Finance FRI-YAY edition: What Do You Need to Know About Money?
What do you need to know about money? EVERYTHING!
I’m sure we’ve all heard it before…come on say it with me “Money is the root of all evil” right? WRONG! Money isn’t the route of all evil. Sure there are some massively rich people who are insanely evil, however I am also inclined to believe that there are some equally evil poor people. The reality is we all think of money. We think about how much money we need to pay our bills, how much it will cost to take our families on vacation, how to save for a rainy day, and most importantly how to create financial freedom.
For many of us the thought of money management can be quite daunting. Though no fault of our own many of us have poor relationships with money due to the fact that our community as a whole has not been educated about the core components of money management. I am an avid advocate of finance being taught at schools. I cannot tell you how many times through out my career I have met individuals at various stages of life who do not have grasp the basic concepts of money. If that’s you…that’s ok! This post was designed with varying degrees of money management in mind.
So what exactly do you need to know about money? Let’s begin with the basics: Checking and savings., what’s the difference?
In the world of finance, a checking account is a demand deposit account. Essentially a low maintenance account where fees are assessed for maintenance and the consumer has immediate access to their funds via debit card and or checks.
Savings or time deposit accounts are vehicles used to store funds federally regulated by the amount of times one is able to withdraw from said account in a 30-day period. Savings accounts typically pay interest that may be tiered based upon the amount of money on deposit. Financial institutions use the money in a time deposit account to lend out by way of auto loans, mortgages, HELOC’s, etc. Given that the FI’s charge a significant amount to lend your money out so the margin, (the difference between the interest owed and the interest paid) affords significant flexibility in advertised rates.
I have enlisted the expertise of Sheldon McGregor (IG: @mcmedcpr mcmedcpr.com, & IG: @isginvestors InvestorsSynonymous.com); proud father of two boys, IT Manager, Consultant, Entrepreneur, Founder and Chairman of Investors Synonymous Group as well as CEO of his own IT Company MCMed CPR, which specializes in providing cloud solutions and services. Sheldon and I took the time to connect to discuss all things money! Take notes, this info is need to know!
KMK: Does everyone need a savings account?
Sheldon: Most of us aren’t taught about savings, financial experts will tell you to have at least three to six months of savings, (this means that your household expenses would be covered in that time frame based upon the amount you have saved) to prevent you from being under water or debt ridden. Savings accounts don’t typically yield a high return, look toward credit unions or on-line banking options. Most financial institutions do not offer a high yield of return because they make the bulk of their money off fees charged on checking accounts. With that said, credit unions and on-line savings vehicles are typically yielding the highest rate of return.
Cap360, by capital one has a great savings vehicle with no minimum balance requirement. I have both 360 savings and 360 Money Market (the money market has a higher rate of return but also a higher minimum balance requirement). A great way to save without even thinking about it is to split a portion of your direct deposit into the on-line savings vehicle. This way it almost feels like tax dollars coming from your paycheck and you don’t miss it. Start small as little as $25 a month, gradually increase as you earn bonuses or merit increases. I would not advise obtaining an ATM card in an effort to limit temptation. Credit union accounts are also an opportunity to save with low or no fees and a higher yield on your return. (Links will be included below with information).
KMK: How does one begin to invest?
Sheldon: Investing is for the long run it requires patience and longevity. In terms of what to pick, look all around you, we are consumers especially as minorities we are the biggest consumers for materialistic purchases. I tell my kids when you ask your mother and I for $20 for Fortnite; why not think about $40? You should also invest in what you consume. Why not add to your Microsoft portfolio as well as your purchase this way you are making money off your purchases in the long run?
With that said, invest in what you like. You like music think about Spotify. You like sports, ESPN, NIKE. Beyoncéand Jay-Z for the culture, we all have heard about the buzz of the RocNation brunch and how many people wanted to participate in it. Here’s your opportunity to participate on a smaller scale while actually growing your network. Why not invest in Tidal? 33% of Tidal is owned by Sprint (S). RocNation supports many of your favorite entertainers and celebrities, Beyoncé, Rihanna, etc. Is distributed by Live Nation (LYV).
KMK: What kind of research is involved?
Sheldon: I personally use CNBC and yahoo finance that are both free. I also like Acorns, which is a basic investing platform that does not require much thought. Acorn will take your spare change and invest it for you. Many vehicles afford you the opportunity to invest with out thinking, it really is much easier than most people think. Many other platforms also offer a refer-a-friend incentive. By submitting a referral, you have the opportunity to earn $$ toward your trades. There are also opportunities that may be advantageous to those who are retail savvy, the fortuity is available for you to earn a kickback from companies where you are already consuming their products. Companies like Nike and Colombia will reinvest into your portfolio, e.g. if you make a purchase a percentage of your purchase will be reinvested in your portfolio. A Basic acorns account, with fees is $1/month, an Acorns Roth IRA is also available for $1/month. Stocktwits is another one of my favorites; it is similar to twitter for the moderate to advanced trader.
KMK: What strategies do you typically employ?
Sheldon: I am self-taught; everything that I have learned over the last ten years has been a direct result of my own research. Being self-taught has its advantages, meaning you are free to move at your own pace largely based on your own level of comprehension. Educate yourself; surround yourself with others who have the same interests operating above your current level understanding to challenge your own thought process and to cover your blind spots. This year, due to a poor performing stock I ended up taking a loss. Thus my research was centered on the tax implications after taking said loss and how I could maximize my results. The strategy I leveraged was called a “wash sale.” I had no idea that, just like you pay on capital gains on stocks sold. You can claim losses on stocks you sell at a loss!
KMK: How much money does one need to begin investing?
Sheldon: Nothing. You don’t really need anything. Often times an app will provide a referral for up to $5. Stockpile is an app that I use, and my kids use “Trading for the Pauper.” You can get shares without paying for the entire share, e.g. amazon typically goes for 1500 you can purchase for $25 with a commission-trading fee of $.99. Robinhood is another popular app, you are obligated to purchase an entire share. There often promotional incentives to sign up, e.g. for signing on there are offers of entire shares Berkshire Hathaway which typically run $300/$400 per share.
KMK: Why is an emergency fund a necessity?
Sheldon: You need access to funds that you can liquidate and have immediate access to. I personally recommend Capital One 360 (mentioned above), Synchrony, Stamford’s Federal Credit Union (membership required, see link for details) and Sikorsky Credit Union.
An emergency fund should be used just as the name implies, in the event of an emergency. These monies should be kept separate from your short-term savings (think holiday, vacation clubs). Access to these funds should be relatively easy and without penalty, it is also imperative that minimum balance requirements are manageable given that the need to access these funds may be imperative. Many financial institutions offer low or no fee savings accounts that can be linked to your checking account to ensure that you do not pay any fees. I know many of us think that we can’t afford to save, when that couldn’t be further from the truth! I urge you all to take deep-dive into your budget, I am confident that you will find a few extra bucks that could potentially go towards your savings accounts. Whether it’s packing lunch to bring to work and stashing the money you would normally spend away or avoiding grabbing a cup of coffee in the morning I know that there are ways you can save! I’d love to hear all about it, what are your plans for saving? What does this month’s budget look like? Drop a comment! Let me know!