December 8, 2017 5 min to read

8 Basic Financial Literacies

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One of the many disservices witnessed in our community today is a lack of financial education. The entirety of our financial education typically comes from parents and teachers, but rarely is there any input from a Financial Professional. It doesn’t help that we live in such a secreted society where openly sharing financial strategies is viewed as taboo. Green Lotus Planning Group aims to break those traditions for future generations by creating and sharing some basic financial literacies.


  1. Mortgage = 15% or Less of Income

One of the most common questions our consultants receive is, “How much house can I afford?” If you turn to google, you will get an array of answers. Ideally, you want your payment to stay within 15% of your income (even though lenders may approve you up to 43%). For example, If Jo’s income is $100,000 annually, then their monthly mortgage payment should be $1,250 or less. With a 30-year mortgage and a 4% interest rate, calculations show Jo can afford a house around $262,000 or less.

What if you are already over that limit? There are options. The first, obvious answer is to downsize. Put your current home on the market and look for a home that is budget friendly. Another option is to refinance to a longer loan term. If you are currently in a 15-year mortgage or 15 years into a 30-year mortgage, refinancing can decrease your monthly payment. Best yet, use extra space to create cashflow. Teach a class, rent out a room, or finally start that business you’ve been dreaming of. This creates extra income that comes with excellent tax incentives.


  1. Understand Risk vs. Rate of Return

Typically risk and ROR have a direct relationship. You can expect to take on high risks when chasing large returns. For example, a savings account has virtually no risk and a very low rate of return, whereas investing in a startup company carries a considerable amount of risk but also an opportunity for copious growth. The key is to not put your all your eggs in one basket. Establish a portfolio with guaranteed savings first, then layer in investments with different levels of risks. Contact a consultant if you would like to take a risk tolerance questionnaire to find out what portfolio of investments would be most beneficial for you.


  1. Take Advantage of Tax Breaks

This point is immensely significant, especially for small business owners. There are many tax breaks available that investors are missing out on. This can be particularly helpful when it comes to eliminating debt and choosing investments. It is always important to work with a professional to make sure you are getting all the credits you deserve.


  1. Stay liquid

When working with individual families, a common service requested is debt elimination. What we find typical of most investors is, they are maxing out things like 401(k)’s and yet don’t have 1 penny of liquid savings. In turn, when the need for funds arises, they will be forced to liquidate their investments and pay penalties. 401(k)s are great investments when used properly. Unfortunately, most individuals do not consult a professional and invest in things like 401(k)s without fully understanding the role it plays in their balance sheet.


  1. Eliminate All Toxic Debt

There are many different forms of debt. Toxic debt causes cash to bleed off your balance sheet in the form of high interest rates, high minimum payments, short payback periods, and lack of tax benefits. To read more about the different types of debt, check out our blog post “What is Debt?”


  1. Have Multiple Income Streams

When the wealthiest people in the world are interviewed about their success, they all have one major attribute in common. They have multiple streams of cashflow. If you are interested in adding different income sources a great place to start is with these three; 1) an active source of income, 2) passive income, and 3) a hobby that brings you money. IE, your career, a rental property, teaching a class on the weekends.


  1. Save 15% of Each Paycheck

The key here is not more and not less. Saving too much is just as bad as saving too little. Hoarding money can result in opportunity losses and abandon future earnings for the investor. Savings should always be your number 1 priority, even over debt.


  1. Make a Budget and Stick to it 80%

Most families do not have a working budget. It can be time consuming overwhelming and seem unrealistic. Obviously in a perfect world, families would stick to their budget 100%, but that isn’t how life works. This is where planning meets reality. Sometimes a starbucks visit or impromptu guys night is a necessity. Your budget should be designed to set you free, not stress you out.


Obviously, there is much more to successful planning than can be covered here, but this is a great start. If you would like to learn more about how working with a professional can revolutionize your cash flow, send an email to to schedule a complimentary review.

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