Advice From The Bottom: What Losing A Million Dollars Taught Entrepreneurs About Finance

A million bucks sounds, to most people, like absolute security, because being a millionaire seems like it would put you in a strong financial position for life. If your car were to break down or you lose your job, a million dollars could solve those problems pretty easily.

Unfortunately, there are no guarantees in personal finance. Even a million dollars can go away quickly through a string of bad luck or poor decisions. Learn the lesson from these ex-millionaires to keep a tight grip on what you have.

1.) A million dollars can’t sustain a millionaire’s lifestyle

When most people think of a million dollars, they usually don’t think of the money in their accounts. They think about big houses, flashy watches and fast cars. Those things are part of the lifestyle, and they’re part of what makes the dream of a million dollars so desirable. The problem is, a million dollars disappears pretty quickly when it’s being used on those things while trying to grow a business.

Take the example of Joshua Lee, an internet entrepreneur from Texas, who had accumulated that coveted seventh figure at the young age of 28. Like most 28-year-olds with extra cash, he bought cars and watches, treated his friends to expensive nights out and did all the other things millionaires are “supposed” to do. His first million didn’t last him long at all.

Lee was able to recover, thanks to hard work and good fortune, but he offers a valuable piece of advice on the topic. Once you’ve decided on a goal, whether it’s having a million dollars in your account or getting debt-free, think about the parts of that goal that make it desirable. Once you’re 80% of the way there, take some time to re-evaluate. Figure out if the properties of that goal are sustainable. A million dollars looks and feels a great deal different coming from $800,000 than it does from $20.

2.) Keep an eye on the people keeping an eye on your money

Most people who get a million dollars do so by doing something other than working with finances. Even those who do, like successful investment managers, probably have someone else looking out for their money. Top earners in most industries have IRAs and other long-term investment accounts that are watched over by a third party. When there’s that much money, a professional can be indispensable in tax planning and long-term return maximization.

A millionaire can be too trusting, though. Millionaire retiree Jay Cee, a California resident, found out the hard way that not everyone who claims to be looking out for your best interests really is. He transferred his 401(k) from a previous employer and worked with a financial professional to do so. She encouraged him to put his money in a specific set of investment vehicles as part of an IRA rollover. The deal looked incredible, since there was no line on the contract for a commission. When he asked about her compensation, she told him that the company took good care of them.

That part was certainly true. The investment company charged nearly 3.5% in management fees, while earning a return of less than 4%. Jay’s retirement nest egg was growing at less than half a percent. He would have been better off putting his money into a basic savings account. Over the course of the year that his IRA was held by the company, they made $12,000 from his account, after just one 30-minute meeting. Talk about expensive advice!

Remember the golden rule of economics: If you’re not paying for a service, you’re not the customer; you’re the product. Make sure you know how everyone who gives you financial advice is compensated, and insist on seeing a detailed breakdown of fees before you sign any investment agreement.

Of course, the proper lesson isn’t one of exclusive self-reliance. Most people aren’t financial professionals. They don’t have the education or experience necessary to make expert, long-term financial plans. Yet people who make a great deal of money tend to see themselves as invincible. That’s how someone like former Major League Baseball pitcher Curt Schilling went broke shortly after leaving baseball. Schilling invested his money without a proper understanding of risk, then lost everything when the one company he’d backed went bankrupt. Getting advice is indispensible; just make sure it’s advice you’re paying for up front.

3.) Keep an eye on risk

There’s a certain glamour in having nothing to lose. When you’re starting a small business, you can throw caution to the wind – to a certain extent. After all, if your new business goes belly-up, you haven’t lost more than you’ve put into it. It’s fine to swing for the fences when you’ve got a fledgling start-up. That changes a little bit once you’ve experienced some success. You need to take steps to protect what you’ve got.

Part of protecting what you have is realizing that it can be lost. If you’re a successful entrepreneur, you have to realize that success took hard work to build, and without that hard work, it’ll go away. Risks to your business are always present, and you have to work hard to minimize those risks.

That’s one of the lessons to be learned from the bankruptcy of rapper Curtis Jackson, III, known by his stage name, “50 Cent.” Jackson was one of the most successful figures in the music industry, yet his stage name became equivalent to his net worth in 2015 as he filed for bankruptcy. One of the reasons behind the loss was his repeated entanglement in lawsuits. Jackson never stopped acting as though he had nothing to lose, picking fights with other performers and business owners who would then take him to court. Even if he won most of the legal battles, he’d still suffer the slow loss of money in legal fees and settlements.

Once you’ve “made it,” you need to change your strategy. You can’t afford to take those same wild risks. You need to find safe investments and know when to back away from a challenge. Slow growth is better than losing it all.

Sources:

https://www.entrepreneur.com/article/249881

http://www.financialsamurai.com/how-to-lose-a-million-dollars-and-live-to-see-another-day/

http://www.financialsamurai.com/recommended-net-worth-allocation-mix-by-age-and-work-experience/

https://www.entrepreneur.com/article/248863

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Dealing With A Financial Setback

Financial setbacks come in all shapes and sizes. It can be an expensive household repair or major car trouble. It may be increases in your insurance plus a rent hike taking effect at the same time. Or, it can be something more extreme, like getting a pay cut at work- or even being given a pink slip. It may be a medical emergency that isn’t covered by insurance, or some good news that will cost you a bundle, like a wedding or the birth of a baby.

It’s impossible to plan for every financial hit you will take in your lifetime.

The question is: What are you going to do about it?

You could ignore it, and keep borrowing or charging to pay for daily expenses when your income is swallowed up by the surprise. By going that route, you’ll be paying a lot more than you should for this setback because of accumulated interest. But you have options–there are proactive steps you can take. So, if you’re hit with hard times, keep these tips in mind:

1.) Don’t panic

Panic is the first reaction many people have when experiencing a financial setback. It won’t be easy, but do your best to keep your cool. Keeping calm will allow you to think more clearly and resolve your deficit quicker. Remember, as difficult as things seem, they’ll always look a little better after some levelheaded planning.

2.) Crunch the numbers

I’ll disappear if you just ignore me and pretend I don’t exist, said no problem – ever. That’s because problems won’t disappear when they’re ignored, especially not money problems. If anything, they snowball into a mountain of financial issues you really don’t want. So, difficult as it might be, sit down and figure out exactly how much more money you’ll need in order to cover your new expense, or to fill the gap of an income loss.

3.) Keep the money coming in

When you’re dealing with a financial setback, you’re looking at less money than you need to get you through the month. The only way to stretch what you have to fit your needs is to earn more or to spend less. Since tightening your budget is almost always stressful, try to find ways to add to your income first. If possible, put in more hours at work or seek extra projects, even if it means working nights and/or weekends. Consider freelancing or consulting if you can. Take a side job for some extra cash. Do whatever it takes to bring in a little more money to cover the additional expenses.

If you’ve been laid off or your hours have been cut, it’s OK to work at a job that is below your skill level until you find something more permanent. There’s no shame in earning an honest living.

4.) Trim your spending

Now, it’s time to see which expenses you can trim. Before cutting your budget in half, though, take the time to prioritize. List all the expenses you cannot do without and the ones that would be irresponsible to neglect. Don’t skip mortgage payments or neglect your insurance premiums because you’re short a few hundred dollars. Instead, take an honest look at your remaining expenses and see where you can cut back.

If you’re careful, you may be able to cut your grocery bill in half. Trim spontaneous purchases by only using cash – and keep a minimal amount on you at all times. If you’re a two-car family, consider scaling back to one car for now. Push off your vacation plans until things start looking up. Do whatever you can to come up with the extra cash.

5.) Contact your creditors

If you absolutely cannot make some of your minimum monthly payments anymore, contact your creditors before they come calling on you. It’s always best to be up front about your financial situation. Most creditors will be happy to work out a reasonable payment plan with you.

6.) Reach out to family and friends

The people who care about us most are the ones who can get us through anything. Don’t be embarrassed to tell your family and friends what’s going on. They’ll support you and encourage you until you get back on your feet, and they may even be able to help you out with employment opportunities or helpful contacts.

7.) Be proactive

Hindsight is always 20/20. Harness the urgency you feel now to get into the habit of building up an emergency fund. As soon as you’re back on your feet, start putting away money that can be pulled out in future setbacks. Experts recommend that you have 3-6 months worth of living expenses saved up in case you can’t work for any reason. Knowing you have that money to fall back on will take the stress out of these situations.

Do you need help recovering from a financial crisis? Call, click, or stop by a UCCU branch today for help with money management and ending the debt cycle.

Your Turn: How have you maintained your equilibrium during a financial setback? Share your best tips and advice with us in the comments!

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Credit Cards or Debit Cards – What’s the Smartest Swipe?

Most people own at least one debit card and at least one credit card. They know they have them, but they may not know about all the differences that exist between using a credit card and a debit card.

Believe it or not, there are many. The most basic difference is the fact that each time you use a credit card, you’re borrowing money. A debit card, on the other hand, simply transfers your own money from your checking account to the vendor you’re paying.

When you use your credit card, your credit union is lending you money, which you’ll need to pay back along with interest. A debit card takes funds directly from your account similar to the way that checks do – only quicker. Some processing terminals will require a PIN and some will require signature.

Both credit and debit cards are convenient, quick and easy. They’re also safer than cash, because cash cannot be replaced if lost or stolen.

Which one should you use? The answer depends largely upon your lifestyle.

1.) Budgeting

Credit cards allow you to buy now and pay later. Unfortunately, this can turn into a nightmare because of the obvious financial pitfalls in being able to purchase things you don’t have the money for now. If you think you’ll be tempted to overspend, regular credit card use may not be ideal for you.

However, it’s nearly impossible to incur thousands of dollars of debt through debit card usage. Most credit unions will cover purchases that put your account into the red, but only up to a few hundred dollars. If this happens, you’re accountable for your purchases and charged an overdraft fee.

2.) Safety

The convenience of debit cards can make fraud more likely. Unless reported promptly, debit card theft or fraud can quickly drain your account. Credit card companies are held to strict liability laws: Consumer liability for credit card fraud is limited to $50. If you report suspicious charges in a written request within 60 days, the company is obligated to investigate and restore the funds to your account if the charges are determined to be fraudulent.

For debit card fraud, your liability is $50 if you notify the credit union within two days of seeing the fraudulent charges. After two days, your liability increases to $500. If you report the activity 60 days or more after it happened, you may be liable for all of it. Although many credit unions have implemented voluntary plans to limit customer liability to $50, there is no federal law requiring them to do so.

In addition to stricter liability laws, credit cards offer consumer protection on purchases. You can always cancel a charge if you are the victim of an online scam or bought something that was never delivered or wasn’t what you expected. This makes credit cards the ideal choice for large or fragile purchases that will be delivered to your home for additional insurance on the purchase.

3.) Rewards

One major draw for credit cards is the points awarded for purchases. That’s a strong advantage over debit cards. The ability to earn airline miles and the lure of a possibly free flight are attractive to many consumers. Of course, you may be paying for those miles with a high interest rate or an annual fee.

Don’t get hooked on the points. Research each card carefully to make sure you’re really getting your money’s worth.

4.) Credit History

Another important benefit to using a credit card is establishing or restoring a positive credit history. Debit card usage may encourage responsible spending, but a major factor in measuring your credit score is your credit card usage. Occasionally using a credit card and paying your bill on time can really improve your credit rating. This, in turn, improves the likelihood of earning favorable terms for home loans, auto loans, personal loans and more.

5.) Annual Fees and Interest

A strong disadvantage of credit cards is the money you spend to keep them. Some cards charge an annual fee, and the interest on your credit card bill can easily be a third of your payment or more. If you’ve overspent one month and are unable to cover the entire amount due, you may need to pay only the minimum payment. More of your payment will soon be going toward interest than toward lowering your bill. This makes the next payment higher, and again you’ll be paying a significant portion toward interest. This is often how credit card debt spirals. Interest becomes a huge hurdle, making it nearly impossible for the consumer to make headway.

If you don’t think you will be able to pay your bills in a timely manner, keep credit card usage to a minimum.

As a UCCU member, you already have access to fantastic rates and optimal security. To find out which debit or credit card is best for you, call, click or stop by today!

Your Turn: In what situations do you prefer to use a debit card or a credit card? Why do you choose one over the other? Share your thoughts with us!

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6 Ways to Identify Charity Scams

Did you know that Americans donate a collective $373 billion to charity every year?

Generosity makes the world go round. Whether it’s helping out an established organization like the Red Cross or donating to a smaller charity through crowdfunding sites like GoFundMe, charity is wonderful.

Except when it’s not. Because, sad as it may be, there are hundreds of crooks who hide behind the security of a charitable organization to rob victims of their money. These scammers impersonate well-known charities or create a bogus one, then solicit funds and pocket the cash.

Most recently, scammers have used the Make-A-Wish Foundation name as cover for luring victims into losing huge sums of money. This incredible organization is dedicated to granting the most longed-forwish of each terminally ill child. They can make anything happen, from a Disney trip to a baseball that’s autographed and personally delivered by Kris Bryant.

Sadly, scammers are now abusing the Make-A-Wish Foundation name and our desire to do good to con people out of their money.

Here’s how it works.

The scammer calls the victim and announces that they’ve won hundreds of thousands of dollars in an alleged sweepstakes conducted by Make-A-Wish. The caller claims to be a government representative of the FTC or another federal institution. The “government official” then explains that the “winner” must pay thousands of dollars for taxes and insurance before they can lay hands on their winnings. To make the call seem authentic, it often bears a 202 area code – that of Washington, D.C., which is the headquarters for the FTC and most federal agencies.

Of course, there is no sweepstakes and the caller is no government official.

In fact, on the Make-A-Wish website, the organization clearly asserts that it does not conduct sweepstakes, ever. If you fall for the scam and wire your money over or share your personal financial information, you’ll never hear from the caller or your money again.

There are several red flags here that should alert you to the fraudulence of this call.

First, the FTC has more important things to do than hand out sweepstakes prizes. Second, you should never have to pay money to claim a prize. And third, no legitimate organization will ask for such large amounts of money to be paid over the phone.

If you’ve been contacted, do your due diligence to stop those crooks from preying on other victims. Report the scam immediately at FTC.gov. Next, let Make-A-Wish know. You can notify them through their website, at FraudAlerts@wish.org. Do your part to prevent these scams from succeeding.

Unfortunately, this latest scam is not the first to use a charity for cover, and it certainly won’t be the last.

If you love giving to charity and helping those who are less fortunate, you may be feeling doubtful now. Going forward, how can you possibly know when a charity that’s soliciting funds is a genuine appeal and when it’s a scam?

As always, UCCU is here to keep you and your money safe. Here’s how to verify that you’re donating to legitimate charities:

1.) Don’t donate over the phone

In general, it’s best not to donate over the phone. It’s difficult to determine authenticity, and up to 95 cents of every donated dollar can go to the telemarketer who just interupted your dinner.

2.) Be wary of sob stories

Tear-jerker tales may get us to part with our money, but a legitimate group will not rely on sob stories to solicit funds. When an organization is preying on your heart strings to the point of discomfort, you may be falling for a scam.

3.) Donate with caution after catastrophe

Natural disasters bring out the kindness and generosity in people. They also bring out the crooks. Well before Hurricane Katrina even struck land, the FBI uncovered 4,000 websites with the storm’s name in their titles, most of which were run by criminals who lived overseas.

When disaster strikes, though, you do want to help – and you still can. Just make sure your money is going to larger organizations and names you recognize. Don’t wait for them to reach out to you. Donate through the charity’s website or by calling them yourself. This way, you’ll know you’ve reached the right party.

4.) Know the charity 

When choosing a charity, do some research. Find out what the charity stands for and about the programs and fund-raising campaigns they run. This way, when someone calls impersonating this organization while collecting for a cause you know they don’t support, you’ll recognize the scam. If all the victims of the Make-A-Wish scam knew that the foundation does not conduct sweepstakes, the scam would never get off the ground.

5.) Read the reviews

Aside from checking out the charity’s official website, you’ll want to read some third-party reviews. You can check for a charity’s legitimacy on objective review sites like CharityNavigator and CharityWatch.

6.) Ask for info

You’ll sometimes be asked for donations over the phone, and the caller will sound genuine and sincere. You’ll be tempted to give money, but first, verify that the solicitor is indeed representing a charity. Ask for details. What is the organization’s mission? How will this money be used? Will you receive a receipt for tax purposes? If the caller isn’t forthcoming or confident with their answers, hang up!

7.) Give safely

As always, never wire money to an unverified recipient. It’s like paying with cash – there’s no way to get it back. Similarly, only provide sensitive information if you’re absolutely certain the caller is genuine. As mentioned, if you’re in doubt, contact the organization on your own to donate funds.

Donating to charity is a beautiful thing. Don’t let a bunch of fraudsters ruin it for you or the beneficiaries of your compassion. Learn how to recognize charity scams so you can continue giving with a full heart. In the end, go with your gut. If something feels off, it’s better to save that money for another charity later on.

Your Turn: Have you ever been duped by a fake charity? Or come close to it? Share your experience in the comments so we can learn from it.

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