Conor Richardson, Author at Conor Richardson

A Chess Prodigy, Investment in Loss, and Seth Godin

July 20, 2016 By Conor Richardson Leave a Comment

Often times, learning something new can be exasperating. This is especially true when mastering a novel skill – a new language, a way of cooking, or finances. When you are learning something new, there is a period of time where our skills may actually become worse than when you first started. Then, over time, your skills improve and you start the ascent up the learning curve and go on to achieve mastery. According to Seth Godin, marketing expert and author of The Dip, rewards flow disproportionately to those who achieve mastery.

When I first started investing, I knew next to nothing about how the financial markets work. On my first several attempts to learn the markets, I lost money. Gradually, by the third or fourth investment, I found myself doing much more research, reading investment books, and formulating strategies. As time went on, my investment strategies started to become more refined and the investments started to accumulate. It may take losing in the beginning in order to learn the lessons of success. This is our tuition into the university of new knowledge.

In economics, this concept is known as the J-Curve. Its application can be seen across several industries including private equity, global trade, and biotechnology. The initial outlay of time and energy is followed by a dip into the learning trough.

This type of downward learning is what Josh Waitzkin, world champion chess player and author of The Art Of Learning, calls “investment in loss”. This early investment is a necessary step to internalize the fundamentals of whatever skill you are trying to acquire. In your case, you are trying to master personal finances.

Many people begin the descent into the learning dip, never to surface. People who choose to feed off of learning and stick with the learning process eventually begin to absorb the concepts they are studying. Learning successful financial behaviors will help you begin the ascent to greater riches and knowledge. While in the throes of learning, you may be tempted to abandon your commitment to sound personal finance. Stay the course. Remember the J-Curve and ask yourself, “Where do I want to be?”

The answer is, of course, on the positive side of life.

7 Steps To Building Your $1,000 Emergency Fund

June 30, 2016 By Conor Richardson Leave a Comment

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Virtually every personal finance advisor has one rule; make sure you have an emergency fund. This is especially true for people who are starting to get their finances in order for the first time. An “emergency cushion”, as it is so aptly named, is meant to stop you from dipping into your savings account in the event of unforeseen emergencies – being laid off, unexpected medical bills, or a random accident.

The majority of Americans have less than $1,000 in their savings account. As one might expect, this can cause major problems when unexpected bills arrive. For those that don’t have savings for emergencies set aside, the temptation is to pay for unexpected bills with credit cards. For those that are unprepared, this can begin or perpetuate a credit card debt cycle. It is better to be prepared for the inevitable emergencies because, well, they happen.

Building up a $1,000 emergency fund should be your first step in planning for the unexpected. This step-by-step guide will help you get to your emergency savings goal one step at a time.

1) Analyze Your Spending

One of the main reasons for a lack of savings is overspending. Take out your credit card bills and print out your bank statements from last month. Categorize how much you spent on these areas: eating out, clothes, nights out with friends, and travel.

As the British economist, Tim Jackson says, “We spend money we don’t have, on things we don’t need, to make impressions that don’t matter.”

Analyze how much you actually spend each month on things ‘that don’t matter’. It might make you change your outlook on your spending.

2) Create A Budget

Once you have taken a hard look at your spending, the next step is to create a budget. Add up all of your revenue streams throughout the month and subtract everything from Step 1. Where did you land – positive or negative?

The budget creation process is a terrific way to look at your finances on a cursory level view and gain a snapshot of what is happening on a monthly basis. Plan out your next month, and find areas of weakness that you want to fix. Can you cut a couple nights out with friends? Perhaps, try cooking in a couple nights a week? There are always weak areas in the budget; you just have to find them.

3) Set A Goal

Goal setting is psychologically one of the best ways to achieve success. Write down how much you want to save in the first month. An important point here is to be realistic with your goals. For example, if you don’t have an emergency fund, try and begin with a monthly savings goal of $50.

I know it doesn’t sound like much, but if you do that for a year, you end up with $600! Not bad.

4) Pay Yourself First

We are conditioned to think everyone else should be paid first – the bank, the credit card company, and the landlord – as a result, it seems like we end up with a meager portion of our income left over to actually enjoy. Breaking this payment cycle is the key to savings success, and it starts with being a little selfish.

Instead of paying the bank or credit card companies first, pay yourself first! You are the one going to work every day – showing up, succeeding, and earning that paycheck. Give yourself a reward every time cash hits your bank and allocate some to your emergency fund account. Then pay everybody else.

5) Automate Your Payments

After the momentum of savings for an emergency fund builds, it’s time to automate the savings process. Automating your finances is not time-consuming and produces optimal results. Out of sight, out of mind truly pays in personal finance.

If you can schedule an automatic transfer from your checking’s account to your emergency fund for the first of the month, or the same day that you get paid, it will take the headache out of physically having to perform the transfer yourself. The removal of this affirmative step, or making the decisions to move money, streamlines the process of savings. Automate your finances for optimal results.

6) Unexpected Money Goes Into Savings

Did you earn a bonus? Any unexpected money should go directly into your savings account. It might be nice to visualize what you could purchase with your newfound cash, but leave it for the daydreams. Your life will not be altered by your unexpected wealth, but perhaps it will transform your savings account. Defer to the future what you were going to buy today.

7) Celebrate

Inevitably good things happen all of the time. It is important to acknowledge and celebrate your successes. Creating an emergency fund shows a sign of maturity and forethought. Once you reach your goal of a $1,000 make sure you enjoy that accomplishment and go do something fun!

Saving for the unexpected is not the sexiest thing to do with your money, but staying financially fit will prove useful later down the road. It will be in the moment of need that you see the true value in your emergency fund. A good decision today creates a better future for tomorrow.

5 Awkward Questions To Ask Your Significant Other

June 23, 2016 By Conor Richardson Leave a Comment

Early Retirement

Things are starting to get serious, your significant other is incredible and – maybe even – the one. But wait! Have you stopped to have the real conversations that can lead to problems later in life? You know, the conversations that cause both of you to get that uneasy feeling. When you leave surface level conversation and the wave of anxiousness begins to flood your veins, that’s when you know you are getting to the good stuff.

Divorce rates are high, and one of the leading contributors to divorce is a money problem. If you are thinking about getting engaged or married, you should consider asking your significant other these five questions:

1) How much do you have in savings?

According to a 2015 Google Consumer Survey, 62% of American’s have less than $1,000 in their savings account. Where do you stand in your savings plan, and where does your significant other land?

“It’s almost impossible to be hooked up to somebody who has the same balance of spender and saver as you, or expansiveness versus conservativeness or financial circumstances,” says Gregory A. Kuhlman, a New York City psychologist.

Beginning the conversation regarding your savings can provide huge insights into your partner’s financial health. Are you the spender or saver? Are you both financial mavens with thousands stored away? Your savings cushion gives insight into your current financial outlook and can set the tone for the rest of the conversation.

2) Do you have a plan for getting out of debt?

Statistically speaking, both of you are probably in debt. It is important to discuss what kind of debt: student loans, credit card, or consumer debt. Each of these debts carries with it a story. And it is important to know each other’s stories and discuss the good, the bad and the ugly.

The burden of student loans is felt by many. In fact, the average Class of 2016 graduate has $37,172 in student loan debt. Maybe you both had to pay for college and graduate school. Perhaps one of you got lucky and your parents paid for your education. Whatever the answer, discussing the financial realities of your lives leads to a better understanding of daily actions.

Credit card debt is a pain and getting out of debt is difficult. Let’s face it, we all have our weaknesses – a spa day, a new suit, or happy hour with friends – and sometimes it’s hard to say no. Learning each other’s outlook on consumerism is the quickest way to gain clarity into how future problems will be handled. Will you both rely on credit cards in a time of need? This is something to think about.

3) Have you started saving for retirement?

If this engagement and marriage is to last, you are going to be with each other for the rest of your lives. Planning for what you expect in life early in your relationship can help build bonds and form expectations of what you both envision for your life together.

Saving for retirement is one of those things, which if done early enough and correctly, can be a non-issue later down the road. Having this conversation and picturing yourself as an old couple together will only strengthen your resolve to get to your retirement savings number.

4) What is your ideal income – do you have a number?

In the movie “Wall Street: Money Never Sleeps” the main character, Jacob Moore, asks the banking titan Bretton James, “What is your number?” Cool, calm and with a wry smile, James answers, “More.”

If you haven’t thought about what your ideal income would be, now is a great time to start. We set goals in all areas of our life, why not in our finances? If you have an ideal income to attain, chasing after your goal can give you the necessary motivation to fuel your path to success.

Now, if your significant other adopts the Bretton James approach and “more” is always the answer, pump the breaks because life is never going to be enough. The question forces you two, as a couple, to start thinking about where you are in life and where you want to go.

5) Can you be poor with me?

Fortunes are gained and lost every day. What matters is that you are happy with one other – in good times, and in bad. Money is simply a means of providing texture to your life story.

Making sure that each of you is comfortable having little is a testament to the strength of the relationship. Perhaps it would be best to try living on as little as you possibly can in order to see how you both fair. It would at least prove to be a good story.

“Set aside a certain number of days, during which you shall be content with the scantiest and cheapest fare, with course and rough dress, saying to yourself all the while; Is this the condition that I feared?” – Seneca

Open and honest conversations about personal finances can help resolve major issues that could cause problems later down the road. Removing the financial facade and peering into an extremely private aspect of one’s life, can save you time and stress. Have the conversations now and save yourself time, energy, and money.

5 Reasons Millennials Aren’t Buying Homeownership

June 3, 2016 By Conor Richardson Leave a Comment

Couple Dreaming of House

Homeownership has been a cornerstone of the American dream. With Average new home sales now topping $356,200, the dream of homeownership has become daunting for Millennials. The idea of becoming a first-time homeowner seems to be more of an illusion than a pillar of the American experience.

Millennials are the largest generation in the US workforce and are shifting the tide on the timing of traditional life-stage purchases. It is not that they don’t want to own their own home, but the weight of ballooning student loan debt, consumer debt and urbanization has shifted the Millennial outlook away from traditional homeownership.

Many Millennials don’t seem to think buying a house is a necessity, as once advertised by previous generations. Whether based in denial or fact, housing trends among Millennials are changing the norm. Here are five reasons Millennials aren’t subscribing to the traditional mantra of first-time homeownership:

1) New Housing Isn’t For Us

Despite the headlines about the housing market surging, people in their twenties and thirties don’t feel they can participate in the boom. There is a disconnect between what we read in the news and what we are experiencing in reality. Surveys conducted by the National Home Owners Association show that less than 20% of the new home construction over the past several years was dedicated to “entry-level” properties. This is actually down from the pre-recession levels of over 30%. From a holistic market perspective, a 10% decline in new home sales is truly a significant number. In short, houses are literally not being built for the Millennial market.

Why is the housing market doing so well, you ask? It’s because of our parents. Developers have shifted their focus to building larger dwelling houses that cater directly to the established and affluent baby boomers. Until there is a shift back to building affordable first-time homes, this trend is likely to continue.

2) Down Payments Are The Worst

Being part of Generation Y definitely has its benefits, like being the most tech savvy people around. However, we also have major burdens, one of which is our level of debt. Student loan debt and consumer debt restrict our ability to save for the recommended 20% down payment for homeownership. The average sales price for new homes sold in March 2016 was $356,200. With some quick math, you can see the average Millennial needs to accumulate $71,240 for a down payment for the average house. Best of luck with that.

“Young workers face a lot of hurdles on the way to homeownership, including saving for a down payment in the first place and deciding where and when to settle down.” said Zillow’s chief economist, Svenja Gudell.

With most Millennials tending to live in large urban areas, where the housing prices tend to be higher than the national average, the practicality of buying a house is quickly dismissed. Some Millennials are taking a non-traditional approach and living at home longer. According to Forbes, for the first time in over 130 years, more Millennials are living with their parents than with significant others. For the few Millennials who are buying houses, their time at home servers as a strategic move to allow them to save enough cash to afford their down payment.

3) We Are Delaying “The Family”

With major cultural shifts occurring, Millennials don’t feel the need to be strapped down by purchasing a first-time home. Not only are Millennials pushing “adulating” to later in life, we honestly don’t quite see the need for the mortgage and the giant house. Thanks to Personal Finance advocates like Richard Kiyosaki, author of Rich Dad Poor Dad, a home mortgage is now viewed as a “liability” to a family and not quite the “asset” it once was considered.

In today’s fluid economy, Millennials value flexibility and mobility over security and stability. According to data from Pew Research, the median age of marriage is at an all-time high of 29 years old for men and 27 years old for women. This has delayed the formation young families. Therefore, the pressure to find a house and settle down to long-term employment isn’t quite what it used to be. We are thankful for that, because honestly, we can’t afford it.

4) Rental Options Are Abundant

While Millennials are not warming up to the new housing market, they are doing quite well in subscribing to the renter’s market. Even though rents are rising, urban-based Millennials are left with the option of finding an “affordable” place to rent. In fact, the cost of renting is rising faster than inflation. This leaves Millennials paying a larger percentage of their take home income on housing.

While rents are still high, they are not high enough to incentivize saving for a home mortgage down payment and often impede the progress towards saving for that goal. Additionally, after watching our parents struggle during the time following the economic collapse of 2008, many believe homeownership is not worth the risk. And if renting an apartment doesn’t work, there is always mom and dad’s house (see Reason 2).

5) It’s The Economy Stupid

As with most generations, our outlook and consumption patterns are often driven by the economic conditions of the economy in which we came of age. Many Millennials were graduating from college or newly minted in the job market during the economic collapse of 2008. Over the last decade, salaries have been stagnant and economic growth anemic. Signs of recovery have been slow. Even the President of the Federal Reserve Bank of New York is concerned about the long-term economic outlook. As a result of this slow growth, our generation has been patient about realizing the American dream of homeownership. Instead the focus has been on debt reduction, either student loans or credit card debt. Until the economy fully turns around, Millennials out of necessity will be patient – waiting for their turn.

While there are numerous reasons Millennials are not buying houses, as a generation we still wish to one day own our own home. With rising housing prices and mounting debt, we will be a generation known for our patience before taking the plunge into homeownership. And for most of us, that is just fine.

Get To Zero – Become A Cash Saving Hero

June 3, 2016 By Conor Richardson Leave a Comment

Balance - Saving v. Debt

Should I save cash or pay off debt? When we first ask this question it can be difficult to answer. Whether you are paying off student loans, credit card debt, or a car note – this question seems to always linger. In part, it is not a difficult question to answer. Rather the difficulty lies in taking the time to assess your financial state, analyzing the totality of your financial health. Inevitably, if you are asking this ‘save’ vs. ‘pay off’ question, you have a debt to eliminate. Pay off your debt first, sort of.

Saving cash while you are in debt distorts the view of your financial security. It shifts the focus from the negative, how much you are in debt, to the positive, how much cash you can accumulate. While concentrating on the latter brings us more joy, it clouds the reality of our predicament. If you are “$X” in debt [plug in your debt figure], then focusing on the negative is a must. No matter the sum, it always takes time and a concerted effort to pay off debt. However, if you don’t concentrate on eliminating debt first you are only prolonging the reality of your current financial health.

This is not to say that you should have a lack of savings. Before you begin your debt repayment you should save one month of living expenses – including rent, food, and transportation – in order to provide yourself a reasonable cushion for unforeseen expenses and emergencies. Some personal finance professionals, such as Dave Ramsey, argue that you should first have a $1,000 emergency fund prior to paying down debt. Unfortunately, in today’s world, $1,000 can evaporate quickly. I argue that you should have one month of living expenses to provide a more realistic savings cushion. Furthermore, it will leave you invigorated to aggressively tackle your debt.

Once your emergency fund is established, your total focus should shift to eliminating debt. Postpone the “finer things” in life and be conscious of your spending. Create a conscious spending plan as recommended by Ramit Sethi, author of I Will Teach You To Be Rich. Ramit argues that you should spend your money where you see fit. Spend on the things you love and cut mercilessly everywhere else. For you, this means keeping the one or two things that will make you happy while you are in the throes of debt elimination (For me, I can’t live without my coffee).

In summary, you should save cash, but only for the short term. Once you have built up your one-month cushion, it is time to shift your focus to paying off all debts. Once your debt is paid off, it will be time to start building some serious money stacks (How To Save 88K by 30)!