Today we have a guest post from Mark Ross Canaoay of Money Saving Dude, he will share his 7 blogging mistakes he made during his first try as a blogger.
Good morning! Today we are part of a roundup organized by Shannon of The Heavy Purse around financial literacy. As the theme was talking about your big realization that money was super important to live a good life.
For me, financial literacy is very important from an early age, so you can avoid costly mistakes that will impact most of your adult life. When I was a student, I was lucky to have my financial life together, thanks to my parents mostly, as we barely talked money at school.
I realized early that I needed to work hard and save aggressively if I wanted to buy freedom and design the lifestyle I really wanted.
But not all students were in the same mindset, some had never had money management lessons and were clueless with money.
Which is why today, as we try to raise awareness about financial literacy, I have interviewed Gene Natali, who co-authored a book called The Missing Semester, to help students get financially literate. Enjoy!
Can you please introduce yourself and your project?
My name is Gene Natali, Jr. I am a Senior Vice President at C.S. McKee, L.P., a Pittsburgh based institutional investment firm. I hold a bachelor’s degree in economics from Allegheny College, and an MBA with a concentration in finance from Carnegie Mellon University’s Tepper School of Business. I am currently a Level III candidate for accreditation as a Chartered Financial Analyst.
I co-authored “The Missing Semester”, an award-winning financial guide for young adults. The Missing Semester is being used by high schools, colleges and organizations across the country. The stated goal of the book is to transfer ownership of the ideas within, to the reader.
Why did you feel the need to write The Missing Semester?
We saw friends, family, and acquaintances who were well educated with good jobs, BUT who were facing some pretty tough financial challenges and uncertainties simply because they weren’t taught how to avoid the mistakes, and how to make smart decisions about money. We call the subject “Money 101”, and consider it to be broadly speaking the most under taught subject in America. Our hope was that if we caught readers when they were young, that maybe they would be better prepared for the money decisions that all of us face.
This is a subject that impacts 100% of Americans. Every high school or college will have its share of teachers, doctors, mechanics, engineers and even dropouts – ALL will make decisions about money. Preparation is a condition that we are in control of, and being properly prepared can help many people avoid the mistakes, and ultimately gain financial freedom.
In your book you cover the basics of personal finance, debt, interest, student loans… Do you think those should be taught at school?
Yes – Absolutely (can I emphasize that )! But more importantly than my opinion, is the opinion of students, and we believe that students think so as well. Based on our experiences in the classroom, and hearing from readers – Students are INTERESTED in this subject! During the school year I frequently speak on high school and college campuses. The enthusiasm and excitement that we are consistently seeing is inspiring.
What is the state of student financial literacy those days?
National statistics suggest that student financial literacy is pretty poor, but improving in some pockets (albeit not as fast as it should be). I spoke with a Senator from Utah to commend her on the state taking a leadership role when it comes to financial literacy in the schools. Her answer surprised me: “Thank you, but we’ve set a pretty low bar and we have a lot of work to do.” Her reply probably sums up the question better than I could.
The good news is that in addition to the schools, there are countless people and organizations working tirelessly to improve student financial literacy. Groups like Jump$tart, Junior Achievement and EverFi come to mind. The financial services industry is becoming more involved with educating clients. Hundreds of personal finance bloggers, writers, and journalists work day in and day out to help improve people’s financial lives. This is important because our spending needs are uniquely personal, but with having this many options available motivated students are sure to find something that resonates with their own personal lifestyle.
How can a young adult make sure he or she gets a great start financially?
The best advice I can give is to Start Now. Recognize that “age is an opportunity” (it’s good to be young). And while there are always ways to catch up, the best approach is to get a head start and not play catch up. Saving as little as $1 or $3 a day in an S&P index fund, consistently, from a young age, can be a pretty big deal when you turn 65.
Taking steps to educate yourself and having a plan are critical to success. One of our favorite assignments that have been used in conjunction with ‘The Missing Semester’ comes from the University of Pittsburgh. Students create a personal financial plan where they outline 1-year, 3-year and 5-year financial goals. We show samples on our website, and it’s exciting to see this level of preparation and detail from college students. I have had the opportunity to speak with students after the assignment, and the response has been quite positive.
Do you think it is more important to manage the small expenses a student can have in college or focus on going to the cheapest college possible that offers a quality degree in order to lower tuition costs?
Education remains the greatest form of empowerment, be it college or “other forms”. So the pursuit of education is quite important. But each of is unique, and it is important to consider possible careers, and the possible paths to attain that career. For instance you don’t want to graduate with six-figure college debt into a career that has peak earnings of $30,000 – $45,000. To your earlier question, it’s important to have a plan in place so that you understand your future expenses (i.e. needs and obligations), and your potential income. Having a plan, allows you to consider different paths to accomplish your goal(s) and the costs associated with those paths.
You recommend starting investing as early as possible, and even cover saving for retirement in The Missing Semester. When people are torn between paying off student loans and saving for a house or retirement, what do you suggest?
First, for recent graduates – if your company offers a 401(k) and matches a certain % contribution – you should immediately (i.e. first day on the job) contribute the maximum that the company will match. While there is no free lunch, this comes pretty close – consider it a pay raise.
The question is a little more complicated for those who don’t have a 401(k). If you have student loans at 6.5%, and you repay them more quickly (i.e. paying more than the minimum), you have in essence generated a return (by avoiding the 6.5% interest on the extra payments) . I have spoken with recent graduates who were able to find a balance between the two. For example, start a Roth IRA, and contribute just a small dollar amount each quarter, while focusing most of their efforts and dollars on paying back student loans. While there is no “one size fits all” answer, this is a pretty good approach because it creates the foundation for future saving.
Finally, what is your advice to a young graduate who did it all wrong through college (expensive useless degree, credit card debt, a big car loan and no good job lined up) once they decide to put their finances together?
Recognizing the need to put your finances together is a first step in the right direction. Be realistic with your goals, your spending needs and your saving needs. Create a plan (i.e. budget) and stick with it. I received an email from a recent graduate who had $22,000 in loans and credit card debt, and had just never thought about her money choices. After reading ‘The Missing Semester’ she paid off her loans in 18 months, and instead of buying the purse (her stated “reward” for paying off the loans) which she had put a picture of on the fridge, she started her Roth IRA before rewarding herself. Spending money is easy, but like most things in life, it should be done in moderation. At this point in life, let your savings dictate your spending – not the opposite.
If you have any questions for Gene, please share in the comments below!
Another instalment already? Yes, but don’t worry, I am done touting my little guest house… for now :). And yes, the updates have come in more frequently than monthly lately, but that is because I was late and stopped posting when we went to Europe. So here you go! If you want to see where we started from day 1, I now made a nice little page with all the links to previous posts about the house and Guatemala in general, like the cost of living, travel tips, etc. Check out my Guatemala page.
The first very exciting piece of news is that we sold some plots on the 90 acres land development! Things have gone really quick since we got our deeds approved, and we signed the contracts on the first few plots, and even did a price hike this week, so hurry up if you want to grab a bargain haha! I got a lovely couple rent my guest house for a week, and by the end of it they loved the place so much they bought their own little piece of paradise!
We have to do a few works for them to fence the land and plant a few trees on it, so when they come back it is already nicer than they saw it originally. But first we have to burn the land again like last year, as the grass has been growing like crazy and it will get rid of the last few weeds and prepare a stronger soil. It is this time of year, when you see all the clouds of smoke from ranches burning their land as well, before the rainy season.
The rain has almost stopped after what looked like a never ending winter, and finally the lake is starting to go down, our deck is out of the water but they expect next winter to be strong too so I really hope it goes down some more before going up again.
We reached an agreement with the well drillers, they will come drill early in June so we can provide water to our buyers. That is also pretty exciting, we are really ready now, and it is nice to know they will use our drilling fee to drill free wells for people in need.
At the house, I made the decision to build another unit to rent. It will be opposite the room that is currently my bedroom, in a detached construction near the limit of the land. It will be slightly smaller than my room, as travellers don’t need that much storage and closet space. I closed the deal with the workers who did the first room, at just over $3,500 for labor to excavate the land so the room is partially buried in the ground, build the room providing the stones for the wall, do the bathroom with construction block and concrete so it doesn’t get as mouldy as my stone bathroom, do the electricity and plumbing and a flat roof on top that may become a terrace for hammocks and a guest dining room.
On top of that you have to add all the construction materials, the WC, sink, sliding French doors, the wood for the closet doors and other things I probably won’t be reminded about until it is time to write a check. I estimate that will take me to $9,000. Add up another $1,000 to do a small terrace in front of the room so guests can watch the sunset and relax there, as well as a few flower beds and stairs to get to the room, and we have an even $10,000.
As the room’s size was reduced by about 50 sqft I came under my $15,000 estimate. Although there may always be surprises, I told the contractor we had a “no surprises” deal. So if he seals a wall and forgot to put an electric wire inside, I don’t want an electric wire outside, I want him to open the wall back up again and put the wire back. He said “nobody is perfect” and I said since he set his price that he should have accounted for that in the pricing.
It is starting great, as they started digging the wall between 5 men, they dug all that in a day!
They were expecting (and charging) a very hard earth with tons of rocks, so instead of the $450 he projected to dig the hole, he probably will be able to do it for half that price, leaving me some bargaining power if he ever comes asking for more because another side of the project gets delayed.
The contractor said he could have the room fully ready in two months! Easter is coming and he won’t be working for 5 days around it, plus I told him I don’t want him to work if I have guests so I am not sure it will be that quick. However that would be awesome as my brother is coming for a month in July and the room would be perfect for him. July and August are rainy so tourism is low, I don’t think I will have many bookings that time of year. I have said in the past that I really don’t enjoy having half a dozen workers doing loud building noises on my land six days a week, but I have to admit that two months, make it four, is pretty short in construction time and they are working quite fast.
Once it is finished, based on my $70 a night rate, I now need 142 nights instead of the original 214 to make my money back. At a conservative 5 nights a month, I could make my investment back in 28 months, a not too shabby 40% annual return.
And now that we sold some plots, I am also hoping that the buyers would want to stay there for a few weeks while they supervise their own homes getting build :).
I am sealing both rooms to avoid nasty critters getting in. You can see a little part that isn’t done yet in the top left corner below, it looks less rustic but is much easier to clean and keep bug free.
Finally in animal news, there was quite a bit of change. After a guest stayed for a month, he mentioned the goose was really annoying, always hissing and screaming at him, and I had seen the geese go after other animals’ eggs often in the past, so BF took them back to his ranch. Good riddance, for as lovely as they looked when they swam on the lake, they were angry bitter animals.
The turkeys have been having little turkeys, after two failed attempts where the whole bed died, fingers crossed they manage to grow this time because the lady really wants to be a mommy.
The old chickens have all been killed by yours truly and frozen for future feasts, as I find it really hard to eat them for lunch if I killed them the same day. The little chicks have turned into adult roosters and hens, and there were three roosters fighting all the time for the ladies, so BF took two to his ranch. While we don’t mind the rooster fights, they sing at very odd hours at night, which makes it unpleasant for guests. The remaining rooster has started singing even louder now that he is the only one around, and I am considering getting rid of it too, and keeping only hens for eggs, then eating them and replacing them by buying new ones.
I would like some hens to sit on their eggs before killing the rooster but none so far has seemed eager to do the job, so when there are guests around I have a little hut to lock in the rooster so he doesn’t wake them up at 2am.
The ducks have been lovely and quiet and growing well, from one couple we got 6 surviving kids, then ate the dad, and now they are breeding again and just laid their first eggs.
The only thing we lost with the geese were really good keepers, they warn you when someone gets into the property. Like that one afternoon where we were doing siesta and heard two men on the property. They said they were “hunting” but there was no sign of any game, and then they said “we didn’t know it was a private property” which irked us to the point of stopping the police patrol that was coincidentally passing by and reporting them. We think they were hiding in the bush nearby and probably freaked out thinking we had the police on speed dial as the got there less than 10 minutes after. This village is so small that even though they didn’t give their names, we found out who they were by the next day and went to their family to warn that the next time we would file a formal complaint. Come on, you don’t know a fenced property with a house on it is private?? Give me a break. They didn’t take anything be we never found out if they were hunting animals or our treasures. Although I wouldn’t expect anyone to sh*t where they eat and risk getting caught where everyone knows them.
It is worthwhile knowing that there are certain investment accounts that will shield you from tax, and this allows you to enhance your returns on all of your investments. These investment accounts are known as tax wrappers. Tax wrappers can be used to protect you from Income Tax, Capital Gains Tax, Inheritance Tax and Corporation Tax.
The most common form of tax wrappers are Individual Savings Accounts (ISA’s) and pensions. An ISA enables you to keep everything that you earn on your savings tax free, therefore maximising your returns. Pension schemes such as Self Invested Personal Pensions (SIPPs) and Small Self Administered Schemes (SSASs) have personal tax advantages. Many investors are looking to have these accounts set up so that they can be tax efficient and get more out of their investments, similar to how many investors are now looking at offshore investment.
Portfolio Management Solutions
There are investment management services available to investors that will see tax efficient investments, which are all managed as part of an overall strategy. When you use the services of an investment management firm it ensures that you will be able to achieve your goals and objectives from all of your investments. This could be to maintain your current wealth, to minimise the amount of tax you pay, to grow the value of your assets or to save for retirement. This is achieved through portfolio management solutions along with tax efficient investments all suited to your particular needs and requirements. You will find that many investment management firms will develop your portfolio through a combination of UK and international equities, property funds, cash and alternative investments.
Different Tax Wrappers
One of the tax wrappers is called a Self Invested Personal Pensions (SIPPs) wrapper. Investments within this tax wrapper can bring the benefits of the tax advantages you get with a personal pension, and when you use an investment management firm, such as SPI UK, you will get pension investments that are suited to your needs. These investments can change as your circumstances do, and this includes before and after you retire.
When you sell a property or asset, transfer it to somebody else or exchange it you will face tax on the amount that you gain. This is known as Capital Gains Tax (CGT). CGT management services can help you to make use of your CGT allowances each year. In addition, Small Self Administered Schemes (SSASs) are company pension schemes where investors can get tax benefits, and the underlying investments within this wrapper can be managed for you as well.
Whether you are looking to save for the future, maintain your current wealth or pay less tax you will find tax efficient investments the best way to do this. Investment management firms are able to manage your assets to suit your particular needs, and all done using various tax wrappers to help you maximise your returns.
And over at Savvy Scot I will talk about how to do banking while living or traveling abroad.