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Leblon Blue - Personal finance made easy

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  • Leblon
  • January 21, 2020 06:30:46 PM
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A Little About Us

My blog introduces powerful concepts on personal finances to make dealing with money easier for you. Start the journey to financial freedom today! I have reached financial independence after 10 years of building my career up the corporate ladder. Today I hold a senior management position in a large corporation because I want to, not because I need. this blog is a personal getaway, where I write about my true passion which is personal finances. In my articles, you will find original content based on my own experiences and studies. My posts cover topics such as financial literacy, family budgeting, risk management, financial wellbeing and more. Invest in yourself, start building on your financial knowledge and get in control of your money. Check out my blog, subscribe to my newsletter

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$40,000 a year is how much an hour?

$40,000 a year is common yearly salary. For a 40-hour work week, this is close to the median household income in the United States. Reality is that a $40,000 salary to hourly is lower than you think. Being on a salary has its advantages but it also has some problems. Reality is that your hourly wage might… Read More »$40,000 a year is how much an...

$40,000 a year is common yearly salary. For a 40-hour work week, this is close to the median household income in the United States. Reality is that a $40,000 salary to hourly is lower than you think. Being on a salary has its advantages but it also has some problems.

Reality is that your hourly wage might be smaller than you think. Think about it and make your guess, 40k a year is how much an hour? As you will see, it depends on a couple of factors, I will show you how to calculate it.

How much is $40,000 a year per hour?

Knowing your hourly rate is crucial if you are considering to take side jobs or start some freelance work. Imagine if you get offered a contracted work, how much would you charge?

Any employer that wants to contract individuals for freelance work will ask what your hourly rate is. By understanding how much per hour is $40,000 a year, you can properly adjust your offer.

How much is $40k a year hourly?

The easy answer is that a 40k salary hourly corresponds to about $20 an hour. But let´s break it down to better understand the cash flow, start by asking yourself:

How much do I make a month?

If you want to know how much you make a month, you need to think about your monthly salary. $40,000 a year is how much a month? Easy answer: $40,000 a year is equal to $3,333 a month.

  • Monthly salary: If you want to translate your annually salary in terms of months, you have two options. The first and easy one is to simply divide it by 12. That would put a $40,000 salary a year at about $3,333 a month. If you want to be really precise and consider holidays, weekends and vacations, you might finds that some months are more profitable than others.

How much do I make a day?

If you want to know how much you make a day, you need to think about your daily salary. $40,000 a year is how much a day? Easy answer: $40,000 a year is equal to $160 a day.

  • Daily salary: An employer looking for a contractor might ask you what is your daily rate. One year has about 250 working days, that puts a $40,000 salary at $160 a day. Another way of thinking about it is that if a $40,000 salary per hour is about 20 dollars, that corresponds to about $160 a day.

How much do I make an hour?

If you want to know how much you make an hour, you need to think about your hourly salary. $40,000 a year is how much an hour? Easy answer: $40,000 a year is equal to $20 an hour.

  • Hourly salary: What does that mean if you want to know your hourly rate? $40,000 per year is how much per hour? If one year has 250 working days and you work 8 hours a day, that equals 2.000 hours. Therefore the hourly wage for $40,000 a year is equal to $20 an hour.
What is the hourly rate for $40,000 a year?

What is the hourly rate for $40,000 a year?

Several factors can affect your hourly, daily, weekly and monthly salary. The number of days you work during the year, your holiday pay and vacation time are all affecting your salary breakdown. Here are some points to take into account when trying to answer how much hourly is 40000 a year:

Working days during the year: one year has about 250 working days, but most people do not work on exactly that amount of days. Do you work 5 or 6 days a week? Do you work on holidays?

Working hours during the day: how many hours do you work a day? Usually we use 8 hours a day to answer “what is $40,000 a year hourly?”. If you want to compare your salary job to a free lance job that you will do from home, you might want to add commuting time and lunch breaks to that.

If you work 8 hours a day, stop for 1 hours for lunch and take 1 hour commuting, that adds up to 11 hours a day. Considering 250 working days a year, that makes for $14.5 hourly wage of $40,000 per year. Quite a drop from the $20 we had calculated before.

What is $40,000 a year hourly?

What is $40,000 a year hourly?

By now you have seen that calculating the hourly rate for $40,000 can be as simple or as difficult as we like. Just by factoring in lunch breaks and commuting time the hourly rate dropped from $20 to $14.5. Here are some handy formulas:

Yearly to other salary formulae:

Monthly salary = annual salary / 12

Your actual monthly salary might vary slightly depending on holidays and number of weekends on each month, but that is a fairly accurate formula.

Weekly salary = annual salary / worked weeks

One year has about 52 weeks. Usually you can consider that you work on all of them, although vacations, sick leaves and holidays might affect that.

Daily salary = weekly salary / days worked in a week

From your weekly salary it is easy to calculate your daily salary, just divide it by the number of days you work on a week.

Daily salary = annual salary / worked days

From your annual salary it is easy to calculate your daily salary, just divide it by the number of days you work on a year (usually about 250 days).

Hourly wage = daily salary / hours worked per day

Your hourly wage can be obtained from your daily salary. When thinking about the number of hours per day you can choose to consider commuting times and lunch breaks.

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About the author:

Personal Finance Made Easy

Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.

Find more about Leblon Blue.


The top 5 largest stock exchanges are up for a hit

Everyone has heard about the stock market, many people talk about it. If you turn on the news, it is hard to go by without it being mentioned at least once. Nevertheless, when asked about what is the function of stock markets, only 67% get it right. In simple terms, the stock market is the aggregation of buyers… Read More »The top 5 largest stock exchanges are up for a...

Everyone has heard about the stock market, many people talk about it. If you turn on the news, it is hard to go by without it being mentioned at least once. Nevertheless, when asked about what is the function of stock markets, only 67% get it right.

In simple terms, the stock market is the aggregation of buyers and sellers of stocks.

stock exchange, on the other hand, is a regulated marketplace that connects buyers and sellers of diverse financial securities such as stocks, bonds, and warrants. In other words, it is the physical place where the trade takes place. Stock exchanges date back more than 400 years. The first stock exchange was established in Amsterdam in 1602 to trade shares of the Dutch East India Company.

Each country will usually have at least one stock exchange where its leading companies will list their stocks (or shares). Today there are less than 20 stock exchanges with a market capitalization of over $1 trillion. The so-called ‘$1 trillion club’ exchanges account for more than 80% of the global market capitalization.

Stock exchange

Although this financial survey questionnaire is focused on the critical aspects of personal finance, I find the stock exchange topic really interesting. Therefore I have decided to include this small bonus topic on stock exchanges.

This list of the top 5 largest stock exchanges is based on the market capitalization data from the World Federation of Exchanges as of November 2018.

The New York Stock Exchange

The New York Stock Exchange

Founded in 1792 and has been the world’s largest stock exchange since the end of World War I when it overtook the London Stock Exchange. It has a market capitalization of $22.9 trillion and about 2,400 listed companies. According to the 2017 data from Gallup, more than 54% of Americans had invested in stocks listed at the NYSE. The NYSE alone accounts for roughly 40% of the world’s stock market capitalization. Stocks traded here appear in the SP500 and Dow Jones indexes.

The NASDAQ Stock Market

The NASDAQ Stock Market

Founded in 1971 in New York City. NASDAQ is considered the Mecca of technology companies because of many of the world’s most significant technology. Companies such as Apple, Microsoft, Facebook, Amazon, Alphabet, Tesla, Cisco, and others have done IPO and have equities listed here. As of November 2018, NASDAQ had a market capitalization of $10.8 trillion, with an average monthly trading volume of $1.26 trillion.

The Hong Kong Stock Exchange

The Hong Kong Stock Exchange

Founded in 1891. It has close to 2,000 listed companies, about half of which are from mainland China. It has a monthly trading volume of $182 billion and a market capitalization of $3.93 trillion. In 2017, the exchange closed its physical trading floor to shift to electronic trading. Some of the biggest companies listed at the Hong Kong Stock Exchange are AIA, Tencent Holdings, PetroChina, China Mobile, and HSBC Holdings.

The Shanghai Stock Exchange

The Shanghai Stock Exchange
It is the largest stock exchange in China and has a market capitalization of $4.02 trillion. It is a non-profit organization and has more than 1,000 listed companies. Though its origins date back to 1866, it was suspended following the Chinese Revolution in 1949. The Shanghai Exchange, in its modern avatar, was founded in 1990. Stocks listed at the Shanghai Stock Exchange have ‘A’ shares that trade in local currency and ‘B’ shares that are priced in the US dollar for foreign investors.

It is the largest stock exchange in China and has a market capitalization of $4.02 trillion. It is a non-profit organization and has more than 1,000 listed companies. Though its origins date back to 1866, it was suspended following the Chinese Revolution in 1949. The Shanghai Exchange, in its modern avatar, was founded in 1990. Stocks listed at the Shanghai Stock Exchange have ‘A’ shares that trade in local currency and ‘B’ shares that are priced in the US dollar for foreign investors.

The Tokyo Stock Exchange

The Tokyo Stock Exchange

Founded in 1878 and is among the top 10 largest stock exchanges in the world. It has close to 2,300 listed companies with a combined market capitalization of $5.67 trillion. Trading at the Tokyo Stock Exchange was suspended for four years after World War II. It resumed operations in 1949. TSE’s benchmark index is Nikkei 225, which consists of the largest companies, including Toyota, Honda, Suzuki, and Sony.

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Continue reading and learn more about finances:

About the author:

Personal Finance Made Easy

Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.

Find more about Leblon Blue.


Learn to control your average cost of groceries per month

Learn to control your average cost of groceries per month. Stop overspending on food by learning how to budget for groceries. Understand how much should you spend on food a month. Start by learning to track and track and control the average amount spent on food per month. I will show you how to build… Read More »Learn to control your average cost of groceries per...

Learn to control your average cost of groceries per month. Stop overspending on food by learning how to budget for groceries. Understand how much should you spend on food a month.

  • Start by learning to track and track and control the average amount spent on food per month. I will show you how to build the average grocery bill that is right for you and your family.
  • Now that you have an average monthly food budget, let´s trim it to what you really need. I will show you how to budget for groceries that positively impact your body and the health of your family.
  • Budgeting for groceries should be focused on saving some money while keeping healthy. Learn to adapt a typical grocery budget on a budget grocery list for healthy meals.

The average cost of groceries per month can have a huge impact on your personal finances. In fact, food is the second-largest household expense, behind mortgage or rent. Needless to say, control your average food cost per month and you be closer to achieving your financial goals.

Anyone that has ever tried budgeting groceries has found how easy is to get lost on local, organic, and artisan goods. Not mentioning trendy restaurants and happy hours with friends. 

Don’t desperate, I will show you how to do your grocery budget while still keeping a healthy balance between product quality, eating out, and eating healthy.

Some people like to budget food using a grocery budget calculator. Although this is surely a valid option, I prefer to start with a more personalized approach.

Deciding your average spend on food per month is a personal choice. And a big one! No app can do that for you. First and foremost you need to set your priorities and get organized. It might sound like a big deal, but it´s not hard, I will show you how.

What should be included in my monthly food cost

Before we decided how much to spend on groceries let´s place some ground rules. 

The main question you should be asking here is “how much should I spend on food a month?”. We are talking about food costs that go on the food row of your monthly budget. 

We are not talking about foods you buy for social occasions or supplements you take because your doctor explicitly told you to do so. 

What should be included in my monthly food cost

Our objective here is to focus on the food that you need to get your body moving. We are not talking about entertainment or medicine. Let´s get some examples:

  • Breakfast: This is a basic food cost, like it or not, you need to eat something for breakfast to keep a healthy and balanced life. Eat at home and in most cases, it will be cheaper and healthier. Eat out and it will be convenient.
  • Donuts box that you take to the office: Nothing wrong on building good relations with your coworkers, but this is not a food cost. Name it entertainment or political investment, but get it out of your monthly grocery budget.
  • Dinner out Dining out can fall on your food budget, or on your entertainment costs. The important thing here is not the price but why you are having a dinner out. Is this an ordinary dinner or you have friends joining you? Maybe you are celebrating a special occasion with your spouse? Only consider dining out and takeaways in your food budget if they represent a normal meal.

According to the U.S. Department of Agriculture, Americans spend on average, 11% of their take-home income on food. Approximately 6% is spent on groceries, while 5% is spent on dining out—including dates, lunches with coworkers, and Sunday brunch. With this framework in mind, you can calculate your total food budget based on your take-home income.

I recommend splitting food and entertainment budgets to make your strategy more actionable and easy to prioritize.

Tracking your average cost for food per month

Before you figure out what you should be spending on food, it’s important to figure out what you are spending on food per month. 

We want to track the average cost of food per month. This means tracking your average groceries cost per month plus all the day to day food you have delivered or that you normally eat out.

Keep your average monthly bills to get a realistic picture of your current spending habits. To give some granularity, split them into categories that make sense to you. In my case, I have my monthly food budget split in:

  • grocery costs per month: basically supermarket bills
  • monthly costs of eating out and takeaways: mostly dinner when we don´t feel like cooking

Deciding how much to spend on food per month

How much to spend on food a month will vary based on your income level, on your family size, and on the cost of living per state. 

You use a food budget calculator but it is so simple to calculate it by hand that I find it easier to just do it manually. By doing it by hand I also pay more attention to it, which brings more insights on where I am spending my money.

If you already have your grocery bill average you can already calculate your current groceries budget as a percentage of your net salary:

Grocery budget % = (grocery bill per month) / (net income) * 100

By adding the costs of takeaways and eating out to the cost of groceries per month you will have your actual food cost per month:

Food budget % = (food bill per month) / (net income) * 100

Generally speaking, 10% of your net income is a good baseline for your average monthly food cost. If you are over this threshold, don’t desperate, I will show you in a bit how to bring your costs down.

It is important to keep in mind that your cost of food per month will vary a bit during the year. This is normal. You must pay attention to these fluctuations and act accordingly to keep them under control. 

 I will show you in a bit some real values of how much people spend on groceries. Comparing how much you are spending with the food expenses per month recommended by USDA is a great way to measure how well you have your costs under control.

If you overspend on a month, make it up for it in the following months. If you have been under budget for a couple of months, make sure to take note of it and be proud of your achievement – a fancy dinner with someone you care should be a good way to celebrate it.

How much should I be spending on food?

The United States Department of Agriculture (USDA) publishes an average grocery cost per month that is a great baseline you can use to gauge how to budget groceries.

Ultimately, how much each household spends on food varies based on income level and how many people need to be fed. Below you can see some baseline groceries cost per month.

USDA grocery budget

Keep in mind this data is an average grocery bill, actual prices will vary depending on your location and which stores are available to you.

  •   Average grocery bill for single person: $280  
  •   Average grocery bill for family of 2: $613
  •   Average grocery bill for family of 3: $885
  •   Average grocery bill for family of 4: $1063
  •   Average grocery bill for family of 5: $1314
  •   average grocery bill for family of 6: $1475

While people spent about 30 percent of their income on food in 1950, this percentage has dropped to about 10% in current days

The food plans only include the cost of food at home. They do not include the cost of non-food items even though you may buy at the grocery store like pet food, toilet paper, and paper towels.

Additionally, this list includes only food at home, so restaurant spending is not included. As I’m sure you know, eating out is many times more expensive than eating at home.

Allocate a Percentage of Your Income

As a starting point, you can allocate 10 percent of your income to groceries per month and increase from there if necessary.

Track your average spending per month

If you want to get to the next level, create a spreadsheet to break down your groceries spending by category, including beverages, vegetables, snacks, etc. Once you’ve done this, you can get an idea of where to trim down how much you are spending on food.

Plan your meals and avoid eating out to keep your groceries on a budget

It’s much easier to stick to a food budget when you have a plan. Additionally, having a purpose for each grocery item you buy will ensure nothing goes to waste. 

You may be surprised to find out that most nutrient-dense foods are often the most budget-friendly. It’s not only possible but fun and easy to eat nourishing, delicious food while still sticking to your budget.

Not every meal has to be a gourmet, grandiose experience. At the end of the day, your focus is to have an optimized budget grocery list that can keep you healthy and well. 

Eating out is a quick and easy way to ruin your food budget. Be sure to factor restaurants into your food budget — and strictly adhere to your limit. 

By deciding on meals ahead of time, you can determine the food items and quantities you need. Before heading to the grocery store, your list will be specific. You can buy the items you need. Try recipes that use some of the same ingredients so there’s less to purchase. You can also make larger meals so you have leftovers—which limits the number of meals and ingredients to buy.

Keep a Fridge Grocery List

Keep a magnetized grocery list on your fridge so that you can replace items as needed. I have personally named my the Cheap healthy grocery list to remind me that it is not enough to be cheap, it needs to be healthy as well.

You will not learn how to budget groceries efficiently if it is not part of your day today. Having your shopping list easily visible ensures you’re buying food you know you’ll eat because you’re already used to buying it. 

Furthermore, sticking to a list in the grocery store is an effective way to keep yourself accountable and not spend money on pricey items.

Simple ways to lower your average monthly grocery bill

Budgeting, meal planning, and being organized to keep track of your spending will help you save money on groceries. 

Eat Before You Go to the Store

According to a survey, shoppers spend an average of 64 percent more when hungry. Sticking to a budget is all about eliminating temptations, so plan to eat beforehand to eliminate tantalizing foods that will cause you to go over-budget.

Be Careful with Coupons

There is a reason stores offer you coupons – believe it or not, this reason is not to make you save money.

50 percent off ketchup is a great deal — unless you don’t need ketchup. Beware of coupons that claim you’ll “save” money. If the item isn’t on your list, you’re not saving at all, but rather spending on something you don’t truly need. This discretion is key to saving money at the grocery store.

Embrace the Bulk Section

Not only is the bulk section of your grocery store great for cheap, filling staples, but it’s also the perfect way to discover new foods and bring variety into your diet. Take the time to compare the price of buying pre-packaged goods versus bulk — it’s almost always cheaper to buy in bulk, plus eliminating unnecessary packaging is good for the planet.

Bonus: a diet rich in unprocessed, whole plant foods provides virtually every nutrient, ensuring optimal health and keeping you from spending an excess amount on healthcare costs.

Bring Lunch to Work

All the meal planning and smart shopping in the world won’t solve your personal finances if you keep having lunch out every day. Pack your lunch box and a couple of snacks to keep your finances and body healthy.

Love Your Leftovers

The average American wastes $640 every year on wasted food. With millions of undernourished people around the globe, throwing away food not only hurts our budget but is a waste of the world’s resources. Tossing food is no joke. Eat your leftovers.

To avoid wasting food, freeze things that look like they’re about to go bad. Fruit that’s past its prime can be frozen and used in smoothies. Make double batches of soups, sauces, and baked goods so you’ll always have an alternative to ordering takeout when you don’t feel like cooking.

Remember, sticking to a food budget takes planning and discipline. While it may not seem fun at first, you’ll likely find that you enjoy cooking and trying a variety of new foods you wouldn’t have thought to use before. 


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Continue reading and learn more about finances:

About the author:

Personal Finance Made Easy

Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.

Find more about Leblon Blue.


Can economists predict how you spend your money?

Most financial decisions have consequences that will impact us over time. How much should I spend today, and how much should I save? How many hours should I work tonight, and what work should I leave it for tomorrow? Should I provide feedback to an under-performing colleague or delay the awkward interaction? Is it worth… Read More »Can economists predict how you spend your...

Most financial decisions have consequences that will impact us over time.

How much should I spend today, and how much should I save? How many hours should I work tonight, and what work should I leave it for tomorrow?

Should I provide feedback to an under-performing colleague or delay the awkward interaction? Is it worth getting out of bed to take my medicine, or is it OK to skip a night? Should I exercise this afternoon, or check all of my social media accounts today and exercise tomorrow?

Be it in the workplace, the marketplace, on vacation, or at home, almost all decisions have an intertemporal dimension. If one makes these decisions with any foresight at all, it is necessary to somehow weigh costs and benefits that occur at different points in time.

These questions also dominate many of our government policy questions. How much to invest in the future is at the heart of policymaking, including education, health, retirement, energy, and the environment.

All animals, including humans, tend to pursue instant gratification. This is true even when such immediate rewards are obtained by giving up a more substantial amount of delayed gratification.

Our attention is limited. When choosing a bottle of wine for dinner, we think about just a few considerations: the price and the quality of the wine. We usually do not consider minor components like future income, the interest rate, the potential learning value from drinking this wine.

Traditional rational economics assumes that we process all the information that is freely available to us. This is the single most significant reason most traditional economic theories fail to accurately depict reality.

Tradicional economics cannot predict how we spend our money because we are humans, and as such, our decisions are not perfect.

Modifying this classical assumption is desirable and doable. Moreover, it is necessary to attain greater psychological realism in economic modeling, and ultimately to improve our understanding of markets and to design better policies.

For example. Traditional economics states that there is no money illusion. A behavioral model predicts that there is money illusion. When the budget and prices are both increased by 5%, people will consume less expensive goods, as they are perceived to be relatively more costly.

Research shows that individuals want to limit their options not merely to change their outcome but to reduce their costs of exercising self-control.

Ultimately, there probably isn’t a right answer to all economic decisions. Progress will likely come from many different methods that jointly create a more complete and compelling picture of our intertemporal preferences.

Are individuals well-equipped to make financial decisions? Would you agree that money does not always equal to happiness? Do they possess adequate financial literacy and knowledge?


Read more:

Want to read other great articles on investment and personal finances? Do you want to know how to get in control of your spending, and get rid of debt? Check these tools and resources to continue building up your financial literacy:


Featured video on risk management in personal financial planning. How to be reasonable and take moderate risks with money.


About the author:

Personal Finance Made Easy

Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.

Find more about Leblon Blue.


Sources:

Bernheim BD, DellaVigna S, Laibson D. Handbook of Behavioral Economics – Foundations and Applications 2, Volume 2 [Internet]. Elsevier; 2019.


Risk tolerance and financial literacy

Risk tolerance is the level of risk exposure with which an individual is comfortable; an estimate of the level of risk an investor is willing to accept in his or her investment portfolio. Aversion to risk is what makes the study of capital markets interesting. Without risk aversion, all capital assets would be priced based… Read More »Risk tolerance and financial...

Risk tolerance is the level of risk exposure with which an individual is comfortable; an estimate of the level of risk an investor is willing to accept in his or her investment portfolio.

Aversion to risk is what makes the study of capital markets interesting. Without risk aversion, all capital assets would be priced based on their expected payout and duration. Bonds would have the same yield over time as stocks and portfolio construction would simply be an exercise in organizing the timing of expected asset payoffs.

Underlying the preference for reduced variation in returns is the notion that each additional dollar earned provides a little less happiness than the last. As our incomes increase, the satisfaction gained from consuming each additional $100 declines.

When faced with an investment whose payout is variable, a risk-averse investor will require some added compensation for accepting uncertainty.

During our lives we experience circumstances that impact our willingness to accept investment uncertainty. A young family may see the loss of $5,000 as a serious event that requires sacrifices to meet a budget and compromises financial security. The same family later in life may have built up an investment portfolio large enough that the loss of $5,000 has little impact on their lifestyle.

The perceived consequences of a loss may also vary among investors of the same means. Some have the ability to shrug off a loss to their portfolio while others fret during a bear market and become stressed after reading a negative quarterly statement. Every financial planner who adheres to standard financial planning practices must assess the risk tolerance of a client in order to make informed portfolio recommendations. The process of risk tolerance assessment is in its infancy.

Households in the United States have substantial levels of noninvestment wealth, and investment portfolios typically amount to small proportions of total wealth. For over 80% of U.S. households in 1998, investment assets amounted to less than 20% of total wealth. The median proportion of investment assets to wealth increased with age, but was small even for those aged 65 and over.

Consumers lack the financial literacy necessary to make important financial decisions in their own best interests. However, questions exist concerning the effectiveness of financial education in improving financial literacy.

Therefore, a paradox exists between the efficacy of education in improving financial literacy and the impact of education on short-and long-term
financial behavior. How can education, which is correlated to financial literacy, improve financial behavior without first improving financial literacy?

Deregulation of the U.S. financial service industry since the 1970’s has created both opportunities and problems for American consumers. On the positive side, those with assets can obtain higher interest rates on their investments and lower fees for services. Individuals have enhanced choices for virtually every financial product. On the negative side, consumers are faced with increased costs. Banks have eliminated interest rate ceilings on debt and charge greater fees on low-balance accounts. Over the years, the financial services industry has become more complex.

Individuals are increasingly put in charge of their financial security after retirement. Moreover, the supply of complex financial products has increased considerably over the years. However, we still have little or no information about whether individuals have the financial knowledge and skills to navigate this new financial environment.

Are individuals well-equipped to make financial decisions? Do they possess adequate financial literacy and knowledge?


Read more:

Want to read other great articles on investment and personal finances? Do you want to know how to get in control of your spending, and get rid of debt? Check these tools and resources to continue building up your financial literacy:


Featured video on risk management in personal financial planning. How to be reasonable and take moderate risks with money.


About the author:

Personal Finance Made Easy

Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.

Find more about Leblon Blue.


Sources:

THE CONCEPT OF RISK TOLERANCE IN PERSONAL FINANCIAL PLANNING, Journal of Personal Finance. Sherman D. Hanna, Professor, Consumer Sciences Department, The Ohio State University

The Impact of Financial Literacy Education on Subsequent Financial Behavior. Lewis Mandell and Linda Schmid Klein.

FINANCIAL LITERACY AND STOCK MARKET PARTICIPATION. Maarten van Rooij, Annamaria Lusardi, Rob Alessie. WORKING PAPER 13565.


How to spend your money wisely

When asked about personal finances, few have set improving their spending habits as a priority. For most, a hefty paycheck might seem to be the solution for most financial struggles. The truth is that knowing how to spend your money wisely can take you further into the journey to financial freedom than you imagine Reality… Read More »How to spend your money...

When asked about personal finances, few have set improving their spending habits as a priority. For most, a hefty paycheck might seem to be the solution for most financial struggles.

The truth is that knowing how to spend your money wisely can take you further into the journey to financial freedom than you imagine

Reality shows that personal finances are not that simple. The solution to your financial struggles might take a bit more than just getting a raise. Take, for instance, lottery winners, most of them are back to square one after a couple of years from winning the big prize.

The first step is to reach a basic level of income that can accommodate a reasonable living standard. Once this is done, more can be achieved by spending your money wisely than getting a pay raise.

In this article, I will list the key actions you can take to start spending your money wisely. Reaching your financial goals is not only about cutting costs but also about understanding your needs.

At the end of the day, no matter how much cash you have, to spend your money wisely is always a good idea. Most importantly, frugal living does not mean a life without fun. With a little planning and discipline, you will find ways of trimming your expenses without impacting much of your lifestyle. 

In the long run, you will find that having long term goals brings peace of mind. It is much easier to cut expenses and save money when you have a clear picture of what you are aiming for. Paying your debt, going on a luxurious vacation, building an emergency fund, a college education for your kids. Your goals will change with time, but they must always be there to keep you moving.

The actions I will present here will be a mix of ways to be savvy with money with ways to focus your capital to where it will have the most significant impact in your life. 

1 – Create a family budget. 

Save more by understanding your income, expenses, investments, and debt balances. Reach financial freedom by setting personal budget goals for you and your family.

Your family budget is a list of your income and expenses, together with your savings and debt balances. That means taking note and understanding at every end of the month what was your:

  • Income, or how much you earn, 
  • Debt, or how much you own, 
  • Expenses, or how much you spend, 
  • Saving, or how much you save.

Creating a budget is a common tool for debt management to practice discretionary spending. Organizing your bank statements by using budgeting tools or a budget worksheet can make it much easier to set your financial goals.

Bonus tip: Check this article on how to do your family budget: 6 easy steps to reach financial freedom

2 – Plan your spendings. Only purchase what you have planned for.

Buying on impulse can spiral your expenses out of control.

Make a plan of what you need to buy while you are calm at home. Review your purchase list multiple times and let it mature for some time. 

Make a survey trip before your real shopping trip. Take note of the prices of several brands and alternative products for what you are looking for, do not stick to only one store. 

Return home without buying anything. Give the results of your survey trip some time to sink in before you go out on your shopping trip. 

Be careful with exclusive sales and free samples. They are aimed to convince you to make an impulse decision instead of being thoughtful about how you spend your money. 

Having the discipline to treat each purchase as a crucial decision will make you spend less money. Over time, the more focused you are, the wiser your spending habits will get. 

3 – Do not shop for fun.

Your money is to spend money wisely, not to have fun spending money.

If you are only buying something for the thrill of spending money, you will end up buying a lot of stuff you do not actually need. 

Only spend on what has been included in your spending plan. Always do price research before buying it. 

Avoid factors that can impair your judgment while shopping. Alcohol, sleep deprivation, loud music, and hunger can all make you act on impulse and spend money where you do not need to.

4 – Focus on the Long-Term Benefits of Purchases.

Before buying something, reflect on how it will affect you in the future. Try to determine if what you are buying is really worth by asking yourself:

  • How long is it going to last? 
  • Is it going to put you in debt? 
  • Is the value you will get out of it over its lifetime worth the cost?

These questions will help you to determine if something is really worth buying.

5 – Shop alone. 

Sticking to your spending plan and being conscious about your spending can be hard if you are being bombarded by external opinions and advice.

Consider your family and friends’ opinions when making your purchases plan, but once you go out shopping, go alone. 

While at the store, be careful when taking advice from the store employees, their main target is to make you spend more, and that is precisely what you are trying to avoid.

6 – Pay in full and in cash. 

As shown in several surveys and studies, credit cards and debit cards increase spending. Because no real money is changing hands, your brain does not register it as a “real” purchase. 

Furthermore, credit gives you the false impression that you can spend more than you usually would.

Those are the same reasons why many businesses propose delayed payment schemes such as bar tabs and alike. 

The trick to avoiding such pitfalls is simple. Don’t bring more cash with you than you need. If you don’t have the extra money, you can’t spend it.

At the same time, withdraw your weekly budget once a week instead of filling up your wallet whenever you run out. 

Have your credit card and debit cards as emergency measures for extraordinary expenditures mapped on your spending plan.

7 – Don’t spend your money based on ads and marketing speech.

Outside influences are a considerable factor affecting what we spend our money on. 

Don’t buy something based on an advertisement. Be vigilant and aware of all the reasons you’re drawn to a product.

Whether on television, insider stores, or on the product’s packaging, treat ads with skepticism. Advertisements are designed to encourage you to spend more money. They will not provide an accurate portrayal of your needs and options.

Don’t buy something just because of a sale or a reduced price. Coupons and deals are great for products you were already planning to buy. Purchasing something you don’t need just because it’s 25% off does not save money!

Be aware of pricing tricks. Translate that “$9.99” price into “$10”. Judge the cost of an item on its own merits, not because it’s a “better deal” than another option by the same company.

A common trick by marketers is to make a “worse deal” with an atrocious value. As a result, you buy the “better deal”, which is in itself costly or not fit for your needs. Take buying popcorn at the theater, for instance. You end up almost always buying the large pack because its a better deal than the smaller ones, although a medium pack most times is enough.

At the same time, don’t automatically buy the mid-priced product within a product category. Marketers can influence your decision by adding an outrageously expensive product to make the high-priced product looks reasonable in comparison.


Read more:

Want to read other great articles on investment and personal finances? Do you want to know how to get in control of your spending, and get rid of debt? Check these tools and resources to continue building up your financial literacy:


Featured video on risk management in personal financial planning. How to be reasonable and take moderate risks with money.


About the author:

Personal Finance Made Easy

Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.

Find more about Leblon Blue.


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