundaries: Respect their privacy and comfort level. Some parents might feel guarded discussing finances, so tread lightly. If they're hesitant, reassure them that you're there to offer support and not to control their decisions.
Offer Assistance: Extend your willingness to help, but only if you have the bandwidth to actually do so. Offer to assist with organizing financial documents, paying bills, or exploring available resources like estate planners.
Discussing Long-Term Care: Delicately broach the subject of long-term care planning. Discuss options and preferences regarding assisted living, healthcare directives, or powers of attorney.
Foster Ongoing Conversations: Financial talks shouldn’t be a one-time event. Encourage ongoing dialogue, reassuring them that these discussions are about planning for the future and ensuring their wishes are honored. If it feels right, suggest a time to follow up on the conversation if there are things that need to be tended to.
Show Appreciation: Express gratitude for their openness and willingness to discuss these matters. Acknowledge their efforts and assure them that these conversations stem from love and concern.
Approaching financial discussions with aging parents requires sensitivity and patience. By initiating these talks with care and empathy, you pave the way for open communication and ensure their financial well-being as they navigate this stage of life.