by Miata on July 11th, 2014
This week I want to focus on debt. Why? Many people have debts, but few have a debt strategy. If you’re going to focus on your craft, you should minimize distractions with confusing terms and high repayment options.
The biggest debt for most people is their mortgage, so we’ll start there.
Here’s some good news: mortgages don’t have to be ominous, and if you do them wisely, you can come out ahead on your mortgage decision.
Let’s start with what a typical mortgage looks like and then we’ll talk about money-saving strategies.
Ideas You’ll Need to Understand About Mortgages
Most mortgages are repaid over either 15 or 30 years. While other terms exist, stick with these two. Here’s why: Most banks compete in the 15 and 30 year arenas, so you’re much more likely to find a competitive rate. That’s not the case with other options, like a 10 year or even 40 year loan. (side note: Who wants a mortgage 40 years from now? Not me…..)
There are (generally) two types of interest rates on a mortgage: fixed or adjustable rate loans. Fixed rate loans guarantee that you’ll keep the same rate for the whole term of the loan. These types of loans are attractive when rates are low. When rates rise, some people opt for adjustable rate loans. These loans will move as interest rates rise and fall.
Before you sign on an adjustable rate loan, ask your lender a few questions:
- How often will the loan adjust?
- What is the maximum percentage a note can rise or fall? (most loans cap the amount they can change in a year. Knowing the “worst case scenario” can help you budget for the future.)
A popular offshoot of an adjustable rate loan is called a balloon loan. These generally keep a fixed rate for a short period, but at the end of that term you’re forced to make a huge “balloon payment” or refinance. (One example of a balloon loan is a 7 year balloon. That means you have a fixed rate for seven years but then the loan ends).
Some questions to ask about a balloon loan:
- Is the rate fixed or adjustable before the balloon is due?
- What’s the penalty if I don’t find other financing at the end of the balloon? (You want to be clear about the fact that you’ll probably lose the house.)
- How long do I have until the balloon payment?
Here’s where most people get “in the weeds” with mortgage planning. Mortgages can be riddled with additional fees.
Like anything else, it’s easier if we just stick to the basics. Here are few fees to watch out for:
Appraisal fee – In the area where I live appraisals cost around $350. However, I’ve been told these vary widely depending on where you are.
Title search – Your mortgage company has to make sure you don’t have any liens filed against the title. These costs vary widely.
Application fee – This covers the cost of processing your application and checking your credit.
Origination fee – If you work with a broker, this represents their commission.
Mortgage Underwriting fee – Here’s the “garbage can” of fees that are added to a mortgage.
How to Lower Your Interest Rate
Pay Points – To keep it simple, points are upfront fees you pay to lower the interest rate on the loan. Ask your lender how much points will cost for your mortgage and how that’ll lower your interest rate and payment.
How to Lower Your Closing Costs
There are two options and people often get them confused:
Costs rolled into the loan – I’ve met tons of people who think they’re getting a loan without closing costs….which ends up not being true. They’re often actually getting a loan where the mortgage team has raised the amount you’re borrowing to include the loan costs.
No closing cost mortgage – Often this is my favorite type of loan. You’ll pay no fees for the loan but your interest rate will probably be a little higher (the company needs to make money somehow….you just decide how you want them to take their fee….in this case you’re telling them to have more interest instead of paying for it elsewhere). Why do I like them so much? No cost loans make my decision-making easier in the future. I don’t have to worry about how much money I’ve sunk into the existing loan before deciding to refinance later.
Note: Sometimes people think they’re getting taken advantage of by their mortgage company because they were sold a “no closing cost” loan but ended up with a higher loan amount. If that’s your situation, you might not be getting taken advantage of. Here’s the thing: because you skip a month’s worth of payments when you refinance, your loan amount actually goes up by the amount you didn’t pay. In effect, you’re rolling in the month you didn’t pay….but not closing costs.
Two easy strategies that get a little “creative” (perfect for our audience!):
1) Take a longer term loan and save the difference elsewhere. I’m a big fan of keeping my money flexible, but I also want to pay my loan early. I detest 15 year loans unless there’s a huge difference in the rate between the 15 and the 30. With a 30 I can pay my loan along the 15 year timeline but back down the payment schedule if I have a financial meltdown, such as if I lose my job or get disabled. Some people like to save the extra money into the loan. I prefer saving it into an S&P 500 mutual fund.
2) Make extra payments during the year by changing your payment schedule. Here’s a plan: make an additional payment two weeks early and then continually pay more every two weeks. If your bank will put those payments on your loan as they come in, this will reduce interest by a ton. If not, you might be wasting your time. Check with your bank to see how they’ll handle you paying early (you may just have to make one extra payment a year).
Mortgages don’t have to be an ugly beast. Hopefully this information will help you to complete the mortgage process painlessly and spend more time on your craft!
by Miata on June 30th, 2014
A friend emailed me asking for help.
“I care so much about (my craft). Why does it always end up coming last?”
There’s a short answer to this question.
It isn’t enough to care.
I’d submit it isn’t even just about hard work.
It’s about systems.
Setting up systems to win is the key to your success. Financially, having systems for the right tasks is equally important.
The Sherlock Holmes Story
In one of the Sherlock Holmes books by Sir Arthur Conan Doyle, someone asks Sherlock about a piece of current events. Holmes replies that he has no idea what the person is talking about. The questioner is shocked. The great Sherlock Holmes doesn’t know something? Holmes replies that the mind is only so large. If you fill it with trivia, there won’t be room for the information you really need to be successful.
Practice The Sherlock Holmes Method of Systems
Your goal should be to fill your brain with your craft and the things that really matter to you. Therefore, everything that isn’t important shouldn’t take up very much space.
- Track your expenses automatically using money management software like Mint, Quicken, or You Need a Budget.
- Schedule time each week to plan your spending in advance for the upcoming 7 days and to hold yourself accountable for the week before.
- Hide money from yourself. Send money automatically to your savings account.
- Check your insurances on your birthday (or some other anniversary.) Don’t think about them the rest of the year.
- Check up on your investments once every six months. Read about asset allocation so you don’t get stuck trying to time the market. Remember to stay diversified.
- Have taxes automatically taken out every time you’re paid for work on your craft. Schedule quarterly payments if you’re in the United States, or whenever taxes are due.
- Look at your beneficiaries every birthday that ends in a five or zero. Schedule these on your calendar.
Creating Systems For Everything
A friend of mine has systems for her whole life. I know that sounds boring, but really, it helps her gain maximum creativity. She said that all she focuses on each day are the things that will help her improve her life.
Isn’t that what we’re all looking for?
But I Don’t Have Time!
I remember early in my career I was at a point of giving up because things were so, so disorganized that I felt I just couldn’t get it together financially or otherwise. A mentor gave me the same advice I’m giving you.
Clean everything up and then restart.
“I can’t do that!” I protested.
“Why not? You clearly aren’t happy.”
“I don’t have time!” I said. Life was spinning in front of me and I couldn’t afford to stop everything.
“Well,” he replied. “You have two choices. Stop now and clean up your messes, which will take a relatively short period of time, or call off your career six months from now because you’re so disorganized you can’t concentrate.”
He made a good point.
If I don’t have my act together today, when is the right time to stop and put it together?
Your homework: spend this week retooling your systems. Imagine all the time and energy you can free up for the things you really love!
by Miata on June 16th, 2014
“Being the richest man in the cemetery doesn’t matter to me…Going to bed at night saying we’ve done something wonderful … that’s what matters to me.”
I was speaking with a friend the other day who said, “No offense, but money people are so obsessed with cash that they forget to create. They’re so obsessed with profits that they miss the point of life.
To some degree, I think that’s true.
There are actually studies that have shown that many uber-rich people are mean and unkind, and money helped them become that way. The issue is when we believe we’ll avoid ever becoming that type of person, by simply never focusing on money.
That’s where the wheels come off the bus, so to speak.
Money isn’t a problem if you’re using it to create good in the world. Money isn’t an issue if you’re developing your craft and trying to ensure that your art is noticed.
Money only becomes an issue when all that you can think about is the pursuit of the next dollar.
Even great investors aren’t obsessed with money. Warren Buffett, the world’s greatest investor, has said many times that he’s obsessed with the same things that most of my creative friends and clients are obsessed with: he wants to find perfection. He’s looking at companies and investments and trying to find a better way to accomplish as much as possible. The money? Sure, it’s a yardstick for Buffett as to how well he’s doing, but it’s far from the focus. He’s acknowledged that when he dies, Buffett is giving the vast majority of his money to non-profit groups…. not to his children!
Perhaps one of the biggest frustrations I experience working with creative people is that so many wonderful ideas they have bottled up never get out. Why? There are many reasons…They’re too busy worrying about next week’s rent or car payment. They have credit card bills they can’t pay. They’re wasting away in dead end jobs to make ends meet and then find themselves too tired to produce the greatness they have inside.
What solves these problems? Not money itself, but financial literacy.
If your goal, like Steve Jobs, is to create something wonderful, then you have to be financially literate. You don’t need to know about cash management, insurances and investing so that you’ll become rich. You need to know the basics so that you don’t waste time tripping over inconsequential details while you’re busy perfecting your craft.
How Do You Do It?
1) Know Yourself. A friend of mine knows that he’s not into hard-core “how to” stuff. However, he likes to laugh. So for him, any hard-core financial book isn’t going to be as good for him as something that holds his attention. Once you know how you learn, you’ll be best able to focus on those avenues that help you to gain literacy most quickly.
2) Join groups. Discussing financial topics with like-minded people helps you create a surround sound in your life. If it’s true that you are what you think about, then surrounding yourself with positive messages about money is something you should look to achieve. Don’t live near people who share your values? Thankfully, there’s a big wide internet waiting for you!
3) Listen to podcasts. One friend of mine has a long commute to work, so he listens to podcasts while he’s driving. Some days these are financial shows. Just like my other friend above, he isn’t into hard-core how to tips, so he sticks with fun shows like NPR’s Planet Money, or Freakonomics, where they take an idea and creatively tell a story about how economics or money affect your life. Don’t have a long commute? Listen while exercising or use an app like Stitcher, which allows you to listen at 1.5x or 2x speed.
4) Read magazines and blogs. While some financial blogs can be seriously depressing, others (like this one!) are full of upbeat tips and advice. The good news is that there are many, many financial blogs out there, so if you’re excited about investing…there are blogs for that. Not into investing, but just want creative financial discussions? Those exist also.
5) Find books and television shows where money and creativity intersect. Many of my friends enjoy the show Shark Tank. While it’s not for everyone, here’s what it’s about: people bringing creative ideas to market, try to sell investors on their ideas. Even fictional shows, like The Good Wife, have a money component. The law firm at the center of the show is constantly fighting bankruptcy and is always worried about how much money a case will win them (as much as it’ll win their client….). Many people think you have to find inspiration from straightforward sources, but if I focus my decision-making, I can easily find ideas that help my craft.
Don’t avoid putting your financial house in order only because you’re worried that getting rich will get in the way of creativity. Plenty of the world’s best creators are wealthy (and NOT horrible) people. By tying financial literacy into the success formula for building your craft, you’ll not only show the world your unique talents. You’ll be able to sustain your ability to create more in the future.
by Miata on June 2nd, 2014
A business plan…. many creative people I know shy away from those two words….
First, they’ll tell me, their craft isn’t a business.
Second, they’re overly in love with the term “winging it.”
Yet, if you talk to top artists in nearly any field, they have a workmanlike precision to their art. They seem to be in the right place at the right time. How do they do it?
After studying successful people, I’ve found they all have one thing in common…. One thing that they may not all admit to, but that I’d refer to as a “business plan.”
A business plan is something that helps you focus your thoughts. It helps you decide where your opportunities are in life, so you can manage your time most effectively.
Sound like something you want for yourself and your craft?
Great! Then let’s help you climb to the top, shall we?
The most important part of a business plan
Your plan needs to marry your personal life and your professional life. By knowing where each stands, you’re more likely to do a great job of coming up with the right strategies.
Like the Cheshire Cat said to Alice, if you don’t know where you’re going then any road’ll get you there.
First, we want to choose a road. To do that, we need to know where you’re going.
List out your personal dreams. Give yourself permission to dream big. What do you want?
When I work with someone, I’ll often use what I think of as the “deli counter” approach. When someone tells me their goals, I’ll ask, “What else?” The reason for this is simple: the first three or four goals are the ones you think you’re supposed to have. The next few are the real goals. We want to work with the real ones, not the ones that we think everyone else expects us to chase.
What Does The Goal Cost?
Now that you know what the goals are, it’s going to be a simple matter of plugging in numbers to see what it’ll take to make the goal a reality.
There are many calculators out there to help you find the numbers you’re looking for….but to boil it down you just need to know what you need to do every month in your craft and jobs to make those a reality.
Now You Know The Goals….Let’s Go On The Attack
This is my favorite part of planning. Michelangelo said that the biggest problem with goal setting wasn’t in setting the bar too high….it was in setting the bar too low and easily reaching it. By starting out with the big, fat awesome goals, we’ve set the bar really, really high.
….and that’s when your imagination takes over.
Suddenly the fountain of inspiration comes. You begin designing ways to create, to operate, and to market your craft. Write down as many of these as possible. No idea is silly or stupid. You’re working hard to envision a new reality for your craft, and to do that, it’s going to mean trusting your ability to just throw out great…and not so great ideas.
Organize These Ideas
Once you have a list of ideas, now it’s time to focus them into a coherent framework.
- First, look at which ideas are “low hanging fruit”
- Second, group ideas together that are similar. You may be able to tackle several of these at once.
- Third, ask yourself what each of these ideas brings to the table as a step toward your goal. Which action should be taken first to get what you want?
- Fourth, take out your calendar and create a model week. This will organize your life so that you can stay focused on those ideas that will drive you most closely toward your goal.
- Fifth, automate the financial aspects of your goal setting, so that you can stay focused on your craft. As you earn money, you’ll want that to automatically go to the right account.
Imagine that you have this “business plan” in place. Not only would you know what your priorities are each day, but you’d know how much closer you’re getting to your end goals!
How much anxiety would that eliminate? (I’m guessing it’s a ton.)
How much faster can you create the life you really want? (I’m guessing MUCH faster.)
It’s not hard to set this up. Carve out time this week and jump on it while you’re excited. Write to me if you have problems setting up your plan. I’m happy to help!
by Miata on May 12th, 2014
We’ve all had them: everything’s humming along fine with our craft and then there’s a special trip that “everyone else is going on.” Suddenly you’re spending money like a half-crazed couponer at a going out of business sale.
We call it the “budget buster” moment.
What is a budget buster moment? It’s when you’ve been a good saver for a long time and then feel like you deserve a treat.
Maybe you’ve worked on your craft harder than ever before.
Maybe you’ve kept a tight lid on your spending.
Maybe you’ve worked out and lost ten pounds.
Whatever the reason, you decide it’s time to celebrate. The budget goes out the window and you’re a money-spending, budget-busting fun person to hang out with.
Those Days Always End In Misery.
I’ve felt it. You may have felt it. …the regret that comes with overspending is horrible. You can’t stop the pit in your stomach from growing. You know that you just blew the budget (and your budget for the next few months) and you’re wondering what you’ll have to do to get whole again.
There’s nothing wrong with failing at your budget, as long as you’re willing to get back on the horse again.
Here’s How To Avoid Budget Busters
1) Loosen the belt. Sure, you’re excited about your budget now, but after the newness wears off, living on ramen and wheat bread is likely to trigger a violent spending reaction down the line. Instead, think about balance: I want some fun today but I also need to save enough to have fun tomorrow.
2) Give yourself an allowance. While you might have a strict grocery or clothing allowance, give yourself a small amount to spend each week on stuff you won’t track. If you want more expensive items that you’d feel guilty about purchasing, force yourself to save these little allowance dollars. Big ticket trinkets or experiences and no guilt because you stuck to the budget!
3) Talk about your money. People spend for lots of reasons, including buying addiction and feelings of helplessness in other areas of their lives. Without going into the psychology of why YOU might be overspending, I’ve always found that by talking about your spending with close friends you’ll hold yourself to a different standard.
4) Keep money out of your hands. I’ve mentioned this often, but the reason I spend money is because it’s available. By keeping money in spots that I can’t spend, I’m able to save automatically!
5) Keep your big goals in front of you. People who succeed do it because they know what they want. You’ve seen this with top artists. Once they decide that they’re going to create, it’s magic. You can do the same with your spending habit. Keep your long term goals in places that you can see them. One client had a photo of her dream home on her bathroom mirror. Every time she brushed her teeth she remembered why she was working so hard. Seven years later, she was in a gorgeous new home!
6) Stay away from clusters of misery. I’ve written an entire blog post on this topic in the past. By keeping yourself around positive people and positive messages, you’ll avoid many money mistakes.
7) Keep financial media in front of you. Read this blog! Read other money blogs. Listen to financial podcasts. By keeping finance in your daily vocabulary, you’ll be less likely to make horrible decisions with your money.
A friend of mine is a golfer. He said that the very first lesson he needed to learn to play better golf was to avoid “trouble” on the course. Trouble meant hitting the ball into bunkers or behind trees. Often he found himself “in trouble” because he’d try to (in his words) “get cute” with his shots. Instead, he needed to stay calm and play for the long term. When he got into trouble, he needed to focus on getting back out of trouble quickly, rather than panicking and compounding the error.
Whether you’re a golfer or not, I think this is a good lesson. By avoiding panic when you bust the budget, you’re better able to make tweaks to get the budget back in line. Learn from each mistake. That way, you’ll be back on track toward your goals in no time!
by Miata on April 25th, 2014
In our last newsletter, I shared some tips on picking the right investment for your goals. But for many of us, another big question is this: “Where do I actually hold my investments?”
Much like artists generally have themes that run through their work, a prevailing theme you’ll find in financial planning is, “take advantage of tax shelters whenever possible.”
What’s a Tax Shelter?
Right now, the concept of a tax shelter might be as foreign to you as someone speaking an unfamiliar language. Honestly, for years I didn’t know the difference between a 401k and an IRA… However, once you’re able to work through this mumbo-jumbo of alphabet tax shelter soup, you’ll find that it isn’t as hard as it seems.
For most of us, the place to start is a Roth IRA.
Read the rest of this entry »
by Miata on April 11th, 2014
Let’s face it, as artists, we take plenty of risks with our craft. We don’t need undue risks with our investments.
Looking at CD rates last week, there’s nothing to grin about. According to Bankrate.com, the average one year CD is paying 0.23%. Looking for a higher return? If you lock your money up for five years in a CD you still are only going to earn 0.80%
To use my son’s word for lima beans, “Yuck.”
So if you’re going to save, but you don’t want risk, what do you do? Read the rest of this entry »
by Miata on March 28th, 2014
I often hear stories from creative professionals about their difficulties saving money. I completely understand. When faced with a project today for our art versus some far off goal, it’s hard to put away a dollar that could help right now.
Yet, I also know that the only way to financial independence is to save for the future. Every dollar we spend now is a dollar that could have secured our dreams forever, instead of just duct taping them today.
So let’s make saving easier by utilizing technology to help reach our goals. Here are four resources to get you started. Read the rest of this entry »
by Miata on March 10th, 2014
Hiring Pros? 5 Guidelines To Save You From Delegating to A Scammer
When I read about young Nickelodeon star Drake Bell declaring bankruptcy, I thought immediately about how vulnerable we are as artists.
If we want to succeed we have to be able to focus on our work. That focus means that we need to become good delegators, and often it’s the financial parts of our lives that are at least partially handed off to other people.
Why do we hand off something as important as money? That one is easy. Finance can feel cold and calculating, or boring to someone just learning. Certain aspects of our financial lives might require the ability to decipher contracts, understand interest rates and follow obscure metrics. That can be overwhelming…and underwhelming at the same time! Read the rest of this entry »
by Miata on February 14th, 2014
Be Careful With IRA Rollovers
Research plays a huge role in your art. Whether you’re exploring the motivation for a character you’re about to play, scouring the net for new textures and ideas for a painting, or digging into the history of any revolution for your next book, research is at the base of most artistic pursuits.
It’s the same with your financial decisions.
I mention this because while doing research, I noticed that FINRA, the board who overseas most financial professionals, was going to focus more on retirement plan rollovers. It seems they’re worried that too many people might be making poor decisions in this area.
So, to help you with your research, I thought today we’d discuss what a “rollover” is, how it should work, and what FINRA might be worried about. Read the rest of this entry »