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Money Matters

Make Today Your Financial Independence Day

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With so many people celebrating our country’s Independence Day, it seems only appropriate that we should take a moment to consider how to create personal, financial independence. There are five simple steps that can help you create, and manage, generational wealth. Remember, it’s not how much you bring in that determines your net worth. How to use your money is what separates the wealthy from the mediocre.

Step 1: Know your net worth
have to know where you stand financially if you want to grow. Take a moment to make a list of all your assets (things that you own) and subtract all your liabilities (debt you owe) to find your net worth. My first book Money Matters: The Get It Done in 1 Minute Workbook ($12) has a really simple worksheet to help you understand where you’re starting from.

Step 2: Create a spending plan
Once you understand what you have (assets), what you owe (liabilities), and what your financial value is you can start to plan where and how you spend your money. Most of us waste more money than we realize on small purchases. We have to find opportunities to make small changes that make a big difference. For example, once you notice that you spend $20 a month on sodas at work (that’s $240 a year) you can choose to bring sodas from home or better yet start drinking water and start investing the money you were wasting.

Step 3: Invest and plan for generational wealth
Now that you’ve found a few places where you can save a few dollars, you’re going to start investing that money for your retirement with the goal of leaving an inheritance for your loved ones. Differences between retirement accounts are explained in my book 10 Things College Students Need to Know About Money ($15). If you’re wondering why planning to leave generational wealth to your loved ones is important, download my free eBook “You Shouldn’t Take It With You”.

Step 4: Talk openly
Realizing that your net worth is negative or that you’re spending way too much money on things that are not helping you build wealth will inspire some changes in your financial behavior. Your friends and family may not understand the changes you’re making or why they’re necessary. It’s important to be clear about what you’re doing and why you’re doing it, so that your family and friends can help you reach your goals. Nothing will stunt your efforts like having people you love tell you that you’re cheap.

Step 5: Make every choice count
You have your plan, you’ve talked about your plans, there’s nothing left to do but to start doing the work to become wealthy. Every choice you make is taking you one step closer to becoming wealthy or one step further away from becoming wealthy. Choose wisely.

Today can be your first day on the road to wealth. Our country has made people that work hard, and make smart choices, wealthy every year since its creation. Why not you? Make today your financial independence day.

Shay Olivarria is the most dynamic financial education speaker working today and the author of three books on personal finance. Visit her at www.BiggerThanYourBlock.com.

You’re Throwing Your Money Away

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Most of us are throwing away hundreds, if not thousands, of dollars every day by using our money to purchase depreciating assets. Now, people will tell you that they aren’t wasting any money because they don’t have any money to waste, but that’s just not true. We waste money everyday in two ways: buying things that we think we need and paying full price for items that we could easily let someone else take the depreciation hit on.

A depreciating what?
There are two types of assets that people buy: appreciating and depreciating. Appreciating assets are things that increase in value over time. In most instances real estate, fine jewelry, and investments are things that gain value the longer you hold them. Depreciating assets on the other hand are things that you buy that lose value over time. For example, most cars, most clothes, and food are things that lose value the longer you hold them. Regardless of how well you take care of an item there are certain items that will not retain the full value. Would you buy an iPhone from someone off of Craigslist.org for $400 or would you rather buy an iPhone from a retailer for $400? Once certain items are owned by someone else the value is not the same as a new same item. Oftentimes, buying an item that’s anywhere from a few months old to a year or two old will help you save money by letting someone else lose money on the depreciation.

How are we doing that?
If you’ve ever bought a car you’ve purchased a depreciating asset. When you purchase food, clothes, computers, cell phones, etc. you are purchasing things that are going to lose value the longer you have them. Now, before you start telling me how much you need these items and how these items help you live a well-rounded life, let me clarify my statement.

Of course we need, some of, these things, but we don’t have to pay full price for them. Let’s use a cell phone as an example. Most people go out and buy a new phone as soon as the tech companies tell us our current phone is obsolete. Let’s say that new phone costs $200 with a two year contract and you’re replacing the phone every two years. That means this person will spend about $4,700 on cell phone equipment from 18 years old to 65 years old. That number does not include cell phone service charges.

The problem isn’t even the cost of the phone. The problem is that once you buy the phone it’s used and it can’t be sold for full price again. It’s very similar to a car. Some purchases hold their value better than others, but the bottom line is that once you buy something new it automatically depreciates in value and what you spent $200 for is not with $200 any more.

Small changes make a big difference
Instead, why not purchase a used phone/car/etc. and let someone else pay for the depreciation? You should definitely buy the things that you need to keep your life running smoothly, but you don’t have to waste money on the depreciation.

Once you start realizing that there are ways to get what you want and still make choices that help you build wealth it’s easy to make different decisions.

Shay Olivarria is the most dynamic financial education speaker working today and the author of three books on personal finance. Visit her at www.BiggerThanYourBlock.com.

Is Uncle Russ Taking Advantage of Us with Prepaid Debit Card?

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Russell Simmons’ “RushCard” is being investigated by Florida officials for being predatory and misleading, along with four other prepaid debit cards. Companies offering prepaid debit cards are becoming quite common. Everyone from American Express to Wal-Mart, is offering a way for customers to have access to funds electronically without having an account at a credit union or bank.

What are prepaid debit cards?
Prepaid debit cards are made for people that want to be able to make electronic payments without having a checking account. Originally, they were used by people leery of using putting personal information online; lots of people used them to purchase things online. Some were specifically designed for teens; did you hear about the Kardashian “Kard”? More and more people are using them instead of using accounts at credit unions or banks.

The argument for
In 2009 the Federal Deposit Insurance Corporation (FDIC) conducted a study entitled “National Household Survey”. They found that in California 15.8% of African-Americans did not have any accounts at a credit union or bank and 30.9% had an account but still used services from pawn shops, check cashing establishments, etc. to manage funds.

Some users think that prepaid debit cards are like credit cards, but you don’t have to be approved to use them. Prepaid cards are available from retail stores. You choose the one you want to use, purchase it at the register, load the card with money, and begin using it. There are no minimum balance requirements and no overdraft fees. Sounds great, right?

The argument against
Prepaid companies promote the argument that using a prepaid card has fewer fees than using a debit card from a credit union or bank. Depending on how you manage your accounts that may or may not be true, but prepaid debit cards have quite a few fees of their own. There are usually fees to purchase the card, fees to use the card, and there may be fees to reload the card and check the balance on the card.

Some even promote the incorrect idea that using a pre-paid card will help you rebuild your credit scores. I have not heard of one prepaid debit card that reports to the three most common credit bureaus. Using these cards is like giving your money to a friend to hold for you, but you have to give them $10 at the beginning to hold it for you, $5 per month to hold it for you, and $2 every time you want to use some of your money to purchase something.

The verdict
If at all possible, do not use prepaid debit cards. If you have an account on ChexSystems and you’re having a hard time opening an account at a financial institution, try opening an account at a local credit union. Many credit unions have special accounts specifically for people that getting back on their financial feet.

Prepaid cards take advantage of people that may be in a financial bind and may not have read, and understood, all the fees involved with using the card. Do not use them.

Study the Mavs to Fatten Your Wallet!

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As we all know, the Dallas Mavericks beat out the Miami Heat to become the 2011 NBA Champions. Most people had their money on the Heat winning due to the hype about the “Big 3”, the perceived skill of the team members, and the age of the players on the Maverics. The only thing that was not taken into account was who wanted it more.

Never give up
There was a lot of focus on LeBron getting a ring, but no one took the time to consider that if the Dallas Mavericks won it would be the first Championship ring for Jason Kidd and Dirk Nowitzki too. Some thought that the Mavericks had no chance to win because of their finals defeat to the Heat in 2006. No matter how far gone you think you are in regard to your financial solvency, it’s never too late to count yourself out. Though others may tell you that you have too much student loan debt, too much credit card debt, you’re too old or you have too little money saved to make any headway, it is never too late to turn things around. If you want to own a home, own a business, have no debt, or travel the world it’s all possible.

Go hard
The Mavericks played every game to the best of their ability. Every. Game. There are no breaks in real life. Every choice matters. Every decision could change your life. When you say that you have a goal you want to reach you have to make decisions that support that goal. You can’t tell me that you want to pay off your credit card debt but you go to Las Vegas every month. If that’s the case then you aren’t worried about paying off that debt as much as you say you are. Every choice, regardless how small, either takes you a step closer to your goal or a step further away.

Appreciate the win
When you reach your goals you have to set new ones, but you also have to recognize the hard work that helped you achieve the goal you just reached. When it was clear that the Mavericks had won their first NBA Championship, Dirk walked off the court with tears in his eyes. He really appreciated the win and you could tell. I’ve seen folks do all kinds of things to commemorate a goal they’ve reached. It’s important that we give ourselves time to appreciate ourselves and our hard work. Making small concessions to achieve a goal is challenging. We all want what we want when we want it, so when we do what we need to do and succeed we should celebrate appropriately.

There are many things that you will not be able to have control over. Your finances are not one of them. If you want to reach your financial goals all you have to do start where you are (emotionally, financially, geographically) and never give up, work hard (make every decision a step towards your success), and appreciate the win (treat yourself when you reach your goal). Congratulations to the Mavericks for reaching their goal!

Shay Olivarria is the most dynamic financial education speaker working today and the author of three books on personal finance. Visit her at www.BiggerThanYourBlock.com.

Getting Your Ducks in a Row: 5 Steps for First-time Homeownership

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With so much talk going on about how low interest rates are, it makes sense to seriously consider home ownership. If you’re considering purchasing your first house, condo, or townhouse you’ll have to get your ducks in a row.

Duck number one is making sure your credit reports from the “Big Three” credit bureaus are free from errors and are as high as possible. You are allowed to receive a copy of each of your credit reports from Equifax, TransUnion, and Experian once per year for free from www.AnnualCreditReport.com. You will not be able to see your scores unless you pay from them, but your reports will allow you to confirm that the names, addresses, and credit usage history are all correct. If they are not correct you’ll need to contact each bureau via letter, phone, or internet and let them know. They will research the information and correct it for free. If there are some negative things on your credit reports, you’ll need to pay them off or have them removed if the debt is older than seven years and you can prove the date the debt was incurred. Lenders will look at all three scores, and use the middle score, so make sure each score is as strong as possible.

The second duck will be coming up with the down payment. This is the piece that has stopped many a would-be-homeowner in their tracks, but I promise you it’s not as hard as you might think. The key to coming up with the down payment is making the decision that you want to become a homeowner and then make decisions that are in line with that decision. Find opportunities to make small changes that make a big financial difference. For example, pick up a second job and put all the money from that job into a) paying off debt and b) to building your down payment up. Even a $9 an hour job that you work sixteen hours a week will bring in almost $14,000 over two years. Start strategically using coupons. Put all the difference between what you actually spent and what you usually spend in a money market account. Choose not to spend another dollar eating out until you have the money to purchase your own home. Nothing is impossible. What will you do to get what you want?

The third duck is going to be getting pre-approved for a specific loan amount. Don’t confuse being “pre-approved” with being “pre-qualified”. A pre-approval means that a lender has taken a look at your income taxes, paystubs, credit scores, etc. and is willing to loan you a specific amount of money to purchase a dwelling. The lender will provide you with a letter to show the real estate agent because most real estate agents won’t even talk to you if you don’t have a pre-approval letter. A pre-qualification letter means nothing. It’s a letter than says that the lender has not looked at any of your actual financial documents, but they are guessing that they could provide you a loan based on what you’ve told them. Unless the lender has actually looked at your financial documents, they can’t really tell you how much money they would be willing to loan you. Get a pre-approval when you’re serious about purchasing a home.

The fourth duck is going to be finding a real estate agent that you want to work with. This may seem like the easiest step, but for many hopeful homeowners this proves to be the most difficult step. Realize that your real estate agent works for you, so interview as many as it takes to find one that you can work with. This person will be guiding you through the home buying process, so make sure you feel comfortable asking questions.

The last duck is finding your home. Don’t get too caught up in finding your dream house as you probably will move on to another home at some point. Make a list and find a home that has the things you need, once you purchase it you can make it whatever you want. Don’t rush.

It doesn’t matter if you have perfect credit and a huge down payment or not-so-great credit and nothing saved, we’ll go through the same process. Start from where you are. Figure out what you want, make a plan to get it, and then do the work to make it happen. Don’t forget to invite me to your housewarming!

Shay Olivarria is the most dynamic financial education speaker working today and the author of three books on personal finance. Visit her at www.BiggerThanYourBlock.com.

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