Personal Finance QuickStart Guide: The Simplified Beginner’s Guide to Eliminating Financial Stress, Building Wealth, and Achieving Financial Freedom

Contents

Contents

Stop Page

Introduction

Your Most Fulfilled Life

Thoughts, Behaviors, Results, Repeat

Agree to Succeed

Chapter by Chapter

PART I - FINDING AND SECURING YOUR FREEDOM

| 1 | BELIEVE

Why Am I Not Wealthy?

Getting Out of Your Own Way

Money Maturity Is a Process

Pain and Suffering

Enthusiasm and Energy

Setting Yourself Up for Success

| 2 | EARNING MONEY: WHY AND HOW

Why Do You Want More Money?

Under-Earning

Find Your Value

How to Get More

The Employer’s Perspective

Understanding Your Unique Assets

| 3 | DELIBERATE SAVING AND SPENDING

Where Does Your Money Go?

Planning Your Spending

How and Where to Reduce Spending

| 4 | THE BASIS OF WEALTH

Creating an Emergency Fund

Planning for Additional Savings

Think About the Future

| 5 | NET WORTH: A HELPFUL MEASURE

Find Your Net Worth

What Should Your Net Worth Look Like?

Household Operating Cash Flow

Growing Your Net Worth

| 6 | PREPARE TO INVEST

The Power of Compounding

Inflation Hurts

Your Time Horizon

Risk and Uncertainty

Know Your Risk Tolerance

| 7 | ASSET ALLOCATION

Be Diversified

Equity Compensation

Building Your Portfolio

Monitoring, Adjusting, and Rebalancing

Financial Planners

PART II - SOLVING EVERYDAY CHALLENGES

| 8 | MANAGING DEBT

Credit Scores

Reasonable Debt

Slippery-Slope Debt

How Much Is Too Much?

Getting Out of Debt

| 9 | BUYING A HOME

Common Real Estate Myths

Buy or Rent?

How to Buy a Home

Finding the Right Mortgage

Is a Vacation Home Right for You?

Multiple Streams of Income – Rental Properties

| 10 | INSURANCE

What Is Insurance?

When to Buy Life Insurance

Term Life Insurance

Permanent Life Insurance

Annuities

Disability Insurance

Property and Casualty, Health, and Umbrella

Long-Term Care Insurance

Life Insurance Strategies

| 11 | TAXES

Tax Facts

Retirement as a Source of Tax Savings

Mortgage Interest Deduction

Health Savings Accounts (HSAs)

Capital Gains vs. Dividend Income

Tax-Loss Harvesting

Investment Asset Location

Tax Thoughts

| 12 | RETIREMENT AND SAVING FOR IT

Retirement Basics

Income Sources at Retirement

How Much Should I Save?

A Most Fulfilled Retirement

Retirement Math

| 13 | WEDDINGS AND FAMILY

How Much Wedding Can I Afford?

Combined Finances

Raising Financially Successful Kids

Paying for College

| 14 | MAKING YOUR OWN LIVING

Sudden Job Loss

Starting a Business

What Is QBI?

Personal Finance for Business Owners

Retirement Plan Options

Five-Step Plan for Handling Irregular Income

| 15 | ESTATES, WINDFALLS, AND CHARITIES

Estate Planning

Windfalls

Charities

Conclusion

Stop Page

Homework Assignments

QuickStartGuide

About the Author

About ClydeBank Media

Glossary

References

Explore

Adopt a Clasroom

copyright

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Introduction

I don’t know how we got here. A friend says this to you on a phone call. You can hear it in her voice; she’s on the brink of tears and can barely get her words out. You tell her to take a breath and do her best to calmly explain what’s going on.

I have no income coming in from my business anymore. And Robert was laid off two weeks ago. We have maybe a month’s worth of emergency savings. I keep looking around my home, thinking about what I could sell to make ends meet. I don’t see how we are going to keep our home. The kids have no idea, how can I begin to explain this to them? I can’t believe this is happening.

Your friend confides that she and her spouse, Robert, have been living on the financial brink for a long time, even before Robert’s layoff. They never thought about it much, because they always found a way to pay for things, even though there was never much in the bank. You had no idea. To you, they seemed wealthy. We need all the things we have; I don’t know where or how I’m supposed to cut expenses. The kids need things. I have obligations. This is horrible.

As your friend pours her heart out to you, you can feel her fear and sadness. How do you respond? What do you say to her? Do you listen? Are you empathetic? Do you tell her that everything is going to be all right?

Most of us would respond with empathy. We would comfort and assure. We might even offer to pitch in and help our friend. We would be quick to offer advice and ideas, even if they were unwanted.

Every one of us has a story through which money weaves. You picked up this personal finance book because you want to change your financial situation. Changing your wealth picture takes more than reading a few tips. You’ll need to see your finances through a completely different lens, one where you bury your old convictions that do not serve you, prioritize what is truly important, and make all your decisions based on the results you want to achieve. I invite you to offer yourself the same level of empathy you would give to any loved one. As we proceed through these pages, notice when you beat yourself up or find it too difficult to continue reading. Give yourself the grace you need to accept your situation and move forward. This simple act of self-empathy is the foundation for financial success.

Your Most Fulfilled Life

Think back to when you learned how to drive. It was exciting to move the mirrors and change the seat position. You put the car in drive and felt it roll. You didn’t know how to press on the gas pedal efficiently or break without stopping short. When you turned, it was an awkward inching of your hands around the wheel until you got the car to point in the right direction. Slowly and steadily, you began to drive. You paid close attention, checked your mirrors obsessively, and used caution with the pedals. You gained confidence and speed. You practiced on different terrains.

Fast-forward to today. You probably have no trouble driving while eating a Big Mac with one hand and holding a drink in your lap, with your kids in the back shrieking about their iPads. It took you fifteen years to achieve this level of driving excellence! Those fifteen years encompassed an enormous amount of change. You likely embraced this change, because it offered new privileges and freedoms. Furthermore, for most people, learning to drive is a practical necessity. True and lasting change does not happen overnight, nor does it progress in a straight line. We must change what we believe to improve our daily habits and get us closer to our most coveted outcomes.

I know something about change. Usually, when a person or family seeks my help with their financial lives, change is at the top of their minds. Take, for instance, a couple that needed help with a pressing financial problem; we’ll call them Gary and Christina.

For almost two decades Gary worked as a C-level executive for a large corporation. He and Christina, his stay-at-home wife, had two adolescent kids when they signed on as my clients. Gary had created wealth for himself—plenty of it—but he was unhappy. You could say he was burned out, tired.

Gary also regretted that he never saw his family, for whom he did everything. He gave his wife every convenience to make her life easier: a dog walker, house cleaners, extra childcare, spending money to see friends. But he was never around. His absence wore on their relationship. When they sat in my office together, you could feel the tension. He wanted to provide for her, and she wanted more of his time. But he didn’t have any more time to give.

I asked them each to answer one question: Imagine you’re already living your most fulfilled life; what does it look like?

Gary (after pausing to think): In my most fulfilled life I work on something that gives my life meaning and purpose. I don’t feel like an ant walking into a crowded elevator every day waiting to do my job. I get to see the daylight some afternoons because I can leave work early. I have more flexibility with my schedule. I can plan a vacation with my family, because I have more clarity about my long-term schedule.

Me: Anything else?

Gary: I’d like more time with my family. It would be nice to come home and help Christina cook or play with the kids a couple of nights a week. I’d love to help them with homework every now and then. I never get to do that. My kids are halfway to college now, and I don’t spend much time with them at all. I want them to know me and I want to know them. I don’t want them to look back and think that money was more important to me than they are. I work so that I can do things for them. But sometimes I wonder if they see that.

Me: Yes, I can see that’s very important to you. Anything else?

Gary: I’d like time to play the guitar. It’s been so many years since I’ve picked up my guitar and been able to play for more than ten minutes without interruption. I’d love to be able to play my guitar for a couple of hours. But I can’t, because I barely see my family now, so imagine me telling Christina that I can’t see them because I want to play guitar for two hours undisturbed in the garage.

Me: Yes, you seem passionate about music. Anything else?

Gary: I would have date nights with Christina. Back when we dated, before we were married, I made the time. I was less busy then. Spending more time with Christina would be nice. I know she wants more from me and I do want to give that to her. I just don’t know how.

We continued to talk, and then I switched to Christina and asked the same question: Imagine you’re already living your most fulfilled life. What does it look like?

Christina: In my most fulfilled life Gary is home more. I don’t feel like I’m raising our family alone. With our current situation, I know I can pay for help whenever I need it. But sometimes I feel like a single mom. We never go anywhere as a family. I sometimes make up excuses as to why Gary isn’t with us when I take the kids to a friend’s birthday party or to soccer events. I see other dads there and I’m jealous.

Me: Oh yes, that sounds very hard.

Christina: Well, family is the most important thing to me. I just want to be a family. And part of being a family means spending time together. I don’t need much; I just need something. I’m very involved in the kids’ school. But I feel like if I went back to work in some capacity, I would have something that was just mine. I don’t really do anything for me anymore. I’d love to start a small business. I used to be a yoga instructor, and I wanted to have my own studio one day. That would be a dream. I could run the studio and teach a class or two a week.

Me: That sounds very important to you; we should include that in your plan.

When Christina and Gary had the opportunity to communicate what they really wanted, the tension subsided. They noticed that they mostly wanted the same things! They both felt as if they were missing time together. They both wanted to do something different professionally.

Gary decided to start a consulting practice, and Christina began co-instructing yoga classes a couple of times a week as she prepared to open up her own studio. Once brought to light, Christina and Gary’s shared objectives inspired teamwork. They became the dynamic duo.

Their financial life changed drastically. In a bid for true happiness, Gary walked away from a massive salary. Upon his leaving the company, they had only eighteen months of health insurance (a temporary plan called COBRA) before they would need to secure other health care. They moved into a less expensive neighborhood and a smaller home. They lived for a time off the savings and other assets they had accumulated, while Gary got his new consulting business off the ground. Their spending behaviors had to change during this sensitive transition time, with adjustments like less takeout food, less hired help around the house, and fewer expensive gifts.

Christina continued to learn all she could about running a yoga studio. Once Gary’s business was humming, she would open her studio, as they didn’t want to take the risk of two new ventures at once. They were worried about what the kids would think of the transition, particularly the change in residence and the tightening of material consumption. But after an adjustment period, it became clear that more time with Dad was a million times more meaningful to the kids than living in a bigger house or having the latest and greatest electronics and accessories. The family recently went to Hawaii for a two-week vacation. Before that, they had never had more than five days away together as a family.

Today, Gary not only spends more time with his family, but he also spends more time in the garage playing his guitar. Moreover, having settled comfortably into their new careers, the family’s financial footing is once again strong, robust even.

Gary and Christina saw where they wanted to go and went there. They changed their entire outlook and prioritized what was truly important to them. No old habits or false needs dared stand in their way. Such a dramatic change was not easy. It was hard. It required a lot of effort and adjustments, none of which took place overnight. It took them years to arrive at their most fulfilled life.

You may be wondering how Gary and Christina were able to sustain such tenacity in pursuit of their goals. How did they weather the fear and doubt that nipped at their heels? Are we crazy for walking away from an enormous, secure salary to pursue our most fulfilled life? Are we doing what’s best for our children? Perhaps an even more relevant question is how did they stay motivated. Starting two new businesses is no small feat, and when things get tough, as they inevitably will, a lot of new proprietors hit the panic button and scramble to find stable employment. Moreover, in Gary and Christina’s case, they were pursuing these new business endeavors while concurrently rolling back a multitude of household expenditures. They were taking big risks, abandoning cozy and well-ingrained spending habits, and enduring the pains of change over a period of several years, without surrendering to fear or weariness. It was truly an accomplishment.

Think back to your most significant accomplishments in life. What are your most outstanding talents or attributes? Where are you the strongest? Maybe you are an outstanding parent and raised terrific kids. Perhaps you landed your dream job and were quickly promoted to the executive level. Maybe you achieved a hard-to-reach fitness or diet goal. Or maybe you are immensely skilled as a computer coder, plumber, or chef.

Behind each of your noteworthy accomplishments or attributes is a powerful motivator. Your love for your children gave you the focus and discipline you needed to become a great parent. Your intense desire for career success led you to chase down a big promotion at work. Your determination to look good and live well led you to succeed with your weight-loss goals. The common current underlying each of these scenarios is energy and enthusiasm fueled by a powerful personal motivator.

Like other major life accomplishments and milestones, big financial achievements are personal in nature. And like the others, when achieved, they can transform your life.

My goal in writing this book is to help you understand the human element involved in all facets of personal finance, to truly emphasize the personal in personal finance. Why is it, for instance, that we spend a lot of time and effort creating a budget one month, only to scrap it and go back to bad spending habits a few months later? Why do we pay high interest rates on credit cards when we know the rational thing to do is to pay down the balance? Why are some people comfortable taking risks, while others prefer to leave money in a checking or savings account offering no returns and withering under the steady tide of inflation?

The reason we often try and fail, give up, and quit is that our energy and enthusiasm for the endeavor wanes. Financial goals and resolutions have an unfortunate way of fading. We set out with a lot of ambition, but we fail to sustain the day-to-day actions that we need for real change. We quickly lose sight of our goals amid all the other things competing for our attention: our jobs, businesses, family obligations, and other distractions.

Let me share with you a secret, the first of many to be uncovered in this book: in order to make big changes that last, we must first establish—and clearly define—our goals and objectives, our personal motivators. This was the clear first step for Gary and Christina—what does your most fulfilled life look like? It was also the first step for many of my other clients, and, if you are serious about creating real change in your life, then it will be the first step for you too. You must find your financial raison d’etre.

What does your most fulfilled life look like?

What motivates you?

What will help you sustain that motivation and energy over time?

If you value spending more time with family, traveling the world, or pursuing your favorite hobby, what is stopping you from doing that now?

Why do you want more money, and what would you do with it if you had it?

If you want to get ahead of the game, then take a few minutes to write down your answers to each of these questions. As we move forward, I’ll present you with several specific homework assignments that will prompt you to address these and other questions about your personal finance and greater life objectives.

Thoughts, Behaviors, Results, Repeat

The key to finding financial freedom and independence is identifying our personal motivators. The answers are always within us. Unlocking the secrets involves changing the way we think. I use a diagram to express the process. Now, keep in mind that I’m not talking about waking up one day and having a totally different outlook on life. Instead, the idea is to make incremental changes each day that become part of a feedback loop between our convictions (thoughts), our behavior, and the results (figure 1).

Source: Means in Progress

Changing the way you think requires some open-mindedness and flexibility. If you can change the way you think, then you can change the way you behave, which will, in turn, lead you to the results you seek. It sounds simple. It’s not. I’ve made a career out of putting this process to work for the benefit of my clients, and I can tell you firsthand that the old adage Nothing good comes easily applies here.

My personal story is one that required a change in my convictions, as well as a leap of faith. In 2010, after working as an options trader for a couple of years, I noticed business was slowing. Roles like mine, involving a lot of math and quick decision making, were becoming increasingly automated. The future did not seem bright.

Looking for a new job in 2010 was not an ideal situation. The global financial crisis was top of mind for many financial firms. Furthermore, my skill set was not in demand. However, I knew I needed to change, and I noticed wealth management firms were hiring. Making a major switch from trading to wealth management was a very difficult decision for me. On the one hand, I wanted to be a trader for life! That’s what I knew. It was sexy. I liked the status. On the other hand, it was obvious that the type of trader I had learned to be was not what the market wanted anymore, and I needed to do something different.

I accepted a position at Merrill Lynch in wealth management. I did not take to it well at first. The thoughts about my career and my role as a financial professional did not change overnight. For a long time, I continued to believe that wealth management was not for me. I felt adrift and disoriented, craving the action of the trading room, even though I knew that it was a relic of a bygone era. To move on and fully embrace my new career required enormous amounts of self-reflection. I had to invest immense time and energy into improving myself and learning new ideas. The deep convictions I had about the nature of my career were slowly replaced with new ones. Now, when I think back to the idea of Morgen the trader, that perspective I had about myself seems foreign, comical even.

Today, I own and operate a successful wealth management firm. I make my own schedule. I have the best clients. I work with the best staff. And I love what I do. I wouldn’t change anything about how I got here. It is exactly as it is supposed to be.

I am not part of Wall Street anymore, and that gives me great satisfaction. Wall Street, to me, ignores the human being. Financial planning and personal finance couldn’t be more personal. It’s what makes my career fulfilling. It gives my work meaning and purpose and it fills a void I didn’t even know existed.

Agree to Succeed

The key to success is agreement. You must find the right information from a source you trust, internalize it, and apply the insights to your personal situation. The various facets of personal finance must be something that you want to do—you agree that the steps need to be taken.

For example, maybe dining out or ordering takeout is a significant part of your life. You do it all the time, even though, from a personal finance perspective, buying groceries and cooking would save you a lot of money each month. Yet, my simply telling you to start cooking at home is not likely to yield any results. You need buy-in. You must understand, accept, and be motivated to make the change. If you’re not in agreement that this is the best path for you, then you will not take any steps toward cooking at home. Perhaps you can think of a different way to save money that you do agree with.

Finding ways to incorporate prudent personal financial decision making into everyday life is challenging but rewarding. Setting yourself on the path to financial freedom involves agreeing with practical advice, being open to new ways of thinking, and deciding between trade-offs.

If you are reading this, then it is fair to assume you want something in your financial life to change. In your choice to read this book and respond to the many challenges or homework assignments I’m going to give you, you are already taking a significant first step. And in that first step, you agree that change is something you wish to do!

I am convinced that, once you begin to see measurable results, financial stresses will recede and give way to hope, optimism, enthusiasm, and energy. Here are some of the goals I have for you as a reader:

You will learn how to find your big ideas, goals, and objectives.

You will model success, not failure, from the stories and examples you read.

You will use inspirational exercises to steer you toward action-oriented solutions.

You will know how to make adjustments if your plan is not working.

Ultimately, this book is designed for you to apply general financial planning principles and philosophies to your specific, non-general life. It is not meant to be like most other personal finance books, offering a generic presentation of financial advice, ideas, and strategies with no route to personal application. I want this book to be uncommon. Through an interactive, reflective reading experience, you will learn the necessary framework for applying big, powerful, general ideas to your unique circumstances.

Having these ideas readily available in writing gives me an unlimited opportunity to help people far and wide, beyond those whom I serve in my practice. Mine is a small practice, with thirty clients. My clients are like my family. In writing this book, I am expanding my message, support, and genuine empathy ever further, to a broader audience, an extended family.

My radical idea is that personal finance should be personal. I know it can be difficult to find good advice that applies to you. I know it’s not easy to convince you, wherever you are, that I really care about your life and your financial welfare. But believe it or not, I wrote this book for you. I’m interested in you.

I have a curiosity about human beings, what makes them unique and special, and what they want to do with their lives. Ultimately, the human element in each of us is what makes up personal finance. We are all human beings doing the best we can to make the right decisions about our personal lives with the information we have. In this book I will give you everything I have to make you successful. I want you to live your most fulfilled life, and I know you can.

Chapter by Chapter

In terms of the two parts of this book, part I explains the ways you can jump-start your personal finance improvement by changing how you think, by becoming more organized, and by developing an action plan. Part I also offers an in-depth look at how to navigate the financial world and the myriad of different investment options that exist today. In Part II, I will take you through a lot of common financial circumstances and problems, showing you how to use the tools you obtained in part 1 to overcome them.

PART I: Finding and Securing Your Freedom

Chapter 1, Believe, is intended to help readers get into the right frame of mind before embarking on the road to financial wellness. The chapter explains some of the common obstacles that people face when dealing with decisions about money. We’ll review several money scripts, which are common but flawed ways of thinking about money, and we’ll show you how, through awareness of your own money scripts, you can move forward in your endeavor to improve your financial predicament and pursue your long-term financial goals.

In chapter 2, Earning Money: Why and How, we’ll compare your current income with your desired income and examine the gap between the two. Of course, most people want to earn more, and increasing one’s income can be immensely helpful in meeting one’s financial goals. But, as we will see, more income is not always the answer. Chapter 2 encourages readers to pursue an income worthy of their potential. We’ll include some expert negotiating tips. We’ll also examine how income relates, and doesn’t relate, to other vital life desires, like the feeling of belonging, the need to express creativity, and a sense of community.

Chapter 3, Deliberate Saving and Spending, emphasizes the importance of focusing on your savings goals. If you can hit your savings targets, then you don’t have to beat yourself up over your spending. The two, however, are inextricably related. I’ll show you the right way to track personal income and expenses through budgeting. Where is money coming from and where does it go? Does your spending match your personal goals and values or is it driven primarily by habit? We’ll go through several spending categories (house, car, food, insurance, etc.) and offer tips for lowering spending.

Chapter 4, The Basis of Wealth, provides actionable ideas for becoming more organized and diligent with saving and financial planning. Having savings (money in the bank) is one of the first steps in reducing stresses and finding financial freedom. However, increasing the rate of savings is easier said than done and often requires some sacrifice now in exchange for future security and flexibility.

Chapter 5, Net Worth: A Helpful Measure, begins with a walk-through examination of one’s assets and liabilities. A clear-eyed assessment of one’s current predicament is a necessary starting point on the road to progress. Whether we have negative net worth or are worth tens of millions of dollars, our goals are often remarkably similar. We want to improve our financial situation and develop greater life satisfaction along the way. Identifying where money is going and if our spending truly provides satisfaction are instrumental to the process. Tips for growing net worth are offered at the end of the chapter.

Chapter 6, Prepare to Invest, is a crash course in putting your savings to work for you. We will tackle the nature of fundamental economic factors, such as compounding and inflation, that create an undeniable need for investment at all stages of life. We will discuss how to attach specific financial objectives to your investments and how to tailor your investments to appropriate time horizons and risk tolerances. We’ll also take a deep dive into the nature of risk itself.

Chapter 7, Asset Allocation, covers more specific investment strategies. If you do not know the difference between a stock and a bond, don’t worry. Various instruments—and why I prefer mutual funds and ETFs—are covered in simple terms that readers of all levels will understand. Much of the focus of the chapter is on allocating assets (a fancy way of saying putting money to work in different investments), and the chapter ends with several sample portfolios for illustration.

PART II: Solving Everyday Challenges

Chapter 8, Managing Debt, kicks off part II. We’ll define different types of debt and common traps that people fall into. While taking on debt is not always bad, it must always be approached with caution. We’ll review the key factors that must be considered when evaluating a loan. For those readers who are facing debt crises, we will include some actionable steps they can take to improve their situation and alleviate debt-related stress. For those already in debt-related financial crisis, chapter 8 concludes with actionable steps to improve the situation and alleviate stress right now. We’ll also cover how credit scores work, the advantages of maintaining a good score, and steps you can take to improve your current score.

Chapter 9, Buying a Home, begins by refuting common myths related to homeownership: that buying is always better than renting, that homeownership is the only real way to build equity, or that buying a home is like leveraging other people’s money. I explain my belief in a home as a consumption item as opposed to an investment and why the best reason to buy a home is not because you want to invest your money wisely, but because you love the home and want to live there a long time. Prospective homebuyers will also want to consider the implications associated with various types of home loans or mortgages, because they are not all created equal. The advantages and disadvantages of buying rental properties and vacation homes are also covered in this chapter.

Chapter 10, Insurance, presents ideas for protecting yourself, your property, and your loved ones in a cost-effective manner. Key differences between term and whole life policies are explained, and readers are encouraged to carefully consider the need for disability insurance. Various scenarios demonstrate how people of different ages and with different financial situations