Category: Budgeting & Cash Flow

THE SKY IS FALLING! THE MARKET IS CRASHING! CATS AND DOGS LIVING TOGETHER! WHAT SHOULD I DO????!?!?!?!

Step 1 – Relax. DO NOT SELL YOUR STOCKS!

As with anything during these strange times of the corona virus, it is really important to weather the storm. It is a time for patience not panic. We are hoping to clear up some of the big financial questions that we are all asking at this time. 

First up – What is a “market crash?”

A market crash is a bit of an exaggerated term. It truly means that the overall value of all the stocks in the market have dropped a significant amount. Currently, in this last full week of March 2020 they are down 33% since the market’s high a few months ago. For many of us, it looks like our investment are way down. There is some truth to this. The index funds I bought in February for $300 a share are now worth closer to $225 a share. So on that investment, yes I am currently behind. But it is important to note that I have purchased a lot of index funds over the years at a variety of different price points. While it does seem like I have lost a lot of money in the short term, I am still up overall. I bought those same index for $160 a share in 2014. So overall, still ahead and I have been collecting dividends on those shares for the past 6 years as well. So despite these times of record losses, I can still sit here and joke around and smile because I understand that this “crash” like all crashes is temporary. 

What is a correction? What is a bear market?

Hopefully, as a teacher you aren’t tuned in to the daily back and forth of the stock market. Following the daily ebbs and flows can be draining and can take away from our overall goal. And that is to invest for the long term. If you have been following the talking heads, there is a lot of current talk about a correction and heading into a bear market. A correction is a natural process that occurs in the stock market. Stocks often times are over valued because of record profits and many people buying in when times are good. As a country, the USA had been riding an inflated market for most of Trump’s presidency. President Trump is a business man so much of his team’s focus has been to ensure stock market growth. This lead to a lot of confidence in the economy and lots of buying in the market driving the prices of everything way up. At some point we knew it wasn’t going to last forever. Many individual stocks and funds had become over-valued. Insert an event of uncertainty (A global pandemic) and we get the return back down to normal. Sometimes the correction can send the Stock Exchange into what’s called a bear market. It’s impossible to say for certain if this virus will launch us into a bear market but a lot of people smarter than us say that is likely the case. What does a bear market imply? A bear market is a 20% drop in stocks from their all time high, so yes, we are currently in a bear market. The question that we don’t know the answer to is how long with this bear market last. That will really depend on how long this coronavirus pandemic lasts. It may be surprising to here, but as a young investor, this drop in the market greatly excites me. It will really open the door for our generation to get into the market at a low point and see our wealth accumulate. It’s just unfortunate that it took a crisis like this to cause it. More on that later. 

Why you can’t “time” the “crash”.

Many times, I find myself walking the professor back from the metaphorical financial ledge. He is an aggressive investor and wants to accumulate wealth in a hurry. Who can blame him! He doesn’t have a much time as I do to sit back and let those index funds grow. He and others often talk to me about, “Oh if I only knew that this crash was coming I could have sold!” or “Why did I buy those stocks right before the downturn.” Or the best yet, “I don’t want to buy any now until I know it’s hit bottom and is on it’s way back up.” To all of those out there thinking things like this… NO ONE, NOT EVEN PROFESSIONALS CAN TIME THE MARKETS! SO GET THAT IDEA OUT OF YOUR HEAD! Absolutely no one can predict the short term day to day transactions of the markets. Especially not us. So now is a great time to stick to your monthly plan of investing. Whatever you do. DO NOT SELL! It is the worst time to sell your stock, and it is a move of panic. Leave that money in there. The one thing that we can predict about the market is that over time the market goes up. It might not be for a couple of years but it always goes back up. What a great opportunity for us to accumulate some cheap index funds!

What about the different payment options that are being made available for my mortgage, student loans and other expenses.

NO.

If you still have paychecks coming into your household and you don’t have to defer those monthly expenses, don’t. The only thing those are doing is delaying your debt. You’re better off staying on whatever plan you have to pay that debt down versus trying to have more disposable income in your pocket while you are stuck twiddling your thumbs inside. If you don’t have a stable paycheck coming in currently, then obviously you should use common sense. Look at your budget and see if you can afford to keep paying those things or not. 

Step 2 – Use this crash to your advantage

At some point, the market will stop falling. It will level off as society moves back to its normal ways in the future, and the market will have a chance to start growing again. This Bear market should be seen as a golden opportunity for us a few years away from retirement. The inflated prices have come crashing down and have now been made more affordable for us future investors. We now have a chance to get in on the bottom as the nation’s economy rebuilds. 

How to invest during a crash?

Stay the course on whatever investment plan you have currently been using. For me, it’s a great time for index funds. relatively low risk and always go up in the long term. I just bought another batch with my last paycheck. And with the cheap prices I was able to afford more than I have purchased in a long time. Here at Teachers Stacking 10s, we are a big fan of Vanguard’s system. No particular reason why we just think it is easy to navigate. I have been purchasing more low cost index funds(<.04% fees) during our quarantined time here. There are other stocks out there that can be good buys. There is just more uncertainty with those in these current times. In general, I suggest index funds or something that pays a high dividend. But that's a conversation for a different time. BUY INDEX FUNDS!

What to do during the crash?

Many teachers around the nation now have some extra free time that we aren’t used to. Use it to “Sharpen the Axe”. Now is a great time for reading, research, studying all things finance related, things that you never had time for. Use this time to read a personal finance book. We can recommend a lot of them! Check out the rest of this website plus our other favorites that you can find on our home screen. Take this time to go through your family budget and what your goals are for the future. We have a unique opportunity here to come out of the quarantine as more intelligent investors. Let’s use this time to our advantage. 

All finance related inquiries a side. I truly hope this post find you well. We are living in weird times and I believe the nation is realizing how important that role of a teacher is. It’s a great time for all of us to step up and do what we can in our districts to continue to prove our value to society. Thanks for all that you do and spending time to read through our financial advice. Feel free to comment below with any questions or concerns you have during these strange times. 

As always…

KEEP STACKIN!

Moral of the Story – Don’t get blinded by the frustration caused a problem. Stop and look for a solution. Who knows, It could save you time and money as well as give you an immense feeling of accomplishment by being a problem solver. 

KEEP STACKIN!

Money is definitely something that you need to be teaching your kids about. The problem is that most people don’t know where to start. Heck, most of us here are teachers. We teach for a living, but we don’t know what or how to teach our children about money.

The sad fact is that less than half of parents in America talk with their kids about saving and investing for retirement. Unfortunately, too many parents are themselves uneducated when it comes to managing their personal finances. This whole blog is designed to give you enough background knowledge and confidence to take charge of your own finances so that you can pass this knowledge on to other teachers, but more importantly, your own children.

So where do I start?

The Basics

The first conversations about money with your child should focus on what money is, how you earn it, and where it goes. Start with talking to them about your check and how you earned that money. It’s very important that your child understands that the money you earn comes from you giving your time to your employer. It isn’t just “given”. After they see your paycheck, they will probably think that you are rich! The next step is to explain to them where the money goes. This money allows them to have a place to live, lights, food, etc… Explain to them that all of these items need to fit in your budget. A budget is an important part that many people skip and even fewer follow. They need to understand that without a budget, you can’t move into the next step of financial literacy.

Savings

Now that your child understands the basics. You can dive deeper into budgeting with them and show them that you should NOT be spending every dollar you earn. Start with a simple idea of a savings account. This is an important step for children. We live in an instant gratification society where people get what they want when they want it. Kids must learn the concept of delayed gratification and teaching this at a young age is paramount. Try to keep it very simple. Have them think of a reasonably priced item that they really want. Now it is up to them to save enough money to buy it. If your child is 8 or older, you could give them a small allowance for doing chores around the house. This is a golden opportunity for them to learn the concept of work for pay. Just like if mommy and daddy don’t go to their job, if you don’t do your chores, you don’t get your allowance. An important step of this is to make sure that you give them the money that they’ve earned. They need to have the ability to spend it when you go places. They need to see all of the temptations in everyday life. We’ve all made impulse purchases before. Your child needs to see that there are going to be things out there in the real world that are going to try and “persuade” you to give up your hard earned money. Whenever your child wants to spend on something that isn’t their “goal”, remind them of what they really want to get, but don’t stop them. If they do decide to spend on something else, keep talking up that “goal” that they have to create a little buyer’s remorse. They need to feel that at a young age. Better to feel some buyer’s remorse now on a $10 toy than 20 years from now on a $20,000 one! Once they’ve learned that lesson, it’s time to move on to the next step.

Investing

Now the real fun begins. Remember when you talked with your child that the way you earn money is by working? Now they need to learn that real wealth is made when your money makes money for you! To me, the best way to teach this lesson is to actually open an investing account for your child. I believe that a Roth IRA account is the best vehicle to do this. We talked about Roth IRA’s in this post. A Roth is a great choice because the money grows tax free and is NOT taxed when money is withdrawn. Your child can also withdraw any principal invested at any age. The con is that they may NOT withdraw any growth on the money until they are age 59.5. This investment also gives you a chance to talk with your child about retirement. Wouldn’t we all like to retire at age 59.5 with enough money to live our best life? Starting a Roth at an early age will allow your child to do that. Now this is the ultimate in delayed gratification! One caveat with a Roth is that your child can ONLY invest $6,000 or what they claim in earned income during a calendar year, so your child will need to have a documented job to invest in a Roth. Sorry, their allowance doesn’t count. Oh, your child has a mowing “business” that they are paid to mow your yard and a neighbors. Hmm. We may have something. Consult your personal CPA before committing to that. The Professor is NOT a certified CPA. 

Conclusion

Every parent wants their child to have a great life. Teaching them about money at an early age is a vital role for you as a parent. As a teacher, you KNOW that your children are NOT being taught these types of lessons in school. Ironically, high schools and colleges will teach students how to manage money in a business, but not your own personal finances! So, take the steps necessary to put your child on the right path here in Money 2020! Nobody will care about THEIR money more than THEM!

Keep Stackin!

Step 1 – Tracking your net worth. I like the app Personal Capital to track my accounts and every day expenses. My favorite feature of the app is the home screen that tracks your net worth for you! Looking at it everyday makes you aware of how much you have and plays a part in gamifying the process for you. Currently, I am down to just recording it annually. I started by recording every month in order to make sure I continued growth. Being aware of what this number is and the impact transactions have on it, has to be your first step in financial independence. Very few people out there will innately acquire wealth. We must be aware of where we stand in order to grow. 

Step 2 – Owning a house. This one should have a big asterisk beside it. Owning versus renting is not a one size fits all decision. There are a lot of things to consider about your own situation but for me it looks to be a profitable experience. My mortgage payment is half of what the average rent is in my city. I bought an affordable fixer-upper in a popular part of town. As I slowly renovate rooms to modernize the place the property’s value is holding steady and my monthly payments are slowly going converting into equity. Whenever it is time to sell, I’ll likely make some money off of that. Whereas with renting, I can guarantee that I won’t make any money. One thing that is nice about Personal Capital is it automatically pulls your houses estimate from Zillow to keep tracking this for you. I’m able to follow the ebbs and flows of the market, and it gives me a very rough idea of what my property should be worth.

Step 3 – No New Debt. Of course I say this after saying it can be profitable to buy a house! Housing is one of those expenses that you can expect from life. You’ll always have to pay for a place to live. When I talk about no new debt I talk about avoiding loans and payment plans for items you can live with out. Jewelry, electronics, furniture, renovations, all of these things can have payment plans that turn into debt that hangs over your head and pull that net worth down. Always try to make decisions that limit new debt. Pay outright for small things. These little debts add up much faster than you realize. Try to avoid them and seek alternatives if you can. 

If you have followed our advice, much of your paycheck is automatically sent to the proper accounts. Everything “should” be correct and getting to the right places. I mean, those are adults working in the business office, aren’t they? They are, but they are also human, so sometimes mistakes do happen.

When it comes to debt, Americans are in love! According to a 2018 study by Nerdwallet, the average American household has $6,829 of revolving balances each month. Add in your monthly mortgage/rent, car payment, student loan payment, etc… It’s no wonder that your average American looks at you like you have a third arm when you ask them how much they are saving each month for retirement.

Granted, the die-hard travel hackers out there could have done this more efficiently and for better “value”, but for my first time, I’m pretty happy with the results! Another example of making the credit card companies work for you! And hey if you decide you’d like to try the Chase Sapphire Preferred card. Here’s a referral link that you can use.

KEEP STACKIN!