The Financial Undergraduate's Best Kept Secret

This article is not geared towards personal finance but rather to opportunities for finance undergraduate and pre-MBA students. There are still many useful resources provided in this article for personal growth and development to professionals so I encourage all to read.

So I happened to have stumbled upon a gold mine for finance undergraduate and pre-MBA students by way of a friendly email. Not only do you get to attend free webinars from prominent figures in leading corporations, access to a large job bank and many other resources all for the pricetag of FREE.

At first, I was honestly skeptical because opportunities like this seem too good to be true. However I attended my first "Toigo Talk" on Wednesday and was literally blown away. The Toigo Foundation secured a vice president from Bank of America to give a presentation about "Corporate Culture". The presentation was very informative in regards to the cultural atmosphere at Bank of America (which can probably be applied to many other corporations). Of course Bank of America made a plug to recruit more talent for their company at the end of the presentation, but all in all, a small price to pay for some very valuable knowledge.

The structure and organization of the presentation was superb. The webinar started on time and the facilitators encouraged participation from the group by holding question and answer session with the Bank of America Vice President. It is not very often do you get a chance to ask questions to many prominent figures in corporate America and this particular presentation gave one the outlet to do so.

So, without further delay, I would like to present to you...

http://www.ready-for-finance.com

Below is a short summary of the organization provided from a representative of the foundation:

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The Robert Toigo Foundation (founded in 1989) is a national organization committed to preparing exceptional minority pre-MBA and MBA students to enter the field of finance and leverage their academic and professional roles into future positions of leadership in the global economy. To ensure that developing finance professionals receive access to the resources that will help them succeed, the Foundation created ToigoTalks™, an undergraduate initiative that cultivates talent at an early stage by providing active outreach, knowledge-building support, and guidance through a series of on-campus presentations, educational networking events, sponsor-hosted webinars, and a resource-rich website.
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I encourage taking advantage of this resource because there are not many foundations around like it. If you have any comments to share about your personal experience with the foundation, please leave them below.

Stay Disciplined!

The Tortoise and the Hare...A Financial Fable

"Slow and steady wins the race." - Aesop

So, for those who are unfamiliar with the story of the Tortoise and the Hare, below is a version of the story found on Wikipedia:

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The story in extended version

Once upon a time a hare saw a tortoise walking slowly along and began to laugh and mock him. The tortoise challenged the hare to a race and the hare, thinking himself the fastest animal around, accepted. They agreed on a route and started off the race. The hare shot ahead and ran briskly for some time. Then seeing that he was far ahead of the tortoise, he thought he'd sit under a tree for some time and relax before continuing the race.

He sat under the tree and soon fell asleep. The tortoise, plodding on, overtook him and finished the race. The hare woke up and realized that he had lost the race.

(Click here for a direct link to the story cited in Wikipedia)

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At first glance, you might be wondering why I am referencing a childhood fable in regards to personal finance. Well, when we look a little deeper, we actually see some very important principles we can apply to our personal finances.

1. When you are doing the right thing, you may be considered "different".
• Just as the rabbit mocked the tortoise for walking slowly, you will find as you embark on your journey to financial freedom that many others will question your intentions and abilities.
• Many people have a false sense of fulfillment from buying stuff. They may question your happiness especially if you do not buy unnecessary "things" to fill a void.
• Making the choice to secure your financial future may not be a popular choice although it is the right thing to do.
  
2. All that glitters is not gold.
• Many people who seem to have "everything" also have a huge amount of debt to go with that "everything".
• Although they may seem happy and care free today, there will come a time when the debt has to be repaid or emergency funds are needed and their emotional state will change.
  
3. Slow and steady wins the race.
• Unfortunately, there are not too many ways to "Get Rich Fast". Sure you could hit the lottery or have a really rich uncle that decided to leave his whole inheritance to you after he passes, but what are the odds of that happening.
  
• Following sound financial principles have been proven to provide financial security in both good and bad economic times.
• Over time, compound interest works wonders in building future wealth. The earlier you start, the better. (for tips to retire a millionaire, read this)

So yes, I really extrapolated a deeper message out of this children's fable, but these ideas need to be brought to the forefront. David Ramsey said it best when he said "Live like no one else today, so you can live like no one else tomorrow". Securing your financial freedom is not an easy road to go down, but once you reach your destination, you will look back and realize that it was worth every single step.

I could only imagine that the Hare, waking up to find that the tortoise had already crossed the finish line, was in a state of disbelief and shock. How could he let himself get to the point where he lost the race although he was thought as being the uncontested winner of the race. I would say the same thing about those who live in the "now" without any savings or investments for their future.

So which one are you going to be, the tortoise or the hare?

Stay Disciplined!

Desire vs Decision

"If you greatly desire something, have the guts to stake everything on obtaining it." -Brendan Francis

Taking control of your personal finance seems like the "status quo" topic of today. The current economic situation has spawned more advertisements about "improving your credit; stopping foreclosure; and getting out of debt" than I have ever noticed before. While even going to pick up my car from the service department this weekend, I had a conversation with the receptionist about the extreme behavior some people are doing because of the high price of gas. Let's face it, we are currently going through some rough economic times.

Due to this economic situation, I have noticed that many people have been extra motivated with the desire to get their personal finances in order. I have constantly received questions about my ideas on the solutions to erase debt and get more income. However, I am finding that many people who want the solutions, do not want to give up their old habits. My personal definition of insanity is "doing the same thing but expecting different results". Now, although I am not trying to call anyone crazy, I do want to make the point that the desire to have financial freedom is not enough.

Although the desire to want to change your situaiton is a necessary step, the decision to change it is key. Once you have made up in your mind that you have decided to take control of your finances, there is an immediate change that takes place. All of a sudden, when you get ready to spend your money while eating out, you may find yourself saying "I could make this at home for way cheaper". You may even ask yourself "if I spend this dollar now, what is the amount I miss out on if I let this same dollar compound interest for 20 years". It is even a possibility that you start a second job to earn extra money to eliminate your debt so you do not throw away any unnecessary money in interest from your debt.

So now that you have made the decision to change your current financial situation, what is the next step? Below are some of my recommendations to build momentum to continue your change:

1. Start Now
• Procrastination may be one of the largest causes of why negative financial situations never change. Honestly, there is no better time than now for change. "Why put off tomorrow, what you can do today"?
  
2. Educate yourself
• Educating yourself about sound finance principles may be one of the best methods for changing your financial situation. I find that if people knew bettter, they would do better. Engulf yourself in knowledge from books, blogs, shows from the experts as well as conversations with those who have experience (good and bad) in regards to personal finances.
  
3. Create a Budget
• A budget is a necessity in taking control of your finances. As listed in previous articles, it is the foundation in any plan to obtain your financial goals. "If you fail to plan, you plan to fail".
  
4. Save 10% of your income in a high-yield savings account
   
• Many people get caught up in the best "investment" choice for saving their money. Unfortunately, some of us get caught up in the stock market and find ourselves losing money due to not exactly knowing what we are doing. Start investing slowly by just saving 10% of your income in a high-yield savings account. It may seem like an insignificant investment at first, but over time, the magic of compounding interest will show its significance.
  
5. Help Someone Else
• As written in the previous article "Personal Finance is a Team Sport". Although I am not promoting sharing all of your personal finance information with everyone, I do encourage that you work to help someone take control of their personal finances. You will find that as you help others, your knowledge increases as well as you are further inspired to stick to your plan.
  

The desire alone is not enough to take control of your personal finances. A decision has to be made to advance on your progress to obtain your financial goals.

Are you ready to make that decision?

Stay Disciplined!

The Debt Mentality

The gross national debt has reached an unprecedented level of over $9 trillion. The average college student graduates with an average of $20,000 in student loan debt. Home foreclosures are at an all-time high. And the statistics go on and on. Yet, our society has conditioned itself to believe that debt is and always will be a normal and accepted way of living. The ability to delay instant gratification is one that is sorely lacking in today's culture and our future generations are paying for it as a result. Inadequate financial knowledge and a focus on the material possessions as a measure of success are contributing factors to the "debt" mentality that many Americans have developed.

Why is this mentality so dangerous? The reason lies in my belief that all habits and skills are transferable from generation to generation. The routines of managing our debt that we are developing today are ones that will be passed down to our children and grandchildren. Although habits and cycles can be broken, they are not done so easily without experiencing some form of "rock bottom" before the lesson is learned. So why even wait to get to that point? Why not take the time to educate yourself about the basics of how to get out of and ultimately stay out of debt. After educating yourself, immediately put the principles into practice. I am a strong believer that knowledge is not power, but rather, the application of learned knowledge is indeed the most powerful of all.

Good vs. Bad Debt?

In order to further examine this issue at its core lets take the dictionary definition of debt (courtesy of dictionary.com):

1. Something that is owed or that one is bound to pay to or perform for another.
2. A liability or obligation to pay or render something.
3. The condition of being under such an obligation.
4. An offense requiring reparation; a sin; a trespass

All of these definitions, to me are negative connotations of the word debt. Quite frankly, there isn't anything "good" about owing anything to anyone or committing a sin. In the financial sense, debt puts a stranglehold on your finances and overall ability to create wealth. Just take your own life experience as an example. Tell me how "good" that student loan debt (commonly considered good debt) is when you are unable to put an adequate down payment on your dream home because you are at the mercy of this monthly payment. Does having an excessive mortgage at the expense of your child being saddled with student loan debt after school make any sense? Yet mortgages often go on one's asset column despite not even being fully paid off.

My Definition of Financial Debt

With that being I offer you my personal financial definition of debt and you decide for yourself whether or not a "good" or "bad" label can be applied to it.

Financial debt is ANY monetary obligation or liability that inhibits one's cash flow and maximum potential for creating wealth.

Think about this definition for a second and again apply it to your own situation. Don't just focus on the "bad" credit card payment that you have but think about that "good" student loan and mortgage and whether or not this money could be working harder for you in other areas, such as in a retirement plan, education savings account, or real estate investment. When you examine the dictionary definition as well as my financial definition of debt logically and critically, you'll see that the words good and debt just don't go together no matter which way you look at it. Understanding this basic principle of financial debt is the first step towards ridding yourself of the vicious "debt" mentality cycle.

Tracking your Progress with Financial Snapshots

The path to our destination is not always a straight one. We go down the wrong road, we get lost, we turn back. Maybe it doesn't matter which road we embark on. Maybe what matters is that we embark. -Barbara Hall, Northern Exposure, Rosebud, 1993

One of the best sources of motivation while obtaining your financial goal is tracking your progress. It is always reassuring to see the fruits of your labor as they are progressing as opposed to just seeing the finished product. In addition to that, tracking your progress allows for an accurate evaluation of your current implementation of your strategy and to make sure that you are on track to obtain your goal for your specified deadline. Financial Snapshots are a great tool to use in tracking the progress of your goal.

For more clarification on this topic, let's take a real world example of running a road race. Let's say that there is a 10K (6.2 miles) road race that is going to occur three months from today. At this point, you come up with a strategy and create a plan to be able to finish the race within 60 minutes. So you begin your training regiment and at the end of week one, you are able to knock out 6.2 miles in 70 minutes.

That is a great start, but you understand there is more work to do to obtain your goal. So after week two, you stick to your strategy and after more training, you are now able to finish the 10K in 66 minutes. Great, you have now knocked off 4 minutes in a matter of two weeks.

Now armed with the results of your current plan, you continue to stick to your strategy (since it is obviously working by the current progress that is being made) and after one month, you get your time down to 63 minutes. You can easily predict the outcome for sticking to your plan and charting your progress to see that you have a very high chance of obtaining your goal within the given time frame. These same principles can be applied to our financial situations also.

As you are obtaining your financial goal, you can track the amount you are saving, or the debt that you eliminating and see the progress being made. Now that you have the reasoning behind making financial snapshots, you might want to know how it's done.

Steps to Create a Financial Snapshot

A financial snapshot can be as simple as listing your assets vs. liabilities or as complex as graphs, charts and and mean values. I just like to have a simplistic view of my finances taken once a month to chart my progress. My particular financial snapshots require the following components:

1. Specific allocated time to make the snapshot
2. Google Spreadsheets (excel, pen & paper or accounting software can serve as a great substitute for Google Spreadsheets)
3. Current actual amounts of assets and liabilities

For me, it is as simple as creating a column of assets (including fixed) and liabilities and lastly calculating my net worth. See images below for examples:

Definitions

Asset: In personal finance, current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets.

Fixed Asset: A tangible long-term asset such as land, buildings or machinery, held for use rather than for processing or resale.

Liability: An item of value that is part of the overall debt or obligation of a person

Below is an example of my financial snapshot:



All in all, financial snapshots are a simple way to give yourself the extra motivation to stick to your financial goals. They also help to remind you that sometimes it is not about the destination, but rather than the ride that you get to experience to arrive there. As usual, if you have any questions, leave them in the comments below or send them out to the group list. Stay Disciplined!

A Simple Formula...

With the financial uncertainty of our current economy, I hear more and more people who are discussing personal finances. One of the most common questions is, "How do I save"? Well, after painstaking research, consulting many financial gurus and taking a few online accounting courses, I believe I finally have the formula:

(Money you Earn) - (Money you Spend) > 0 = (Money to Save)

For those without the mathematics background, it's simply "Spend less money than you earn to have savings". Although this is a relatively simple concept, it is surprising to see how many people do not understand it.

Below are some of the common reasons that prevents people from saving money.

Common Mistakes that Prevents Saving

1. Keeping up with the Jones's

David Ramsey said it best when he said "People buy stuff they don't need, with money they don't have to impress people who don't care". I believe it is human nature for people to want something that someone else has, however, after we get it, we find that it was not all that it was cracked up to be. So, how do we cope with that? Rather than learning from the previous experience, we usually repeat the process and try to get the next best thing that someone else has to satisfy that fictional want.

2. Abusing Credit Cards (Buy now, pay Later)

"I will gladly pay you Tuesday, for a hamburger today". - Wimpy

Now although I am not against the use of credit cards, I do believe that they should only be used by people who are mature and disciplined enough to use them correctly. Unfortunately, we have this facade pulled over our faces when using a credit card that makes it seem that the money being spent really is not really our money being spent. We never hit reality until the bill comes at the end of the month showing the grand total of the expenses charged to that card. Many times, rather than paying the balance in full, we pay the minimum payment, accruing interest on our new debt as well as prolonging the inevitable, paying off the bill in its full amount.

3. Being Impatient (Buy Now, Why Wait)

With the "Gotta have it now" and "E-Demand" syndrome that is plaguing today's consumers, it is an understatement to say that patience is no longer a virtue. Impulse buying may temporary satisfy immediate wants, but causes for remorse when we realize that the money spent could have been allocated to a better cause such as rent, car payment, electricity, etc.

4. Not Planning for the "Unexpected"

I am a strong proponent of having an emergency fund. Life throws many unexpected events your way all the time and we find that we eradicate our savings for retirement, house, car, etc. when we need quick money for these events. This is detrimental to the savings cycle because you never actually save money. With the Emergency Fund, you have a dedicated "In case stuff happens account" (insurance) against life's unexpected events.

5. No Budget

"If you fail to plan, you plan to fail".

This may be one of the bigger reasons why a lot of us cannot seem to save money. Not having a general idea of how your money is allocated can cause you to spend too much in an area in your life that probably requires moderation. Before I had a budget, I spent a TON of money eating out. I always had allocated money for my re-occurring bills that I knew that had to get paid, however, it was almost anything outside of that was being spent eating out. After tracking my expenses and developing a budget, I was able to start allocating more to savings and setting aside a smaller but guiltless budget to discretionary spending. Best believe, my wallet and my waistline were both thankful for that!

So in summary, although saving money seems like a very simple idea, there are some obstacles in the road that hinders some of us from getting out of the starting blocks. Even if you take a small step in the right direction, it is still a step in the right direction. Start today by trying to eliminate some of the common mistakes to begin your journey to personal financial freedom. As always, leave your question and comments below. Stay Disciplined!