Tag: Finance tips

One simple way to determine if you are healthy financially

Posted on by Karac Avalron

Not a long post today. Remember the finance posts you see on my blog are opinion pieces and not meant as financial advice. When making financial decisions you should seek out several resources and do your diligence and research. Now that out of the way there is one simple way to determine if you are healthy financially.

Do you pay the full balance of your credit card every month?

If you pay your credit card balance every month and never carry a balance this means you have enough income to cover all of your expenses. Now this has to be consistent, you cannot do it one month and then the other 11 not do it, but if you are paying off your CC balance every month this is a clear indication that you are healthy financially.

You see millions, tens of millions of people actually cannot pay their CC balances off every month. This means they spend more than they make, and that is the simplest way to know you are unhealthy financially. Simply put, if you can pay everything month to month you have created a sustainable financial life. Now do not confuse this with being wealthy, that is completely different.

Cash is still king

It does mean that you are financially healthy, now can you be healthier? Sure. You see what happens ideally is after you pay everything off every month you have money left over to save. That is how you move into wealth building and that is another post altogether. Remember this is simple, do not over think it. If you pay off all your CC balances monthly it is highly likely you are healthy financially.

You are living within your means. Now if you are skipping car payments and mortgage payments to make these CC payments that’s a problem but generally people skimp on the CC payments because there is a minimum payment which enables them to retain the balance to apply to other non-minimum payment bills, like mortgages.

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Finance Tip: How do you tip?

Posted on by Karac Avalron

So leaving a tip is actually a big deal in U.S. culture. It is pretty much everywhere you go now, if not on the screen you pay at then there is a jar on the counter. Tipping isn’t a bad thing, many people make ends meet by living off tips. My son delivers pizza as he gets through college, he comes home with 50-150 cash depending on the days he works just in tips. Now that nearly every transaction can be done digitally? You are prompted to tip more.

Quick example: My son who delivers pizza when the order comes in it can come in via phone or online. The customer can leave a tip prior to delivery. Often he’s getting 20% tip on the order before the food has been prepared, or he has delivered it because they ordered it online. Again tipping isn’t a bad thing but 20% up front? This is more and more prevalent and if you are interested in your personal finance +20% cost on your dinning purchases can add up fast. So how do you determine what to tip and when to tip? I have a pretty basic rule of thumb, if someone delivers something to me at home or to a table I am sitting at I will leave a tip. If I have to go obtain the item myself I do not leave a tip. I am not cheap I normally tip 15-25% it really depends on the level of service and the attitude of the person I am tipping.

Will they be asking for Bitcoin tips in 2050?

Really be mindful here because excessive tipping can add up quickly. Are you always dropping your change in the tip cup at Starbucks? Are you prepaying your tip before you receive service? Are you letting the Ipay pay screen steer you towards a higher than average tip? It’s important to reward great service that’s what a tip is for. Sadly, the hospitality industry has chosen to take advantage of the generosity of people who tip and pay staff less.

The theory is staff will “make it up” via tips. I think it should be opposite, I think you should get a tip if you perform a great service and it’s like a small bonus for your hard work. Culturally I don’t see this changing anytime soon in the U.S. but what can change is your personal approach. Remember it’s your money, tipping isn’t mandatory (in most cases) and tipping before you’ve been served isn’t wise, the person might not deserve it.

Thanks for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

Am I contagious?

Personal Finance – 3 journeymen (not advanced) finance tips

Posted on by Karac Avalron

Like every finance piece I do on this blog this is my personal opinion based on 30 years of working in the finance industry. You should research thoroughly any advice you receive before making any financials decisions. The tips in today’s piece are moderate, they aren’t for beginners and those advanced in their financial journey probably have already encountered these concepts.

  1. Reviewing your insurance profile: Regularly you should be reviewing and understanding your insurance profile, likely twice a year. Now insurance is to mitigate disaster/negative situations. This is more than auto insurance or homeowner’s insurance; this should include things like long term disability insurance to replace income. Long term care insurance to mitigate costs of nursing homes or assisted living and umbrella policies that give another layer of coverage for you beyond specific policies (like home owners or auto)
  2. The care of loved ones: This extends to your elderly parents or your children. Do you have a plan for either? What if your parent becomes sick? Who will assist them? This can take on many forms, maybe you have siblings who can help as well. Point is, have a plan here because it’s when you don’t then it presents itself. Kids? Anything can happen here. From the unthinkable of devastating medical injury to helping them pay for college. You should have some plan in place to set aside some money “just in case” hopefully you can help your kid get a head start in life financially, worst case you have to support them for the rest of your life because of a medical issue. Yes, that happens.
  3. Running your finances like a business: This is the hardest one to pull off, but your check book (or whatever you use to ledger your money) is like a Profit and Loss statement for a business. You have to review this regularly, really be clear on how your business is running and call in the executives for meetings regularly on spending and revenue. I know it sounds silly doesn’t it? What this does is, it takes the “personal” out of it and all the stake holders (spouses, kids) become officers of the company who have a vested interest in its success. If you can get to this point on your personal finance journey you are one step closer to expert status, not many people get to this point.
How much is this going to cost?

In the end, a strong personal economy = better outcomes. You can be more generous, you can have things you want, you can afford a good life. When you don’t know where your money is going and you don’t assign a mission to every dollar you place yourself in a weaker position mentally and financially. Anyone can win with money; your income level doesn’t matter you just have to get a handle on where everything is going. This takes maybe an hour a week to do and over time it will take less and less, you can do this.

Thank you for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

Yet Another finance secret finance professional won’t tell you (but I will)

Posted on by Karac Avalron

So another finance piece, as I write this the U.S. is in an official recession. This piece isn’t about recessions, inflation or politics so you can exhale. We are going to reveal another secret though that finance professionals don’t like to admit. So a quick disclaimer, I am a finance professional. I have been working in the finance and accounting field for over 30 years. This blog is not a finance advice blog; this is my own opinion based on my experiences. Any advice you receive regarding finance should be researched thoroughly by you as an investor and verified through multiple sources.

Now that out of the way here is the opening salvo “When things are good, everyone is a genius.” The last decade up until the pandemic really the stock market overall was pretty good. You had good annualized returns and many people made a lot of money. So being a finance professional and advising people to go into the market wasn’t a genius play. Of course if you aren’t fluent in finance you might have perceived it as such. Interest rates were low for a long time so there really wasn’t anywhere else to go with investing except real estate.

But the secret? Everyone is a genius when things are good, what about when things are bad? What about when you are in a bear market (when indices drop 20% in a calendar year)? The secret is, the real finance geniuses were diversified PRIOR to the bear market. Any finance professional could have told you to put your money in an index fund prior to covid and you would have made fantastic gains. The real economic geniuses advised you to diversify with money spread to commodities, bonds/treasuries, real-estate and precious metals (this is a commodity, but not a traditional commodity).

As an example, what if in 2016 your finance professional advised you to have 15% of your portfolio in “Gas & Oil”? That would look pretty good now wouldn’t it? Same with bonds, treasuries, wheat, gold… you get the picture. The secret here Is diversity of investment result in a wider spread of assets which can absorb declines in any particular sector.

Like it or not, the world still runs on Oil based products.

Now that does mean you would have had less in technologies for the same period and not enjoyed that growth. I concede that, but the savvy investor doesn’t play the short term they play the long term and sustained diversified portfolios over the long haul 10-30 years normally perform as well as a strict stock portfolio. Don’t get me wrong here, I personally believe the majority assets you are investing in should be either growth stock mutual funds or blue chip mutual funds.

100% of a portfolio though?  No, you diversify specifically for bear markets and sharp down turns because they always happen. It’s not a matter of if, it’s a matter of when and how long will it last. For calendar year 22 as of 6.30.22 the markets are down 20.3% now this has come up in July, there is no denying that but you’re still down overall. On top of that we have large inflation numbers devaluing the purchase power of your dollar. So what 1.00 would buy last year now buys .92 that’s an 8% decrease (rough estimate). That isn’t equated well in your portfolios return.

Meaning you made 10% on the stock sale but the money you received purchases 8% less than it did meaning the value of that 10% return to you in real time is a net positive of 2%. Again, the secret here is diversity. Always have part of your portfolio assigned to cash, bonds/treasuries, commodities and that will provide you a decent buffer for the next bear market because this will happen again.

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Historic Inflation – The most important # you need to know is 3.22%

Posted on by Karac Avalron

So another finance piece today. I am not going to go through my normal disclaimer hopefully by now you understand you should be diligent about your finances and obtain information from multiple sources. I’m thankful you consider me one, today we are going to talk about inflation. Yes, its real, and it isn’t exclusive to one region we have global inflation. The numbers I will use in this post will be U.S. numbers but in my research it tracks, mostly, globally.

You are probably wondering what the 3.22% is, that is the historic average inflation rate over the last 108 years. That’s ON AVERAGE, which is important. We have years in there where we have 13.5% inflation (1980) so it’s really important to have good perspective here. Historic inflation isn’t as important as “life time” inflation. That metric is the inflation rate in YOUR life time. For me? Its 3.95%. None of the numbers I am throwing at you include 2022 which right now is approx. 8.5% (give or take). As it isn’t a full year of data we can’t use it for these purposes.

Here is a link to the historic chart I am using. So a few important things to remember.

  1. The distinction between historic and life time inflation rates.
  2. The likelihood of sustained inflation.
  3. Globalization

I distinguished the 1st item already, but items 2-3 are intertwined. We had a sustained period of high inflation in the U.S. from 1973 – 1983 (roughly) that’s a long time. That was in my life time, it might be yours too. What normally happens, and is happening now is wages increase as inflation increases but rarely at the same rate. As an example, it’s likely that in 2022 we will come in between 6-10% inflation for the year, it’s unlikely that your income increased by that same amount. The thing that is a killer about sustained inflation is multiple years where your income doesn’t match or exceed inflation = less wealth overall.

Inflation decreases your purchasing power.

You may make more but it doesn’t buy as much, basically. Globalization is a fairly new phenomenon in the inflation equation. In the 70-80’s it was far less then it is now. So what happens in one major country affects the global consumption and production metrics. If China can’t produce as much of X as it normally does, the price of X goes up, or inflates. Add in a pandemic here and there and well you get the picture.

There is only one sure fire way to combat inflation for you personally and that is increase your income by more than the current inflation rate. The problem is most can’t do that. So the second best way to combat inflation is to ensure your income and investments are increasing more than the average inflation rate in your life time. So for me, that means I need to increase my income and investments every year by 3.95%. Now that is just to remain as is, if I want to improve my financial situation (my ability to consume more) I need to increase my return by MORE THAN 3.95%.

Take a look at the link above and see what your life time inflation rate is. This is the minimum target you should be striving for in all of your investments and your income. Trying to figure it out monthly or on an annual is probably not going to work, but hey if you can make 8.5% in these markets I tip my hat to you. For now, shoot for 4% minimum, 6-8% would be ideal and reasonably attainable if you have investments.

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Finance tip – The Credit Score Secret

Posted on by Karac Avalron

So the first finance piece on the blog for 2022 but the same disclaimer…. I am finance professional with 30 years of experience. That said the views expressed on this blog regarding personal finance are my opinion and any financial decisions you make you should do so after having done your own personal research.

If you live in the western world you have a credit score. Now our friends in the east (our Asian and Australian friends) might have something similar, if they do I am not familiar with what it is but its yet another “number” you are given to identify your financial prowess. Now that we are in the midst of the digital age it is very easy to accumulate data on consumers.

Bitcoin is a game changer

Be under no illusion, every financial transaction you make is being stored in some data base and scrubbed as part of meta data for analytics. How many people bought tooth brushes in Dec as opposed to Feb… That data is then resold to manufactures and other large corporations for great profit. Let’s follow the example a bit further… Let’s assume that in Dec tooth brush sales are 300% higher than Feb. That’s critical information for someone who makes toothbrushes, that could be the lynch pin info that creates high profits for their company. You get the idea.

So you as a consumer are given a credit score. It has been pumped up and built up to be a reflection on your overall prowess as an economic entity. Potential employers will do a “credit check” on you. Some dating sites as part of the vetting system perform these checks as a service for their clients. You even have social conversations (well pre covid anyway) where people would actively talk about their credit score as if it were some bench mark for success.

Here is “The Credit Score Secret”

The credit scores purpose is to grade you on your ability to finance material items you can’t afford

Simply put, your credit score is a benchmark on your ability to make payments on items you can’t otherwise pay for outright. Its far more lucrative for a company to sell you something and have you pay overtime with interest. First, they make more over time due to interest and Second, they can up sell you additional services that complement the original purchase.

The bottom line is, you only need a credit score if you are buying something you can’t afford. In my opinion, the only case you should ever need this is when purchasing a house. You should not be buying other items unless you can pay for them outright, and yes that means cars too. I can bend a little on cars but you don’t need a 50K car, a 10K car will suffice. It’s another illusion the finance industry has created for you.

“Give them a score so they can measure themselves against others”. Its clever, sinister marketing. That score is a curse because it really means you have a high probability of purchasing things you can’t afford and paying for them over time. It’s an indication of how poor at finance you really are, financing a TV, A vacation, a phone… It means you’re willing to pay MORE than the item would normally sell for.

Don’t be fooled by the finance industry. They want you to be good little consumers. “payments” means “interest” and interest is pure profit for them. The item is still worth 20k regardless, but you, because you want it now are willing to pay 30K for it over 10 years because you want it now. Companies love that mentality and that is the “credit score secret”

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Advanced Finance Tip: Annual Gift Tax Exclusion

Posted on by Karac Avalron

DISCLAIMER: Any financial advice I give on this blog is my opinion based on 30 years of working as a finance professional. Before making any financial decision do as much research as you can to make an informed decision.

So in the U.S. we have an extremely complicated tax code, its frankly ridiculous but that’s another blog post entirely. One of the issues the more fortunate of us face is how do we leave our money to our offspring without getting killed on taxes. This doesn’t apply exclusively to the rich either. Middle class Americans who have any amount of money face taxation on their net assets. The older you get the less you actually need your assets to survive. Specifically, there comes a point in your life where you have enough money that generates income that you will not have to compromise your principal.

Again, this isn’t for everyone… Many people live paycheck to paycheck but there are some of us who have a paid for house, a good chunk of change in our 401K’s and are debt free. We aren’t multi-millionaires but we do have money in excess of necessities. You may ask yourself “well Karac, why can’t I just spend it on all those things I wanted to do in retirement?” I would say to you “what things?”

There is this myth that once you retire there is glut of items or travel that you are going to purchase. You likely aren’t going to buy a new car, a 2nd house, travel 1st class. I mean you may, but average middle class people don’t do this regularly in retirement. Once in a while? Yes. So we are sitting on cash, when we die you aren’t going to care what your 401K balance is, your heir’s or the government WILL care because they benefit from it.

Decades later, they will pay taxes on their inheritance.

This is when all sorts of tax issues can happen and depending on the family dynamic horrible drama. There is an option and that is gifting money to your heirs now prior to your death. In 2021 the U.S. allows for a Gift Tax Exclusion of 15K per recipient. So if you had 150K you could gift 15K to 10 people and not have any tax implications. There is a life time limit to how much you can gift, its 11.7 mil which most of us are never going to hit.

So the tip: When you are starting your retirement planning, it may be prudent to calculate annual gifts to your heirs. It’s likely that the money now will help them more than money later as they can then take the gift and use it to supplement their current income. 15K is a lot of money. If you retire at 62 and live the average age (in the U.S.) of 82-84 (let’s say 83) that’s 21 years. 15K a year for 21 years = $315,000.00 that your heirs are not going to inherit and pay associated taxes on.

Again this is an advanced finance/retirement tip. You should be doing a lot of research and planning when you approach retirement. For a good article on Gift’s and Gift Taxes check out the article here.

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Finance Tip: How to pick great company stocks

Posted on by Karac Avalron

First and foremost, let me say that I am not a financial advisor, any finance posts you see on this blog are my own opinion based on decades of being in the finance industry and living my life. Now disclaimer out of the way, there is a method by which you can pick single company stocks that normally beat the indexes. It is another one of those dirty little secrets that a finance professional won’t tell you, but with a little common sense you could figure out on your own.

To be clear, I am talking about stock in one company like Apple, not mutual funds. These come with a much higher risk as your money is tied to the performance of one company exclusively. This method is one that I have employed in the past when helping to set up an investment portfolio for someone in my family circle. It is by no means full proof or for that matter scientific (from a math perspective) at all. It relies on a very subjective business measurement, done by multiple firms.

So what is this method? It is tracking annual lists of “the best places to work”

I know that sounds half assed, simplistic and an uncouth way to make a stock pick. Here’s the thing though, if companies are listed as “best places to work” isn’t the logical conclusion that they must have happy workers? Happy workers usually mean better services and products and that usually means higher sales which equals revenue.

How much is this going to cost me ?

Don’t dismiss this simplistic formula out of hand. Here is a few of the companies that made it on to multiple best places to work for 2021:

  1. Microsoft
  2. Nvidia
  3. In & out burger
  4. Google
  5. Delta Airlines

These aren’t small companies, as a matter of fact most of the are publically traded and provide great dividends. Now this method of stock picking isn’t absolute, companies can fall off the list at any time but the metrics used to evaluate “best places to work” are usually worker centric. That’s the secret sauce here because as I stated, happy workers = good products & services = profits = return on investment.

There is no one catch all best places to work list you should use, there are hundreds of them (if not thousands). What you want to do here is aggregate several (5-10) lists. So if Nvidia appears on 7 out of 10 chances are that’s a great place to work and this investment strat should be employed.

This ties in well to another piece I did about Aristocrat stocks here, combined if you employ both for a mid to long term investment cycle (5-25 years) you should do very well. Remember investments into the stock market are not guaranteed and should be done only after doing research and obtaining a good comfort level.

Thanks for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.  

Am I contagious?

Personal Finance – 3 journeymen (not advanced) finance tips

Posted on by Karac Avalron

Like every finance piece I do on this blog this is my personal opinion based on 30 years of working in the finance industry. You should research thoroughly any advice you receive before making any financials decisions. The tips in today’s piece are moderate, they aren’t for beginners and those advanced in their financial journey probably have already encountered these concepts.

  1. Reviewing your insurance profile: Regularly you should be reviewing and understanding your insurance profile, likely twice a year. Now insurance is to mitigate disaster/negative situations. This is more than auto insurance or homeowner’s insurance; this should include things like long term disability insurance to replace income. Long term care insurance to mitigate costs of nursing homes or assisted living and umbrella policies that give another layer of coverage for you beyond specific policies (like home owners or auto)
  2. The care of loved ones: This extends to your elderly parents or your children. Do you have a plan for either? What if your parent becomes sick? Who will assist them? This can take on many forms, maybe you have siblings who can help as well. Point is, have a plan here because it’s when you don’t then it presents itself. Kids? Anything can happen here. From the unthinkable of devastating medical injury to helping them pay for college. You should have some plan in place to set aside some money “just in case” hopefully you can help your kid get a head start in life financially, worst case you have to support them for the rest of your life because of a medical issue. Yes, that happens.
  3. Running your finances like a business: This is the hardest one to pull off, but your check book (or whatever you use to ledger your money) is like a Profit and Loss statement for a business. You have to review this regularly, really be clear on how your business is running and call in the executives for meetings regularly on spending and revenue. I know it sounds silly doesn’t it? What this does is, it takes the “personal” out of it and all the stake holders (spouses, kids) become officers of the company who have a vested interest in its success. If you can get to this point on your personal finance journey you are one step closer to expert status, not many people get to this point.
How much is this going to cost?

In the end, a strong personal economy = better outcomes. You can be more generous, you can have things you want, you can afford a good life. When you don’t know where your money is going and you don’t assign a mission to every dollar you place yourself in a weaker position mentally and financially. Anyone can win with money; your income level doesn’t matter you just have to get a handle on where everything is going. This takes maybe an hour a week to do and over time it will take less and less, you can do this.

Thank you for coming by and supporting my blog I really appreciate it. Want to see another post like this one? Click here.

Important financial tip for my younger readers (in the U.S.)

Posted on by Karac Avalron

Politics in the U.S. is more vitriolic than ever, funny how getting rid of Trump didn’t change much did it? I know it was all him it wasn’t anyone else… lol. To the point, our government is still working or trying to work it is the government after all. Sarcasm aside, there is something on the radar that maybe very impactful in a positive way. It pertains to the horrific government policies on student loans. They are finally doing something to remedy this problem and it’s a very good proposal.

There is something floating around congress right now called the “Secure Act 2.0”  You can find a decent summary here Without going into great detail on the legislation, what it does is beef up retirement options for all Americans. Specific to the topic there is one provision that can help younger workers with student loan debt.

“5. Student Loan Payments and Employer Matching

The Secure Act 2.0 permits an employer to make matching contributions under a 401(k) plan, 403(b) plan or SIMPLE IRA with respect to “qualified student loan payments.” The provision is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and missing out on available matching contributions.”

Many people with student load debt are unable to save for retirement while they are paying off these debts eliminating the single biggest multiplier of compounding interest over time. What this provision allows is for companies to provide a % match of your loan payments to their retirement plan allowing for some retirement savings. This is huge because it allows you to forgo the 401K contribution but still get the match. You’re going to pay your student loans anyway so while not perfect it way better then what we have now.

How much do I owe again?

If you have student loan debt you should be contacting your federal representatives and telling them, you want the secure act to pass. This will enable you to now and in the future select workplaces that offer this benefit, and they will, they will have to to be competitive. One of the biggest factors in accumulating wealth is dollar cost averaging or simply put, the accumulation of principal + interest reinvested over time. IF you are spending all your money on debt you lose out on this critical aspect of investing, you lose time.

This is a great addition to the retirement 401K,403B portfolio of offerings and should really help some of our younger workers see some light at the end of the student loan tunnel. Watch for this, if it is passed you should be asking your employer if they will be adopting this benefit and extending it to you. This is an example of good governance and a good law. This should help millions of young workers, its welcome news.

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