Lessons In Entrepreneurship

This weekend marks a big milestone for Ace Academy: We turned 1! Looking back at the past year, I still can’t believe this idea came to life. I’m not the kind of person who takes big risks or who likes to chart my own path, so starting a new venture is completely foreign to me. But there is no better teacher than experience. Here are some of the lessons I want to share.

  • Have a clear vision. The best thing you can do when starting out your business is to come up with a business plan. What special need are you fulfilling? How will you drive business, and what’s your timeline? Do you have an exit strategy? If any of these questions are unclear to you, take the time to figure out the answers now. Creating a business plan does not just help you. Having details of your business readily available attracts more potential investors and gives future employees a clear direction.
  • Learn to set limits. When you start on a new project, the tendency is to put all of your energy into something because you are trying to prove yourself. This makes it easy to get burned out and may set the stage for little or no work/life balance. By setting boundaries for yourself from the beginning, you are establishing a pattern of working more efficiently.
  • Pursue your passion. Entrepreneurship is not easy. There will be setbacks along the way, things that you don’t know to expect, lots spent with little in return. That is why it is so important to pursue something you love. If you’re not sure you can stick by your idea for the long haul, test the waters while keeping your day job. That’s exactly what Daymond John from ABC’s “Shark Tank” did. He kept waiting tables at Red Lobster as his clothing line started to take off. Just consider it your passion project.

While it’s only been a year, Ace Academy has already reached thousands of views across the globe, including China, Europe, India, and the United States. Thanks for subscribing and following along as we continue to learn and test new ways to explore money. Welcome to a new school year, ace!

Homework: Think of an entrepreneur you admire. How did they get their start? What lessons did they learn along the way? If it were you, what would you keep the same or do differently?

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Happy Birthday, Warren Buffett!

One of the great living legends, Warren Buffett, celebrated his 90th birthday yesterday (August 30, 2020). To most, he is known as one of the richest men in the world, but to me, he is known for being an ordinary gentleman, and his character is far richer than all the money in the world. You see, I have the extraordinary privilege of saying that I have met a few billionaires in my life within the last decade, including the famous Warren Buffett. No picture to prove it, but having spent maybe a total of 60 seconds of my life around him was enough to feed me 60 years of wisdom. Here’s what I learned.

Fancy is overrated. Growing up, I saw some of the wealthiest people drive beat-up cars. Warren reminds me of them. After all, the guy eats McDonald’s and chugs Coca-Cola every day even though he can afford to spend way more on food. The day I met him, he was wearing a sweater and slacks. The next day, when all of his Berkshire executives joined him (yes, I met them too), it seems he requested that they wear the same type of attire to an executive meeting. No business suits. So there they were, a bunch of billionaires sitting at a round table in sweaters and jeans. I love this scene because it reminds me that just because you have a lot of money doesn’t mean you need to show it. In fact, not spending money on flashy things is a good way to stay wealthy.

Be generous with others. Since I worked in hospitality when I met Warren Buffett, I know that he believes in paying tips. I have also met people who don’t tip … at all. And yes, many of those people were rich. What’s the purpose of having money if you don’t use it, especially when it’s warranted? Tips fuel the service industry, and often, service workers rely on tips to compensate for low hourly wages. Sometimes that little bit of tip money can make a huge impact. For someone like Warren Buffett, sharing his wealth in this manner is worthwhile, not only to build a solid reputation, but also to influence others to do the same. 

Everyone deserves respect. Remember the scene in Pretty Woman where Julia Roberts gets treated with disgust by the boutique store associate in Beverly Hills because she is not wearing expensive clothes? That store should take a lesson from Warren Buffett. When Warren arrived, there were several people trailing him. I thought for sure, he’s going to ask one of them to take care of logistics, but lucky for me, I was wrong. Warren personally came up to me. We exchanged greetings and shook hands before I sent him on his way. Such a brief interaction, but a lasting impression. The mere fact that he took the time to interact with a commoner like me is something that sticks with me to this day. And the interaction was humble, no air of attitude. It doesn’t take a lot of money to treat others with respect. Who knows? That person may write about you one day! 

While Warren Buffett is known for his financial savvy, the lessons that I learned from my interaction with him had little or nothing to do with making money and had more to do with being a quality human being. It’s a good reminder that money can’t buy a good personality, nor can it erase a bad one. That’s the richest lesson of all. 

Warren, if you’re reading this: Happy Birthday, and may our paths cross again in the future, hopefully for longer than 60 seconds this time!

Homework: Which important figures do you admire for their financial savvy? What money lessons have they taught you? Feel free to share in the comments below.

Summer Break: Ace Academy is taking a short break, but will be back in late-September, just in time to celebrate our one-year anniversary! Subscribe below to get articles delivered right to your inbox.

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Credit Reports: Annual Check-Up Time!

What do you call an annual health check-up for your credit? A credit report! If you have ever used a credit card in your name or borrowed a loan from a financial institution, you have credit history. Your credit history shows whether you can be trusted with borrowing money and paying it back.

Your credit history gets filed at three bureaus: Equifax, Experian, and TransUnion. Whenever you apply for a new loan or credit card, the company that is offering the loan or credit card will check your credit with one, two, or all three bureaus. That is why you need to make sure your credit history is accurate. How do you check your credit history? Through a credit report!

Every twelve months, you are entitled to request your credit report at no charge from each bureau. Notice I said each bureau. You can request all three bureaus at the same time or you can view each report at different times in the year. If you are about to get a new loan, such as a mortgage, you may want to check all three before you apply. But if you are just doing a routine check-up, you could request one bureau first, the next one in four months, and the last one in another four months. It’s almost like getting three reports each year!

What are some of the things to check on your credit report?

  • Payment History. Does the report show that you made payments late, even though you were on-time? Paying on-time will tell future lenders if you are dependable when paying back borrowed money.
  • Available Credit. How high is your credit limit, and are the amounts of current balances listed properly? Contrary to popular belief, having too much credit, even if not being used, is a bad thing because it makes borrowing any more money a risk factor. From the lender’s perspective, there might come a day when you max out all your credit cards and then can’t pay them back.
  • Accounts. Are all the accounts listed correctly? Have you closed unnecessary accounts that you no longer use? Nowadays with identity theft and stolen credit cards, it’s of utmost importance to review your credit report carefully. If anything appears incorrect, contact the credit reporting bureaus.

Credit reports sometimes get confused with credit scores. A credit score is generated from your credit history, but acts more like a quick rating. A credit report goes into greater detail about your credit activity. Compare it to a friend asking what score you got on a test versus going over the actual test questions and mark-ups. Although the credit score is not typically noted on your credit report, some credit card companies are now offering free access to credit score monitoring as an added benefit for cardholders.

Why the need for three credit bureaus instead of one? There are times when your information doesn’t get captured by one of the credit bureaus. Each bureau also weighs certain types of credit differently, so your credit score could alter slightly from one bureau to the next. Regardless, it’s a good way to check one against the other, instead of getting all of your information from one source.

Just as you visit the doctor for an annual check-up, do your finances a favor by getting a copy of your credit report. It’s free!

Homework: Request and review your credit report by visiting www.annualcreditreport.com. How would you rate your own creditworthiness?

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The Road To Recovery

Everyone tells you to “Save, Save, Save,” but no one talks about what happens if you can’t save or you found yourself in a pinch and spent all your savings. Are you doomed for a life of poverty? Not necessarily.

When I worked in finance, there was a common theme in every situation I met. All of my financial clients wanted something they didn’t have, and all of them had to work towards it. Whether they had savings or didn’t have savings or even worse, had debt and no savings, there was always a solution. Is it possible to fix financial mistakes? Yes! And one more glimmer of hope: It gets easier along the way.

When it comes to people and their money, the most difficult hurdle to overcome is erasing a deeply ingrained mindset. Like the lavish lifestyle they lead. Or the age they think they can retire. Or their way of buying things and then figuring how to pay for them afterwards. But if they take the right steps to alter course, something interesting happens. As they get closer to their goals by doing things differently, they don’t remember how they did things before. That’s exactly what happened with my clients. That lavish lifestyle of the past? Who cares when you have food and shelter? Retiring at 58 vs. 55? Beats having to think about going back to work at 70. Can’t afford to buy an extra handbag when you have 3 others? Big deal! Those were the responses when I reminded them of where they had come from.

If others can do it, you can too. When faced with one of these hurdles, here is how you can get on the right track.

Living Large. Do you find it hard to save on a monthly basis? Then your answer is to downsize! Cut expenses you don’t need, and lead a more modest lifestyle. For instance, go with a smaller home. Take public transit or opt for a used car. Give yourself a budget for dining out. No matter if you earn $30,000 or $100,000 a year, everyone can afford to save. Don’t just take it from me. Look at how Suze Orman reacts to a millennial who spends $720 a month on a car when she makes $80,000 a year. At least she makes her own coffee.

Retirement Loan Vs. Withdrawal. Normally taking out retirement savings before retirement is a big no-no, but when faced with financial hardship, there might not be a lot of choices. If a retirement loan is allowed, that is the better option compared to a withdrawal, assuming you can pay back the loan later. You will lose out on the opportunity for market gains that you could have seen with that retirement money, but you don’t have to wash away your hard-earned savings. With either a loan or withdrawal, not staying invested will likely carry some impact to retirement. This may mean delaying retirement age or adjusting what life looks like in retirement. Since the rules have changed with the CARES Act of 2020, consult a financial or tax professional before taking a loan or withdrawal from your retirement.

Credit Card Debt. One of the hardest money challenges to get out of is credit card debt. It’s a vicious cycle. Just when you’re done paying one thing, something else strikes and you’re stuck with a new debt. It’s tempting, too, since you’ve done it once, what’s borrowing again? To get out of the cycle, you need to understand the root cause for debt. Where are you spending your money that it’s landing you in debt? If you’re spending more than you make, then you need to draft a budget and stick to it. Freeze or cut your credit card in half and instead use a cash allowance for everything on your budget. If you’re living within your means but still encounter debt, was it the result of an unanticipated expense? Chances are that your emergency fund is too low or that you don’t have one. Rather than putting all available income towards paying off debt, set aside a portion to bulking up your emergency fund. That way, if another unexpected event occurs, you have cash to pay for it, not your credit card.

With a change in perspective and a lot of work and discipline, you can turn around any money situation. Financial challenges can happen, but remember, there is hope!

Homework: What did you take away from watching Suze Orman’s video commentary? Name some of the good and bad financial choices reflected in the video. How can you apply these lessons to your life?

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So You Got A Stimulus, Now What?

By now, most Americans have received a boost in the form of a stimulus, in this case, free money from the federal government to combat financial woes stemming from coronavirus. Now that you have money you didn’t have before, what do you do with it?

The most likely option is to spend it, as intended, to stimulate the economy. However, now is not really the time for an impulse purchase, so spending it on practical things like rent or food makes the most sense. If you are one of the 40 million filing for unemployment, spending your stimulus on basic needs becomes a clear-cut choice.

The next option is to save it, that is, if you have sufficient income to meet existing financial obligations. For those with an ample emergency fund and no need to dip into it, it might be time to invest more money towards your long-term goals. If you don’t already have a comfortable rainy day fund set aside, then add that stimulus cash to your rainy day fund.

For those not needing to rely on stimulus money, consider sharing it with others or donating to a cause you believe in. Perhaps it’s the mom-and-pop store you frequented before quarantine or the religious institution where you now join weekly service through Zoom or a non-profit organization that is suddenly without as many donors as before. No matter who you give to, your support not only provides for them, but it also lifts the economy as a whole.

Share, Save, Spend. Sound familiar? These are the 3 financial pillars we frequently talk about. You don’t have to choose just one either. You could use that stimulus money in two ways or all three! For those who did not receive a stimulus check or received less than the full amount, that’s ok. The 3 S’s still apply to you too, even though you have to rely on your own pocketbook.

While a stimulus provides a nice boost, the key is to not depend on having one. That way, if and when you get a stimulus, you have choices!

Homework: Do some research to find out what Americans did with their stimulus. Does this match your predictions?

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Spare Change

In the modern day of cashless transactions, cash still remains a popular mode of payment. According to the US Federal Reserve in 2019, cash ranks as one of the top two payment methods, used in 26% of transactions, just behind debit cards (28% of transactions). For children who don’t have a bank account yet, cash probably accounts for 100% of transactions. If cash is used so often, counting money is important for everyone, whether spending money or receiving money.

Take the following QUIZ to see how your children do when handling cash:

  • Do they know how to limit spending to what’s on hand? (i.e. Can $15 cash buy a $20 toy?)
  • If they get change back from a purchase, can they quickly verify that they received the right amount?
  • Working the cash register, can they count money quickly to make sure that the customer paid correctly?
  • If there are no dollar bills but a lot of quarters available, can they produce the right amount of change?

If your children need to brush up on these skills, or if they are just starting to learn about cash, below are several ideas that might help.

Ages 3-6: Sort change by denomination. Use clear containers/jars or an empty egg carton to separate pennies, nickels, dimes, and quarters (or your own country’s currency, for international readers). Or whenever you have spare change, give them a coin and ask for the name of the coin and amount, letting them keep whatever they identify correctly.

Ages 5-9: Ever heard of the muffin tin coin counting game? Write small amounts onto paper cupcake liners (for instance, $1.10 on one liner, 88-cents on another liner, 63-cents on another liner, etc). Pop the liners into a muffin tin, and then provide a bunch of loose change for the children to fill each liner with the correct amount in change.

Ages 9-12: Now that multiplication and decimal numbers have been introduced, learn to add tax and/or tip. Looking at a menu, what can you order with $15, assuming you account for tax and tip? If you pay with $20, tally the change due using bills and coins. Take a handful of past store receipts, and calculate how much change you get back if you paid with the closest denomination of 10 (such as paying $30 for a receipt totaling $25.79).

What children can comprehend about cash depends on their age, but starting early will empower them to make their own decisions around money. When children become adept at counting cash, they can mentally tally against their budget when shopping or dining out. Keeping to a budget allows them to live within their means and save for the future. That’s why understanding cash is so important to becoming financially independent!

Homework: Try one of the activities above. For older kids who want an extra challenge, work with parents to decide on a spending limit the next time you dine-out or order food delivery. After everyone else in the family has selected from the menu, choose your own item(s) from the menu that will allow the total after tax/tip to remain under the limit.

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The Download On Deals

What does “saving money” mean? Setting aside money for the long term is typically how we define savings, but another important discipline for building wealth is finding savings when we spend money. When you pay less than full price, you are saving money. One transaction may not seem like much savings, but many transactions together add up to big savings.

Spotting deals can take some work. Fortunately, with some practice, it becomes easier. Here are tips to help you become a better spender, and by that, I mean a better saver.

  1. Read the fine print. Often, sales and coupons have exclusions, so make sure you read the fine print ahead of time.
  2. Have a plan. Just like writing out a grocery shopping list, circling items in the weekly ad or compiling all coupons before starting to shop will allow you to capture every deal.
  3. Stack those deals. One of the best feelings you get from shopping is when you stack a coupon on top of a sale. Qualify for a rebate afterwards, and rise up to the ranks of a pro shopper!
  4. Choose an alternate. If you’re not crazy about the brand name product, you can get more for your money with generic. Or go with a substitute, like buying groceries that are in season instead of ones that are not.
  5. Be patient. Sometimes the things you want are not available at a lower price right away, but you know the price will come down in time. If you can go without that item for a little longer, wait.

Although getting the best deal requires some effort, the satisfaction you get is worth it. Once you’ve had some practice, being a smart shopper will become second nature!

Homework: Set a spending limit to buy all the groceries you need this week. Involve kids by giving them $10 to purchase some of the necessary categories on your list. For example, if fruit is one of the categories, they can choose whichever fruit(s) will last one week. Challenge them to get as much leftover change as possible on the entire purchase.

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Needs Vs. Wants

This week’s lesson is a short one, but a very important one: Needs Vs. Wants. Everyone has both things they want and things they need. But when faced with spending a finite amount of money, needs come first.

Learning about needs and wants starts at a young age. The good news is that you can learn the difference without spending any money at all. Use everyday situations to guide your decisions. For instance, what will you eat for dinner? Instead of choosing only dessert, which you may want, pick an item from each food group you need: grains, proteins, and vegetables. Another example could be how you choose to spend your time. Are you doing necessary chores and homework or playing games or watching TV instead? We have needs and wants in everyday life. Knowing the difference and putting needs first will come in handy when it comes to spending money wisely.

Homework: Take inventory around the house or at a store, and identify which items are needs and which items are wants. If the difference between both is still confusing, there are many helpful kids’ videos on “Needs Vs. Wants.”

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“Playing” With Cash

With all the cashless ways to use money in this day and age, it’s difficult to show kids the value of a dollar. Substitutes just aren’t the same. Do you sense the same satisfaction from earning an extra $500 when it is deposited directly to your account instead of visiting the bank with a paycheck? Would you buy that $20 sweater if you only had $15 in your wallet vs. pulling out a credit card? When a friend pays back via Venmo for a coffee that you bought with your parents’ money, do you still return the money to your parents?

The old adage is true:

It’s never too early to teach kids about money.

Before children enter the world of direct deposit, credit cards, and Venmo, get them acquainted with cash. What do bills and coins look like, how do you make change, how do you get money, and what choices do you have with money? If your children are still too young to do math, play a game of “pretend” with them. Run through the following exercises with just $1 dollar. Wouldn’t you rather have children learn with $1 dollar than make mistakes when dealing with much more money later on? Exactly. Start NOW!

Exercise 1: From Earning to Spending

Ask your children to create an ad for a product or chore task that you can buy for $1 dollar. Pay $1 dollar once the product or service is sold, and then ask them to spend that $1 dollar on themselves, whether it be for food or a toy. Challenge them to spend $1 dollar on something they need (like lunch), not something they want (like candy). Maybe they can find a way to get both?

Exercise 2: Saving Money

Give 50-cents to your children, and ask them to hold onto the money for a week. Tell them that you will double whatever remains at the end of the week. Each day that week, tempt them with a treat, such as ice cream, and charge 5-cents for it. If they can hold onto the entire 50-cents for a whole week, you will match all 50-cents, so that they are rewarded with $1 whole dollar at the end of the week. If they are tempted into spending down to the last 15-cents, you match 15-cents, so they end up with only 30-cents.

Exercise 3: Borrowing Money

This exercise is easier with an allowance, so let’s play out that scenario first. As the creditor, you offer to lend 90-cents, if your children deduct 25-cents from each allowance payment for the next 4 payments (totals $1 dollar to demonstrate interest charged on the 90-cent loan). Do they take the loan?

If there is no allowance to repay from, opting into the loan means your children agree to do one extra household chore every week for 4 weeks. If that chore is missed in any of the 4 weeks, the “credit score” takes a hit, which means no more loans. Was the loan worth it?

Homework: Try one or all of the exercises above. What lessons did you learn?

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