Herman Ye

We humans are notorious for overestimating our abilities. We're a cocky bunch.  Let's take a look at how big our heads really are and its influence on our finances.

Credit cards get a bad rep. They have a ton of fees, charge a boatload of interest, and can encourage destructive spending habits, the ol' swipe now, think later . With all that being said, I'm a big fan of them. I prefer credit cards over all other forms of payment (cash, debit, begging). They have a lot of upside if used properly. Credit Card Best Practices Pay your bills on time . This is obvious. If not, you'll get hit with late fees and damage your credit score. Pay your balance in full. Don't just pay the minimum payment, pay it off completely. This allows you to sidestep their high interest rates (usually 16-20%). If you can't afford the balance, that's a sign you're spending too much. Cut it back. Don't use all your limit. If your balance is always near your limit, it means you have high credit utilization. It shows credit bureaus you live/spend on the edge, this makes you look risky and hurts your credit score. A good rule of thumb i...

Atomic Habits by James Clear is a simple yet incredibly insightful read about habit building. It centres around the fours stages of a habit and the driving forces behind them. You can leverage this knowledge to build good habits -  and to break bad ones . Today, let's apply these insights to the world of personal finance. The Habit Loop - The 4 Stages of a Habit The habit loop consists of: Cue ---> Craving---> Response ---> Reward The cue is the trigger. It can be a location, time, feeling, sound, action, etc. The cue sets off a craving. The craving is the desire to change your current state. If you're hungry, it's the desire to be feel full; if you're stressed, it's the desire to feel relief. This is the motivation to act. The response is the action that satisfies your craving - t he habit itself . The eating to settle your hunger, the nail biting to settle your stress. And finally, there's the  reward . Your craving satisfied...

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world. ” - Archimedes

Based on a 2018 Gallup poll , only 37% of young adults (34 and under) invest in the stock market. That's pretty alarming. It means more than half are hindering their ability to save for retirement. By not investing early, the power of compound interest is dampened. Compound interest works like a snowball on a hill, the taller the hill (the longer the runway), the bigger it'll grow. The sooner you invest, the more money you'll have. Many are simply stockpiling money into their bank accounts. Checking accounts typically don't pay anything. With savings accounts, you're lucky to get 1-2%. Inflation is about 2% . Thus, with a checking account, you're losing money every year in terms of purchasing power. With a savings account, at best you break-even.   Stocks have a higher expected return, averaging ~  7%  annually (inflation-adjusted). The higher return is due to the higher risk. Stocks are more volatile, able to dramatically go up and down in the short-...

Have you ever wondered how long it would take for you to double your money? The rule of 72 is a neat math trick to calculate this. This simple formula requires only one input, your expected rate of return. Just divide it by 72 and bam! You got it. # of Years to Double = 72/Annual Rate of Return  Putting the Rule in Action - Danny's Double Danny has $5,000 to invest, with the goal of one day growing it to $10,000. He's planning on investing into a portfolio of low-cost stock ETFs. Stocks typically averages an annual return of  7% , assuming he'll experience the same, how long would it take for his money to double? Using the rule of 72, we find that it'll take about: 72/7 = 10.29 Years So easy! Flipping it Around 10 years is a long time, Danny was hoping to double his money in 5 years. Luckily, we can flip the rule around to find the return he'd need to achieve this. Annual Rate of Return = 72/# of Years to Double Plugging in the numbers, we...

Liquidity is a term frequently used in finance. Today we'll break down what it means and why it's important.

With as many locations as Starbucks, and even more locations than Mcdonald's, you're never too far from a payday loan. Payday lenders are a staple of shady neighbourhood corners and rundown strip malls. You'll recognize one by the many "get money fast" signs plastered all over their windows. Storefronts are often bleak, rundown, and unwelcoming. As someone who've never step foot in one, they've always been a mystery to me.  Why do they exist? W hy are there so many of them? Payday Loans Payday loans are short-term loans offered by alternative lenders (non-banks). These loans usually range from $100 - $1,500. Loans last typically 1 - 4 weeks (depending on the borrower's pay schedule). Payday loans are due on your payday,  hence the name . They're designed for people can't access funds through traditional lenders, could be due to low credit scores, low assets, high debt, etc. Payday loans don't require a credit check or a depos...

The Time Value of Money (TVM) is the benefit of receiving money now over receiving the same amount later. A dollar today is worth more than a dollar tomorrow.  This is because of money's potential. It can be invested in the stock market, earn interest in a savings account or used to start a business. The earlier you have money, the earlier you can take advantage of this potential. TVM Formula The TVM formula is a great tool to demonstrate this concept. Below are the variables behind TVM. FV = future value PV = present value r = rate of return n = # of compounding periods per year t = # of years The formula can be used to calculate  future value : FV = PV x [ 1 + (r / n) ] ^ (n x t) This formula can also be re-arranged to calculate  present value : PV = FV/[ 1 + (r / n) ] ^ (n x t) The TVM formula can be rearranged to calculate any of the above variables, but today we'll focus on present and future value. Let's take a l...

If you've procrastinated on investing and is now sitting on a big pile of cash, getting started can be pretty intimidating. What if the market tanks right after I invest all my money?  This is completely possible. If you invested in the S&P 500 in October 2007, at the peak price of $1,900 ( right before the financial crisis ), in less than 2 years, your investment would've collapsed to $900. Yikes. So what if I don't want to go all in?  Dollar-Cost Averaging (DCA) is a popular alternative to Lump-Sum investing. DCA is investing fixed amounts over a period of time. If you had $12,000, instead of investing all at once, you could invest $1,000 per month over the year. With DCA, you reduce the impact of dramatic declines. If the market crashes, you luckily only invested a small portion when the market was high, with money leftover to invest when the market is low. DCA allows you to buy less shares when markets are expensive and buy more when markets are che...