Financial decision-making Archives

Is your purchasing power growing?

Purchasing power refers to the amount of goods and services an individual or household can afford to buy with their income, taking into account prices and the cost of living.

If making financial decisions in life were a video game, then you might have ‘real-time’ access to your purchasing power every time you faced a spending choice. For example, can I afford to buy this new car, and how should I pay for it? How will my decisions impact my ability to make other purchases, like affording a house?

The reality is that you don’t need access to a real-time indicator, but understanding your purchasing power can help you make informed decisions that put you in the driver’s seat without compromising your financial well-being.

Purchasing power is a vital personal finance metric because it provides a realistic view of the value of your money over time, especially in the face of inflation. By understanding and monitoring your purchasing power, you can make more informed decisions about budgeting, saving, investing, and long-term financial planning to protect and grow your real wealth.

If you are interested in learning more about purchasing power and how to calculate it, then please read on.

How to lower your auto and home insurance premiums

Do you know how much your auto and/or home insurance premiums increased last year?

Insurance premium rates have been one of the fastest growing line items in most household budgets for years, far outpacing inflation for other expenses. In 2024 alone, the typical policyholder premium increased by:

17% to more than $2,100 per year on average in the U.S. for auto insurance; and
10% to more than $2,600 per year on average nationally for home insurance

These substantial increases, on top of other living expense increases, have squeezed family finances even tighter. In some cases, to the point where individuals and families have been forced to drop coverage altogether. Despite these growing costs, insuring your assets is critical to protecting yourself from potentially large financial losses, and in most cases are required to operate a motor vehicle and own a home.

While you may understand the importance of insurance for managing financial risks, you may not have realized there are ways to lower your premiums and potentially save a lot of money.

If you are interested in learning more about insurance costs and savings opportunities, as well as how to calculate the financial impacts of your buying decisions, please read on.

How do you compare to the wealthiest U.S. households?

What do the wealthiest households own that separates them from others?

The answer to that question can be found in research data from the Federal Reserve on the distribution of U.S. household financial accounts.

This data allows you to compare the level, composition, and share of assets and liabilities with households in other wealth percentile groups, and see what the wealthiest households buy and own that makes them different.

If you are interested in learning what assets are prioritized by the wealthiest households and how you compare, please read on.

Do you know your Return on Spending?

You may have heard of return on investment (ROI), but what about return on spending (ROS)?

Return on Spending (ROS) is a metric that measures the financial return on non-investment expenditures.

Ok, but how do I generate a return on my non-investment spending?

If you use a credit card with cash-back rewards to make purchases, then you can monetize the financial benefits of “paying later” to generate a return on your spending.^*

To learn more about ROS, including how to calculate and the positive impact it has on your Purchasing Power, please read on.

How to minimize fees to maximize your big money returns

As referenced in my new book Making Big Money Decisions and recent blog posts, transaction fees can take a big bite out of your returns. The good news is that the costs for holding investment funds and selling a house in the USA continue to decline, allowing you to keep more of your money. Since these investments are usually large, even small differences in the fees you pay can add up to significant amounts of money over time.

If you are interested in finding out more about these transactions costs and tips for ensuring you are paying the lowest fees, then please read on.

How biased are your information sources?

As a personal finance author and advocate, I do my best to create useful content based on unbiased information. I’m able to do this because I don’t take compensation to promote products and services offered by others so I’m free to “tell it like it is.” A benefit of being financially independent.

A financial services company or advisor that advertises or sells specific investments or brands, may have an inherent bias and conflict of interest. In other words, if an advisor is compensated to push specific products or services, then they are biased. This doesn’t necessarily mean you are getting ‘bad’ advice, but you may not be getting the ‘best’ options.

When it comes to media sources, even financial media, there are different degrees of bias. If you are interested in expanding your media literacy by learning more about news and information biases and how to ensure you’re getting the most impartial information, then please read on.

Are your investments outperforming the market?

How do you know if your investment portfolio is performing better (or worse) than the market?

The answer is your investment alpha.

Alpha is a measure of an investment’s performance compared to a benchmark, like a market index.

If your investments are not meeting or exceeding your benchmark(s) over a time period, then you may need to reevaluate your investments and strategy.

As referenced in my book Making Big Money Decisions, investing in underperforming assets generates considerable opportunity costs and suppresses wealth accumulation. Use the content in this post to ensure you’re getting the best return on your invested money.

By reading this post, you will learn why alpha is a key performance indicator for managing your investment portfolio, and how to calculate and use it to optimize your investment strategy.*

16 online resources for making big money decisions

Statistics on the state of personal finance show that many adults, particularly young adults, struggle with financial literacy and are concerned about their ability to fund life goals like buying a house and retiring comfortably.

One way to overcome these concerns is by making the unknown known through financial planning and money management. Like many things in life, getting started is probably the hardest part. Time is an essential element in both life and personal finance, so use it to your advantage by starting your planning as early as possible.