Online Financial Literacy Class Review

On May 25, 2023, our financial advisor firm hosted our Financial Literacy class on Zoom hosted by our Vice President, Joe Guarneri. We had a wonderful turnout, with a number of our clients and those in our Poughkeepsie, NY, community turning out to eagerly learn about savings, budgeting, and investing. This financial literacy class was designed for individuals who are just beginning their journey into financial literacy and can be started at any age. 

SAVINGS

Joe began the meeting by discussing savings. The first thing we hear as a financial advisor firm from clients is, "I want to be rich, or I want to be financially comfortable." Many individuals will believe the first couple is richer if they see a couple who makes $150,000 yearly over a couple who makes $100,000 yearly. However, if we dig deeper, we find that the couple who make $150,000 and have a large house, new, fancy cars, and all the latest clothes and gadgets have no money saved up, while the couple making $100,000 has $100,000 saved. On the surface, the couple making $150,000 seems richer, but they are spending all of their money, and the couple making $100,000 is actually the richer couple since they are investing their money.

NET WORTH DEFINES WEALTH

Joe went on to teach our visitors and financial advisory clients that millionaires must have millions in net worth to be classified as a millionaire. So how do you build net worth? Joe gave the simple answers to savings and investing. At our financial advisor agency, we have a rule of thumb for savings: 

Save 20% of your income/salary

Save 10% for your retirement

Save 10% on other things

Another question we receive as financial advisors is, "Is savings an expense or an investment"? Savings is an investment as even though you will eventually spend the money to pay off debt or invest in your future. Joe went on to list the savings buckets that you should be placing money into: 

Emergency Funds-3 Months of Your Salary

Retirement-Max Out Match of Company Plan or IRA

General for Large Purchases-House, Cars, Vacations

Build Up Retirement Savings

Build Up General Savings

So how can you begin saving? Joe gave some excellent tips to help anyone begin their savings journey. One of the best ways to begin saving effectively is to live below your means and spend significantly less than the money you have so that you can place that remaining money into a savings account. The second step to saving is to PAY YOURSELF FIRST! Some tips to help pay yourself first is to take automatic payments out of your regular salary and save any bonuses or raises you receive from your job.

BUDGETING

Budgeting is crucial as it leads to intelligent spending, and you are able to properly think of your spending habits. Budgeting makes you determine if spending is necessary or frivolous, otherwise, you are making impulse financial decisions that will eat away at your savings. Zero-based budgeting is where you will build your savings and investments from zero. You will create categories by reviewing your past expenses and placing them into categories, so you can understand the purpose of each financial category. 

As financial advisors, we see many individuals that come in with debt. Joe went on to state that debt is not always bad, but it depends on what the debt is involved with. Most debt is not ideal since you will need to pay it back with interest. If you are in debt to borrow for incoming producing assets such as a home, then the debt is not considered "bad debt." However, a lot of debt our fiduciary firm sees is considered "bad debt," where it is taken on for assets that depreciate in value, such as using debt for a brand-new car. As experienced financial advisors, we never recommend using debt to borrow for the stock market since stocks are volatile. 

Investing

Investing is important in your overall financial strategy, as it helps to preserve funds and works to save your money and grow it. There are different components of investing, and each will serve a different purpose in your investment strategy. 

Stocks-higher risk and higher return, actual partial ownership in a company, dividend payout, and appreciation as company value increases.

Bonds-medium risk and medium return, it's a loan to a company or government, interest payout, capital gain or loss. Meaning interest rates up equals capital loss, and interest going down equals capital gain. 

Cash-low risk and low return, money market accounts, and it's only used for immediate use.

Mutual Funds-are used for niche markets where superior returns are possible and have reasonable sales and expenses values.

Index Funds-are mutual funds without active management, they replicate the index, have a low expense ratio, and have no sales charge or commission.

International Funds-adds diversification, creates currency risk (gain) and should be added as a percentage of stocks when the balance is over $100,000.

Joe then began wrapping the Zoom financial literacy class with the importance of utilizing an experienced financial advisor who can help ensure your financial plan is correct and fully implement your plan. A good advisor will not only be a financial teacher but a coach as well. For higher balances of $100, 000 or more, a financial advisor will monitor and rebalance your account and help keep you on track, despite market conditions. Your financial advisor will focus on broadening your asset categories.

We closed our financial literacy class with some questions asked by our guests, and Joe provided them with essential tips with the answers to their questions. 

Follow us on our social media pages to view our upcoming video series from our financial literacy class.