Reasons why people are not wealthy

1. Lack of discipline

To be wealthy, you need the discipline to save and invest. If you contribute every month to your 401(k) or your discretionary brokerage account and invest in stocks, mutual funds or ETFs, over time you will build wealth.

2. Inability to delay gratification

Buying a luxury car that you can barely afford provides instant gratification. But real wealth is built by putting off such pleasures and saving for the future so that you can easily afford to buy such things. A dollar saved today can be worth several dollars in the future.

3. Lack of education

It takes money to make more money. People with advanced degrees make more money. This in turn allows them to save and invest more and reach financial freedom early.

4. You play the status game

You buy luxury cars and the latest gadgets to keep up with your friends, colleagues, and neighbors. It feels good to stay in the circle with your peers. If you play the status game, you will never win the wealth game.

5. You don’t understand compound interest

Compound interest is the secret to getting wealthy. Time in the market matters. The longer you invest, the more wealth you can build. People who don’t understand compound interest wait until later in life to invest, which reduces their chances of reaching financial freedom.

6. Lack of basic knowledge about investing

You need basic knowledge about stocks, bonds, ETFs, and mutual funds. You don’t have to be Warren Buffett to be a good investor but you need to know enough to play the investing game. You can learn by reading books but will learn faster by doing. Start a brokerage account, invest small amounts to learn faster.

7. Analysis paralysis

Even the best traders only make money on 50% of the trades. There is no point in overthinking your trades. For most folks, ETFs and mutual funds are the way to go. This means fewer decisions to make and you will at least make market returns.

8. Procrastination

When it comes to saving and investing, people put things off. Whether it’s starting a new brokerage account or contributing to an existing account, take action.

9. Fear of losing money

The stock market is volatile. Your portfolio goes up and down with the market. Making money involves sitting tight when the market moves against you. To be a good investor, you need to overcome the fear of losing money.

10. Lack of a growth mindset

Some people believe that the world is stacked against them and that they can’t make money. You need to have a growth mindset to build wealth.  Millionaires think positively and follow through on their ideas.

11. Unrealistic expectations

Investors are impatient and want to compound their money quickly. But building wealth is slow and takes time. Stock market on average only returns 10% (with a lot of ups and downs)

12. Pay too much in taxes

Find ways to minimize your taxes. Investing in your 401(k) or investing in real estate are legitimate ways to reduce your taxes. Invest the tax savings to grow your wealth.

13. Not having mentors

Hanging out with people with similar goals greatly increases your chances of becoming wealthy. Having a mentor who has done it before helps your wealth-building journey immensely. When investing, you will inevitably run into a rough period at some point. Having a mentor will keep you on track and increase your odds of success.

But in some cases, you may have to choose your own HSA administrator. To choose the right HSA provider, you must consider several factors.

Choosing the right HSA administrator

Choosing the HSA provider can be daunting. Not all major financial institutions offer the HSA. Then, you have to navigate through a number of fees they charge – minimum balance fees, inactivity fees, and investment fees HSA is one of those things where it is  worth it to shop around for the best deal.

Here are the things you should look for when choosing an HSA account.

Maintenance fees

Many HSAs charge monthly fees. Some charge monthly fees if you don’t maintain a minimum account balance. The HSA administrators included in this list don’t have maintenance fees.

Investing options

HSAs are secret IRAs. You can invest your HSA funds in mutual funds or stocks. A self-directed brokerage account is best because it gives you many options to invest with fewer fees, compared to a managed account, which may have fees.

Debit cards

It’s convenient to have an HSA debit card that you can swipe for medical expenses, rather than go online and complete a form to get reimbursed for qualified medical expenses.

Best HSA Accounts

Lively HSA and Fidelity are our two top choices for HSA accounts. The reasons are simple. Both don’t have monthly fees and offer options to invest through a self-directed brokerage account. While Fidelity is a financial behemoth offering everything from brokerage accounts, mutual funds, and IRAs, Lively only offers HSA accounts. Lively was founded in 2016, so it’s a relatively new player on the scene.

Lively offers self-directed brokerage through TD Ameritrade whereas Fidelity offers it through its brokerage arm. If you already have other accounts with Fidelity, it may be worthwhile to open an HSA account with Fidelity as well.

Other HSA administrators on the list may work for you if you maintain higher monthly balances.

Advantages of HSA

Contributions to HSAs are pre-tax. Withdrawals are also tax-free if you use the money for qualified medical expenses.

HSAs are secret IRAs. At age 65, you can withdraw money from HSAs just like an IRA. There are no penalties but you must pay tax on your withdrawals if you use them for non-qualified expenses.

HSAs are portable. You can take the funds from one employer to another, or even transfer them to your individual account.

There is no age limitation but to contribute to an HSA account, you must have an HDHP plan

Not happy with your employer’s HSA account – Choose your own

Sometimes employers choose HSA administrators that have fees and complicated policies. In those cases, you can choose to have your HSA account. Note that employers typically only direct payroll deductions to their sponsored HSAs. It’s up to you to set up contributions if you pick your own HSA administrator.

Bottom Line

HSA accounts are tax-efficient vehicles to save money for medical expenses if you have an HDHP plan. You can invest your HSA funds in mutual funds or stocks. When choosing HSA administrators, keep an eye on monthly fees and the investment options offered by the administrator. Lively and Fidelity are our top picks for HSA accounts, though others on the list might work for you if you maintain a high monthly balance.

The best way to put the extra money to use is to make your monthly budget based on four weekly paychecks rather than five. You can use the paycheck to start an emergency fund if you don’t have one, reduce your debt, contribute to a retirement account, save for a vacation or down payment, or save money for a home improvement project.

Take advantage of your 5 paycheck months

Have a plan to put the extra paycheck to work

Lack of planning is the main reason people blow their extra paycheck. Some people don’t even know what months these extra paychecks come in. Have a plan to put the extra dollars to work.

Start an emergency fund – Start an emergency fund if you don’t have one.  Experts recommend having six months of expenses saved in liquid accounts such as a savings account or a money market account for emergencies such as an illness or unexpected job loss.

Pay off your high-interest debt – if you have a high-interest credit card debt or a car loan, use the money to pay some of it off. If you have multiple high-interest loans, start paying off the loan with the highest interest rate, then the loan with the second-highest interest rate, and so on.

Contribute to your retirement account – if you have an IRA or a Roth account, contribute to these accounts to save for retirement.  If you don’t have an IRA, it’s time to open one.

Pay off your mortgage – Consider paying off a portion of your mortgage.  Check with your mortgage company to ensure that you have no prepayment penalties.  More of your future monthly payments will go towards the principal and less towards interest if you do this.

Save for downpayment on a house – If you are planning to buy a house, use the extra money to save for a downpayment on a house

Save money for Christmas gifts – Save the money in your saving account to buy Christmas gifts for friends and family  at the end of the year

Save for a vacation – If you have been planning to go on a vacation, use the extra paychecks to save for the getaway trip.

Save for home improvement projects – Use the money to save for a dream home improvement project, whether it is renovating the kitchen or upgrading your media room

If you get paid twice a month, you will get 24 paychecks a year – usually on the 1st and 15th of the month.  But if you get paid biweekly, you will get 26 paychecks a year. That’s two extra paychecks a year.

Don’t use the extra paychecks as an excuse to waste the money on things you don’t need. The key is to plan your monthly budget based on two paychecks rather than three. You can use the two extra paychecks to reduce your debt, save for your vacation, saving for an emergency fund, contributing more to a 401(k) or 529 plan, pay off your mortgage, or do a home improvement project – anything that will improve your financial future.

If you get paid on Fridays:

• If your first paycheck for 2022 is on January 7, then your three paycheck months are April and September.
• If your first paycheck for 2022 is on January 14, then your three paycheck months are July and December.

IF YOUR FIRST PAYCHECK IS JANUARY 7, 2022

If you get paid biweekly, and your first paycheck is on January 7th, your paydays are as follows. Three-paycheck months are in red.

• January 7
• January 21
• February 4
• February 18
• March 4
• March 18
• April 1
• April 15
• April 29
• May 13
• May 27
• June 10
• June 24
• July 8
• July 22
• August 5
• August 19
• September 2
• September 16
• September 30
• October 14
• October 28
• November 11
• November 25
• December 9
• December 23

IF YOUR FIRST PAYCHECK IS JANUARY 14, 2022

If you get paid biweekly, and your first paycheck is on January 14th, your paydays are as follows. Three-paycheck months are in red.

• January 14
• January 28
• February 11
• February 25
• March 11
• March 25
• April 8
• April 22
• May 6
• May 20
• June 3
• June 17
• July 1
• July 15
• July 29
• August 12
• August 26
• September 9
• September 23
• October 7
• October 21
• November 4
• November 18
• December 2
• December 16
• December 30

How To take advantage of your 3 paycheck months

Have A Plan – If you plan, you can put the extra paychecks to work.  Most people don’t have a plan and end up spending that money instead.  Even worse, some people don’t even know what months those extra paychecks come in.

Build Emergency fund – If you don’t have an emergency fund, use the extra paychecks to start one.  The rule of thumb is you need 6 months of expenses saved for emergencies such as an illness or unexpected job loss. Put emergency funds in a liquid account such as a money market account so that you can easily have access to the money without paying penalties.

Pay off your high-interest debt – if you have a high-interest credit card debt or a car loan, use the money to pay some of it off starting with the loan that has the highest interest rate.

Contribute to your retirement account – if you have an IRA or a Roth account, contribute to it to save for retirement.  A few hundred dollars every month may not sound like much but due to the power of compounding, it will be worth a lot more in 20 or 30 years. If you don’t have one, it’s time to open one.

Contribute to a discretionary investment account – You can contribute to a discretionary account and invest in an index funds or in individual stocks. With these investments, you don’t have to wait until you are 59-1/2 to withdraw your money. You can also invest in dividend paying stocks. Dividends are a passive source of income that will nicely supplement your 9-to-5 job,

Pay off your mortgage – Consider paying off a portion of your mortgage.  Check with your mortgage company to ensure that you have no prepayment penalties.  If you do this,  more of your future payments will go towards the principal and less towards interest.

Save for down payment on a house – If you don’t own a house, use the money to save for a down payment on a house

Save money for Christmas gifts – Save the money to buy Christmas gifts at the end of the year

Save for home improvement projects – Use the money to save for that dream home improvement project, whether it is renovating the kitchen or upgrading your media room.

Contribute to a 529 plan – College is getting expensive every year. The earlier you save, the less money you will have to pay out of pocket for your kids’ college expenses.

Bottom line

If you get paid biweekly, you will get two to three extra paychecks a year.  What months you get the extra paychecks depends on your pay calendar.  Have a plan in place to put those extra paychecks to work. Contribute to your retirement account or a discretionary investment account, save for a vacation or your dream home improvement project, pay off high-interest-rate loans, or contribute to a 529 plan to save for your kids’ college expenses.

One of investors’ big regrets is not holding on to stock longer. The longer you hold your stock, the more the odds are in your favor. Compounding takes time and patience, but the rewards are worth it.

When it comes to investing, you are your own enemy. You buy and sell precisely at the wrong time, causing your net worth to suffer in the long run.

Patience is the key to investing

We live in an age of too much information. Business news is on TV non-stop, we consume too much news on blogs, and on social media. As a result, investors’ holding period has gotten shorter over time. The average holding period for a stock was around 8 years in the 1960s. Today it less than a year.

There is a famous Jesse Livermore quote:

It never was my thinking that made the big money for me. It always was my sitting

Another quote that gets the point across is :

Your portfolio is like a bar of soap; the more you touch it, the smaller it gets.

Fidelity ran an internal study to identify the accounts that had the best returns between 2003 and 2013.  It found was that the top two best performing accounts fell into two categories:

1. People who had forgotten that they had Fidelity accounts
2. Dead people

Inactivity is a good thing. The more you fiddle with your portfolio, the worse will be your returns.

Invest in quality stocks

Quality stocks may mean different things to different people. In my opinion, quality stocks are stocks of companies that have a sustainable competitive advantage in the market. They can be of any size and in any sector of the market.  Build a diversified portfolio, add to it when you have money.

If you want to play it conservatively, consider dividend-paying stocks – especially those that have been raising dividends for many years. Dividend stocks will give you income and you can choose whether you want to dividends or use it for other purposes.

Market timing Vs Time in the markets

Everyone tries to time the market but market timing is difficult. The total return for the year is made in 10 to 20 days. The stock market just chops around the rest of the year and goes nowhere. It is very hard to time your investments such that you are invested in the market during those best-return days.

The best course of action for most investors is to stay invested throughout the year. This will guarantee that they will catch the full-returns the market has to offer.

Importance of emergency funds

Emergency funds are important not just because you could lose your job or because you could have unexpected medical expenses. Having an emergency fund means that you will not tap your stock portfolio when something unexpected comes up. This will allow your money to compound without interruption for many years.

Sell rarely

Get in the habit of owning stocks for at least a decade or more. Some of your stocks may be duds but if you choose wisely, most of your stocks will do well over the long term.

Investing should be boring

Many people treat investing like a casino. They need the adrenaline rush from having winners and losers. Investing is supposed to be boring, not a source of entertainment.

Bottom Line

Ignore the experts, ignore the noise. Buy quality stocks and stay the course.  It’s fine to check your stock prices every day but don’t trade your stocks often. You will do very well in the long run.

Non-profits are doing an amazing job during this difficult time. But recent changes in the tax code have disincentivized charitable contributions.  The Tax Cuts and Jobs Act (TJCA) that was passed into law in 2017 nearly doubled the standard deduction and eliminated or limited many itemized deductions.

Since many taxpayers don’t itemize anymore because of the high standard deduction, the after-tax cost of donating to charitable causes has gone up by around 7%.  Not surprisingly, charitable giving has gone down. If you are a non-profit, the timing could not have been worse.

CARES Act – $300  Charitable Contribution Deduction For 2020 and upto $600 for 2021

The CARES and the 2nd COVID relief bill aim to solve this problem and provide an incentive for people to make a charitable contribution. In 2020, you can contribute up to $300 (for both individuals and filing jointly with spouse)  and in 2021, you can contribute up to $600 if you are married and filing jointly, to a non-profit and deduct your contribution even if you don’t itemize. You can still claim your standard deduction. The charitable contribution will ultimately reduce your tax bill. You must make your charitable contribution by December 31, 2020, to claim this deduction on your 2020 taxes. Note that these contributions must be cash contributions and not car, clothing, food, or furniture.

Be Informed About The Non-Profits You Contribute Money To

Before giving any money to a non-profit, check out the following two websites to understand if your non-profit spends its money as it claims.

Charity Navigator
Guidestar

Look for non-profits that spend more than 80% of their funds on program expenses.  Administrative and fundraising expenses should be a small portion of the expenses.

Note that January 1, 2021, is a holiday and you may be getting that paycheck on Dec 31, 2020.

The best way to put the extra money to use is to make your monthly budget based on four weekly paychecks rather than five. You can use the paycheck to start an emergency fund if you don’t have one, reduce your debt, or save money for a home improvement project.

Take advantage of your 5 paycheck months

Have a plan to put the extra paycheck to work

Lack of planning is the main reason people blow their extra paycheck. Some people don’t even know what months these extra paychecks come in. Have a plan to put the extra dollars to work.

Start an emergency fund – Start an emergency fund if you don’t have one.  Experts recommend having six months of expenses saved in liquid accounts such as a savings account or a money market account for emergencies such as an illness or unexpected job loss.

Pay off your high-interest debt – if you have a high-interest credit card debt or a car loan, use the money to pay some of it off. If you have multiple high-interest loans, start paying off the loan with the highest interest rate, then the loan with the second-highest interest rate, and so on.

Contribute to your retirement account – if you have an IRA or a Roth account, contribute to these accounts to save for retirement.  If you don’t have an IRA, it’s time to open one.

Pay off your mortgage – Consider paying off a portion of your mortgage.  Check with your mortgage company to ensure that you have no prepayment penalties.  If you do this,  more of your future monthly payments will go towards the principal and less towards interest.

Save for downpayment on a house – If you are planning to buy a house, use the extra money to save for a downpayment on a house

Save money for Christmas gifts – Save the money in your saving account to buy Christmas gifts for friends and family  at the end of the year

Save for a vacation – If you have been planning to go on a vacation, use the extra paychecks to save for the getaway trip.

Save for home improvement projects – Use the money to save for a dream home improvement project, whether it is renovating the kitchen or upgrading your media room

If you get paid twice a month, you will get 24 paychecks a year – usually on the 1st and 15th of the month.  But if you get paid biweekly, you will get 26 paychecks a year. That is two extra paychecks a year.

The key is to plan your monthly budget based on two paychecks rather than three. You can use the two extra paychecks to reduce your debt, save for your vacation or a home improvement project.

If you get paid on Fridays:

• If your first paycheck for 2021 is on January 1, then your three paycheck months are January, July, and December. Note that since January 1 is a bank holiday, some employers may pay early, on December 31. In that case, instead of January, you will get the extra paycheck on December 31, 2020.  You will get 27 paychecks in 2020 under this scenario.
• If your first paycheck for 2021 is on January 8, then your three paycheck months are April and October.

IF YOUR FIRST PAYCHECK IS JANUARY 1, 2021

If you get paid biweekly, and your first paycheck is on January 1st, your paydays are as follows. Three-paycheck months are in red.

• January 1
• January 15
• January 29
• February 12
• February 26
• March 12
• March 26
• April 9
• April 23
• May 7
• May 21
• June 4
• June 18
• July 2
• July 16
• July 30
• August 13
• August 27
• September 10
• September 24
• October 8
• October 22
• November 5
• November 19
• December 3
• December 17
• December 31

IF YOUR FIRST PAYCHECK IS JANUARY 8, 2021

If you get paid biweekly, and your first paycheck is on January 8th, your paydays are as follows. Three-paycheck months are in red.

• January 8
• January 22
• February 5
• February 19
• March 5
• March 19
• April 2
• April 16
• April 30
• May 14
• May 28
• June 11
• June 25
• July 9
• July 23
• August 6
• August 20
• September 3
• September 17
• October 1
• October 15
• October 29
• November 12
• November 26
• December 10
• December 24

How To take advantage of your 3 paycheck months

Have A Plan

If you plan, you can put the extra paychecks to work.  Most people don’t have a plan and end up spending that money instead.  Even worse, some people don’t even know what months those extra paychecks come in.

Build Emergency fund – If you don’t have an emergency fund, use the extra paychecks to start one.  The rule of thumb is you need 6 months of expenses saved for emergencies such as an illness or unexpected job loss. Put emergency funds in a liquid account such as a money market account so that you can easily have access to the money without paying penalties.

Pay off your high-interest debt – if you have a high-interest credit card debt or a car loan, use the money to pay some of it off starting with the loan that has the highest interest rate.

Contribute to your retirement account – if you have an IRA or a Roth account, contribute to it to save for retirement.  A few hundred dollars every month may not sound like much but due to the power of compounding, it will be worth a lot more in 20 or 30 years. If you don’t have one, it’s time to open one.

Pay off your mortgage – Consider paying off a portion of your mortgage.  Check with your mortgage company to ensure that you have no prepayment penalties.  If you do this,  more of your future payments will go towards the principal and less towards interest.

Save for down payment on a house – If you don’t own a house, use the money to save for a down payment on a house

Save money for Christmas gifts – Save the money to buy Christmas gifts at the end of the year

Save for home improvement projects – Use the money to save for that dream home improvement project, whether it is renovating the kitchen or upgrading your media room.

Invest in dividend-paying stocks – If you would like to replace the income from your job with passive income, buy some good dividend stocks

Bottom line

If you get paid biweekly, you will get two to three extra paychecks a year.  What months you get the extra paychecks depends on your pay calendar.  Have a plan in place to put those extra paychecks to work. Contribute to your retirement account, save for a vacation or your dream home improvement project, or pay off high-interest-rate loans.

One of the reasons Americans struggle financially is because they don’t have good saving and spending habits. Living within your income and saving the rest may sound like common sense. But for many Americans, it’s tough because they didn’t start off on the right foot and as time goes on it becomes harder to steer the ship financially.

This is why we need to teach our kids about money when they are young. There are a number of ways parents can involve the kids while making financial decisions.

How To Teach Kids About  Money

1. Engage kids early

Kids are never too young to learn about money.  You can encourage them to play money games. Ask the kids to add up coins when they can count.

Ask kids to read the prices of items at stores.  If your kids are older, ask them to calculate the price per unit of an item you are buying.  If an item is on sale, ask them to calculate savings compared to regular prices.

2. Set an example

Kids learn from their parents. If you are spending more than you make, your kids are likely to end up that way too.  If you are responsible with your money and involve your kids when you make financial decisions, they are more likely to grow up and be financially responsible adults.

3. Teach them money lessons for their age

As kids grow, teach them lessons that are appropriate for their age. Kids less than five years can count coins whereas teenagers can help with budgeting and investing. Older kids can also be taught to analyze stocks or invest in mutual funds.

Does your son or daughter leave the lights on all the time in their room? Do they leave the computer on at night?  Explain to them that they are wasting electricity and money by their behavior.

4. Give them an allowance and help them manage it

Give kids an allowance based on age and help them manage the allowance. Allowance can be tied to doing household chores or schoolwork.

Encourage them to spend the allowance. They will likely make mistakes but it is better to make a mistake with $10 than with thousands of dollars when they are adults.

5. Delayed gratification

Avoid impulse buys for kids’ items. Kids need to learn that they need to wait to buy things.  Encourage them to save money for things they would like to buy. Resist the urge to pitch in money if the kid’s allowance is not enough to buy his favorite toy or game.

6. Encourage teenagers to get a job

When kids reach teenage years, encourage them to get a job that pays.  Maybe they can mow the neighbor’s lawn,  tutor younger kids, or babysit the neighbor’s children. Getting a job teaches them not only about money but also about responsibility.

7. Involve them in big purchase decisions

Whether you are buying a new car or planning a vacation, involve the kids.  Help them understand how you make decisions.  Ask them to research prices and compare features. They will learn that there are trade-offs in the real world.

8. Encourage giving at a young age

Just like saving and investing, giving to charities is also important for kids to learn.  Ask them to donate a small portion of their savings to charity every year.  Find out the issues they care about and find a charity they can relate to, and contribute every year.

9. Teach them compound interest

Money doesn’t grow on trees but it does compound when you leave it alone.  Help them understand how they can save and grow the money. Understanding the magic of compound interest early will put kids on the path to a great financial future.

10. Dangers of credit card debt

Teach them the dangers of carrying credit card debt.  High-interest rates combined with compounding will make it hard for them to pay back the debt.

Payday loans are very profitable for the lender and harmful for consumers. So it is no surprise that you see them everywhere.  Despite efforts from the government and several consumer advocate groups to curb them, payday lenders are thriving.

Paying back payday loans can be financially damaging for borrowers. Many of them get stuck in a repeat cycle where they take a payday loan to pay off the old payday loan. It can be a vicious cycle as the debt grows bigger and bigger.

Alternatives to Payday Loans

Personal Loans

Personal loans have relatively lower interest. The interest rate can vary between 8% to 35% based on your credit.  35% is not a good interest rate but is much better compared to 400%.

A loan-aggregator like Fiona can give you interest rates from multiple providers in a few minutes. Just fill out a few basic details to get started.

In recent years, peer to peer lending has been a popular source of funds for people strapped for cash. You will be borrowing money not from a traditional bank but from a pool of investors.

Well-known peer to peer lending apps include Prosper, Lending Club, Peerform, Upstart, and Kiva.

Get an advance on your paycheck

Another alternative to expensive payday loans is getting an advance on your paycheck. It is a way of getting early access to your earnings from your job.

One of the companies that offer an advance on your paycheck is Earnin. Earnin gives you an advance and you payback via a deduction from your next paycheck. There is no fee involved. Earnin lets you tip what is fair.

Negotiate a payment plan

If you are having difficulty making your utility or credit card payment, call them to see if you can work out a payment plan. Many companies will be willing to give you more time to make payments.

Ask for help from family and friends

You can ask family and friends for help if you need money quickly.  Remember to pay them back quickly because otherwise, you will damage the relationship.

Credit card

Credit cards have high-interest rates though not as high as payday lenders.  Many credit cards allow you to take cash advances.  Usually, the rates for cash advances are higher than they are for regular purchases.

Credit Counseling

If you are having financial difficulties, consider getting credit counseling.  A good credit counseling service can analyze your debt and negotiate lower interest rates and payments.  Take time to vet the companies as there are many companies that will prey on consumers who are struggling financially.

Bottom Line

Payday loans are notorious for their high fees and interest rates. But you have other options when you need money quickly. Consider getting a personal loan or an advance on your paycheck.  You can also tap into your friends or use a credit card. Staying away from payday loans will not only save you money but will help you get back on feet quicker financially.