investment

Fact checked by Suzanne KvilhaugReviewed by Khadija KhartitFact checked by Suzanne KvilhaugReviewed by Khadija Khartit

What Are 5 Skills Every Entrepreneur Should Have? 

An entrepreneur refers to someone who builds or operates their own business. By having an equity stake in the firm, the entrepreneur can enjoy a great deal of profit if things go well, but they also take on a great deal of risk—far more than a regular employee of the business. This entrepreneurial risk can take several forms, including financial risk, career risk, emotional risk, or overall business risk.

Since there is so much at stake when it comes to starting and growing a successful business, there are very specific skills that an entrepreneur usually needs to be successful. Below, we highlight five such attributes.

What Are Some Common Traits Good Entrepreneurs Have?

• Good and effective communication
• The ability to sell both themselves and their idea or product
• Strong focus
• An eagerness to learn and be flexible
• A solid business plan

Key Takeaways

• Entrepreneurship can be quite rewarding, but also comes with several unique risks.
• To mitigate the risk of financial loss or failure, it serves a business owner to have a certain set of skills.
• A great entrepreneur must be able to effectively communicate, sell, focus, learn, and strategize.
• An ability to continuously learn is not just a key entrepreneurial skill but also a very valuable life skill.
• Growing a business requires a sound strategy based on inherent business sense and skills.

Understanding Entrepreneurial Skills

Entrepreneurs play a key role in any economy, using the skills and initiative necessary to anticipate needs and bringing good new ideas to market. Entrepreneurship that proves to be successful in taking on the risks of creating a startup is rewarded with profits, fame, and continued growth opportunities. Entrepreneurship that fails results in losses and less prevalence in the markets for those involved.

While the prospect of becoming your own boss and raking in a fortune is alluring to entrepreneurial dreamers, the possible downside to hanging out one’s own shingle is vast. Income isn’t guaranteed, employer-sponsored benefits go by the wayside, and when your business loses money, your personal assets, not just a corporation’s bottom line, can take a hit. But adhering to a few tried and true principles can go a long way in diffusing risk. The following are a few characteristics required to be a successful entrepreneur.

1. Communication

Every entrepreneur needs to be an effective communicator. Whether a person is a solo entrepreneur or runs a Fortune 500 company, they need to understand how to communicate effectively to all stakeholders and potential stakeholders that touch the business.

It is imperative for an entrepreneur to be able to communicate with employees, investors, customers, creditors, peers, and mentors. If an entrepreneur cannot communicate the value of their company, it’s unlikely that the company will be successful.

They also need to master all forms of communication, including one-on-one and in-person conversations, group conversations, written communication, and email or online messages.

2. Sales

The soft skill of sales goes hand in hand with the communication necessary to be successful. An entrepreneur needs to be able to sell anything and everything. An entrepreneur needs to sell the business idea to potential investors, the product or service to customers, and themselves to employees.

If an entrepreneur is able to communicate effectively, they are better equipped to sell their ideas and physical products.

In the beginning, it’s natural for entrepreneurs to be the first salespeople at their respective companies. Those sales skills are necessary to demonstrate value for all stakeholders inside and outside the company.

3. Focus

The path to successful entrepreneurship is riddled with ups and downs. There are the highs of successes and the despairs of setbacks. A successful entrepreneur needs to be able to focus so they can stay the course when the going gets tough.

This skill can also be described as thinking with the end in mind. No matter what struggles an entrepreneur goes through, those who are successful have the focus necessary to keep an unwavering eye on the end goal and can push themselves to achieve it.

4. Ability to Learn

The ability to learn is one of the most important skills to have in life, let alone in entrepreneurship. If someone is building a business, however, the ability to learn is required for success.

The ups and downs that an entrepreneur goes through are unavoidable. An entrepreneur needs a high ability to learn—and a desire to learn. If a person is able to learn in any situation, even failure, they have the skills necessary to become a successful entrepreneur. Failure can help expand one’s knowledge and understanding of business.

65%

The approximate percentage of new businesses that fail within their first 10 years, per the U.S. Bureau of Labor Statistics.

5. Business Strategy

While a successful entrepreneur has, by definition, built a successful company, the skill of business strategy is actually the fifth most important skill that an entrepreneur needs. Often, entrepreneurs achieve success in their businesses through their own sheer strength of will.

By employing effective communication skills, sales skills, a deep focus, and a high ability to learn, an entrepreneur can actually learn a business strategy on the fly. When structuring and growing a business, however, it’s important that the structure and growth strategy are based on sound business sense and skills. A successful entrepreneur needs to have a solid strategy to take their business from good to great.

How Can You Build Entrepreneurial Skills?

Some of the skills needed to be a successful entrepreneur are likely to be innate or natural. Others can be honed through training and education in business and management. A master in business administration (MBA) is a common route. MBA coursework involves a broad spectrum of business-related topics, including accounting, statistics, economics, communications, management, and entrepreneurship. MBA programs not only prepare students to work for financial institutions, but also prepare them for management positions or to be founders of startup companies.

If you think you have what it takes to be a successful entrepreneur, keep in mind that even great ideas and solid management teams can fail due to the whims of the market, stiff competition, or just bad luck. According to the U.S. Bureau of Labor Statistics, approximately 23% of startups fail within one year and 65% in their 10th year. But don’t let these statistics discourage you: If at first you don’t succeed, pick yourself up and try again.

What Are the Most Important Skills for a Successful Entrepreneur?

While there is no magic formula for being a successful entrepreneur, those who do succeed tend to have mastered the following set of skills: good and effective communication, being able to sell both themselves and their idea or product, strong focus, eagerness to learn and be flexible, and a solid business plan.

What Are the Personal Qualities of a Good Entrepreneur?

In addition to honing one’s skills, personal qualities (or so-called soft skills) also matter a great deal. Being likable and friendly helps—nobody wants to partner with somebody who is difficult to work with. Being creative, versatile, and resilient in the face of great challenges are also beneficial.

What Are the Most Important Skills in Business?

For an entrepreneur to succeed, there are a number of skills that are important for running and growing a business. These include financial skills such as budgeting and financial statement analysis. By sticking to a budget and properly allocating resources, it could make the difference between success and failure. Through analyzing a company’s balance sheet, income statement, and cash statement, a company can track and project its performance.

Communication is another critical skill in business since it affects how you interact with customers, employees, and investors. Speaking confidently influences how your business is perceived and attracts customers to buy a product or service from you and employees to work with you.

Networking skills are also important in business since they provide an entrepreneur with the opportunity to learn from others’ experiences, gain valuable insights, and build a broader base of customers and prospective investors.

The Bottom Line

Entrepreneurship requires hard work, drive, and dedication. For those aspiring to build a business or grow their current business model, the core skills surrounding communication, sales, focus, the ability to learn, and understanding business strategy are essential for success.

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Fact checked by Betsy PetrickReviewed by Ebony HowardFact checked by Betsy PetrickReviewed by Ebony Howard

Ever since they exploded into the public’s consciousness in 2009, cryptocurrencies have remained a point of contention and uncertainty among financial experts. Regardless, people are spending millions on digital currencies and online artifacts like NFTs. Some are even trying to invest in cryptocurrencies as a way to plan for their retirement. But how does today’s cryptocurrency market compare to more proven investment vehicles, such as Roth IRAs?

Key Takeaways

• Once considered a fad, cryptocurrencies continue to grow and evolve into other products, such as NFTs.
• Federal regulations have not fully caught up with cryptocurrencies.
• Roth IRAs are a regulated and proven method of saving for retirement in a tax-advantaged manner.

How Cryptocurrency Works

Cryptocurrency may sound like a futuristic innovation in a science-fiction novel, but it’s a real-world concept. At its core, cryptocurrency is a digital currency that’s secured through the use of one-way cryptography. All cryptocurrency shows up on a digital ledger known as a blockchain, which proponents say is impossible to counterfeit or hack.

How a Cryptocurrency IRA Works

In addition to buying and selling individual cryptocurrencies out on the market, some IRA providers are looking to infuse the technology into retirement savings. Cryptocurrency IRAs—or Bitcoin IRAs—are a type of self-directed IRA (SDIRA) that lets you buy and sell cryptocurrencies in a tax-advantaged retirement account. Though only currently offered by a few financial institutions in the U.S., cryptocurrency IRAs allow an individual to maintain more traditional retirement accounts while operating a separate account that invests in digital currencies like Bitcoin and Ethereum.

Advantages of Cryptocurrency Investing

Though there are well-documented risks associated with cryptocurrency investing, there are some potentially major upsides to the practice as well. The following are some of the potential benefits you can get from investing in crypto.

• Potential for large—albeit risky—gains. Cryptocurrencies are extremely volatile. If you’re able to buy low and sell high, the peaks of those highs can be massive.
• Peer-to-peer transactions. Unlike most other investment options, there’s no need for a bank or financial institution to act as a middleman during a transaction. This can lead to a clearer understanding of the terms of the transaction and create a situation in which there’s more accountability between the parties.
• 24/7 trades. The Internet is always on. As a result, so is cryptocurrency trading. Rather than having to wait for the New York Stock Exchange, Nasdaq, or other trading platforms, you can buy, sell, and trade cryptocurrencies whenever you want.

Disadvantages of Cryptocurrency Investing

Though there may be some upsides to investing in cryptocurrency, there are just as many potential drawbacks. Investing in something you don’t fully understand could bring you some soaring highs or suddenly go up in smoke.

• More speculation than investment. It’s hard to invest in something for which it’s difficult to assign value. “One cannot invest in the wide array of cryptocurrencies. One can only speculate,” says Robert R. Johnson, a chartered financial analyst and professor of finance at Creighton University. The tools of traditional finance cannot determine the intrinsic value of Bitcoin or any cryptocurrency, according to Johnson.
• Poor at scalability. Given its decentralized nature, it’s difficult to imagine a time when it could compete against established forms of currency.
• Extreme volatility. One of the potentially good things about cryptocurrency trading is also a major drawback. Prices fluctuate so wildly that it’s hard to ensure you’ll get the most bang for your investment buck.

Important

Digital currencies aren’t the only thing investors are trading. Non-fungible tokens (NFTs) have become massively popular in recent months, with unique digital images fetching large amounts of money. Like other data linked to cryptocurrency, these digital pieces of artwork are extremely limited with highly volatile market values.

How a Roth IRA Works

A Roth IRA is a type of individual retirement account (IRA) that gives someone the ability to make tax-free withdrawals in retirement. Every contribution made to the Roth IRA is taxed upfront. As long as you’re at least 59½ years old and the money you want to withdraw was deposited at least five years earlier, that money is yours to do what you wish with it, tax- and penalty-free.

Benefits of a Roth IRA

As an already trusted method of preparing you for retirement, there are plenty of reasons to seek out a Roth IRA in preparation for a post-work life.

• Favorable taxes. The biggest draw for a Roth IRA is the fact that withdrawals are tax-free after a certain age and as long as the money has been in the account for five years. It’s true you have to pay your taxes upfront, but you’ll be doing so while you’re likely in a lower tax bracket.
• No required minimum distributions. Though some retirement accounts have minimum distributions after you reach a certain age, Roth IRAs don’t have such a restriction. As such, you can continue earning interest on your funds even after you retire.
• Tax diversity. When combined with other retirement accounts, you can diversify how your taxes are calculated on the funds you pull out of your account. For instance, a traditional IRA has taxes charged on the distribution, while Roth IRAs offer tax and penalty-free distribution.

Downsides of a Roth IRA

The following are some of the disadvantages of opening and maintaining a Roth IRA.

• You must prepay taxes. When you start your Roth IRA, you’re usually in a lower tax bracket. That means you won’t have to pay much into it to start, but that also means you’re taking home less money now.
• Low ceilings on how much you can contribute. Your income has a direct impact on how much money you can contribute to your Roth IRA. You’re limited to $7,000 for 2024 ($8,000 if you’re more than 50 years old).
• Your income can have an impact on how much you can contribute. Roth IRAs and how much you’re able to put into them are dictated by how much money you make. The measure is based on your modified adjusted gross income (MAGI) and whether you’re filing your taxes as a single individual or jointly with your spouse.

How Is Digital Currency Treated for Income Tax Purposes?

According to the IRS, all digital currency is considered property. As such, general tax rules that apply to property transactions would apply to virtual currency.

Are There Other Ways to Invest in Cryptocurrencies?

Yes. There are multiple pathways to investing in cryptocurrencies if you don’t want to hitch your retirement funds to such a volatile prospect. Some financial institutions offer crypto futures trading, while others offer Bitcoin trusts and blockchain ETFs.

The Bottom Line

If you’re investing in cryptocurrency as a way to prepare for the future, be sure to keep in mind the risks this will involve. The market surrounding cryptocurrency fluctuates so rapidly it’s hard to get a grip on the worth of digital assets. Still, an option like a cryptocurrency IRA could pave the way for a safer retirement planning method. Be aware that more traditional methods, such as Roth IRAs and 401(k)s, are viable options that you can rely on while dipping your toes into the world of cryptocurrency investment.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

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Fact checked by Vikki VelasquezReviewed by Ebony HowardFact checked by Vikki VelasquezReviewed by Ebony Howard

The role of a financial advisor is very broad. In general, their job is to guide their clients through the confusing and sometimes overwhelming landscape of investing, tax, estate, and financial management. Ultimately, a financial advisor’s goal is to help each of their clients secure enough money to spend during their lifetime, and, in some cases, to protect and preserve a portion for future generations. A person may also hire a financial advisor for a specific goal, such as funding their children’s college education or buying a vacation home. Consequently, a financial advisor may be asked to be an all-purpose money advisor, in addition to a personal counselor and confidante. 

Key Takeaways

• In general, a financial advisor’s job is to help each of their clients secure enough money to spend during their lifetime, but a person may also hire a financial advisor for a specific goal, such as funding their children’s college education or buying a vacation home.
• When deciding on a college major, the advisor’s intended area of expertise—stocks, retirement, education, taxes, insurance, real estate, or financial planning—may be relevant.
• For a student that is entering college with the goal of becoming a financial advisor, a strong prospect is to pursue a business degree with a concentration in finance.
• One of the benefits of a financial advisory career is that there is no required college major in order to enter the profession.

Financial advisors come from a variety of different academic backgrounds. When deciding on a college major, the advisor’s intended area of expertise may be relevant. Some of the specialized topics financial advisors can focus on include stocks, retirement, education, taxes, insurance, real estate, and financial planning.

For example, a financial advisor working for an investment brokerage company may need a different skill set than a fee-only financial planner with their own small business. In addition, many financial advisors are required to undergo specialized training on top of their chosen college degree in order to pass the requisite licensing exams. For an aspiring financial advisor, here are some college degrees that can prepare you for the career.

Business Degree With a Focus in Finance

For a student that is entering college with the goal of becoming a financial advisor, a strong prospect is to pursue a business degree with a concentration in finance. While studying business, students gain a broad understanding of banking and economics, which are important topics in understanding financial planning. Plus, a concentration in finance can provide insight into how to value a business, stock, or other financial product.

There are also Financial Planning majors and certificate programs available at some universities. For example, San Diego State University offers a B.S. degree in Financial Services with a certificate in personal financial planning. Overall, a business major’s strong quantitative and analytical background is a strong asset in the financial advisory profession. With a business degree and a concentration in financial planning, the postgraduate coursework that is sometimes necessary to obtain financial advisor licensure can be minimized.

Economics Degree

An economics degree, with courses in finance, can also offer a foundation for an aspiring financial advisor. Economics covers both global and broad macroeconomic concepts, as well as important microeconomic topics, such as monetary and fiscal policy. A financial advisor with a thorough understanding of economics is better equipped to help their clients traverse the business and financial market cycles.

In general, you can’t go wrong with a major in business or economics; both will serve as a sound foundation for a financial planning or advisory career. The basic coursework that you must fulfill in order to earn a degree—accounting, economics, marketing, finance, and management—will help you transition into the financial planning field.

While a business or economics degree is preferable for a prospective financial advisor, an individual who decides to enter the financial planning field after college or late in their college studies may successfully proceed without one. That is one of the benefits of a financial advisory career; there is no required college major in order to enter the profession.

Liberal Arts, Communications, or Psychology Degree

A liberal arts degree—or even a communications or psychology degree—can offer important communication and analytical skills. Although understanding investing and business concepts is important, much of a financial advisor’s task is dealing with people and their emotions surrounding money. The ability to communicate with and relate to the client are both equally important skills.

Clearly, money and financial issues can be highly emotional issues. A student of psychology learns about emotions, fears, anxieties, and how the mind works, and this training aids the financial advisor in their client relationships. 

Communications majors also benefit from analytical skills and the ability to make complex topics simple. When supplemented by the finance and investing concepts, the planner with a communications degree can be a successful financial advisor.

Important

Some financial advisors want to be able to advise their clients on buying and trading stocks. Even just giving advice pertaining to investments requires a license. Similarly, financial advisors at insurance companies need additional licensure to sell and advise on specialty insurance products. These licenses require both timely courses and exams.

In general, the liberal arts teach sound reasoning and analytical skills. When integrating and proposing a financial plan, the advisor with excellent critical thinking skills will be well-prepared to educate and explain the various options to their client.

The Bottom Line

There is no required college major for a career as a financial advisor. That said, there are advantages that certain degrees can provide for an aspiring financial advisor. And getting licensed is not necessarily a requirement to be a financial advisor, depending on your specialty, you may be required to pursue additional studies and certifications before you begin practicing as a financial advisor. At the end of the day, the dedicated applicant can have a successful career as a financial advisor with a variety of different college majors.

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Meet the EV Rivals Charged Up To Outpace the Elon Musk-Led Firm

Fact checked by Suzanne KvilhaugReviewed by Marguerita ChengFact checked by Suzanne KvilhaugReviewed by Marguerita Cheng

In the electric vehicle (EV) market, one name has long dominated headlines and has often been synonymous with EVs in the public mind: Tesla (TSLA). In recent years, established automakers and ambitious startups have moved into the fast lane with their EV programs in response to climate change and tightening emissions regulations. Meanwhile, Elon Musk’s company looks increasingly like it could lose its pole position, having long set the industry pace.

The automotive industry is undergoing its most significant transformation since the introduction of Ford’s (F) Model T, driven by the urgent need to decarbonize transportation. Tesla is facing its greatest competition, not just from legacy automakers with their deep pockets and manufacturing expertise, but also from nimble Chinese EV makers with their cost advantages and government backing. The future of this market has profound implications for investors and our collective future. Autos and light trucks make up about 12% to 15% of the carbon dioxide put into the atmosphere worldwide each year.

Below, we’ll explore how established players are leveraging their resources to catch up, analyze the threat posed by emerging EV makers, and consider what advantages the company still possesses as disadvantages in the market mount.

Key Takeaways

• Tesla has several competitors among traditional carmakers, such as Ford Motor Company and General Motors (GM). 
• Tesla has succeeded by focusing on premium electric vehicles (EVs).
• More competition, however, is entering the higher-end electric and self-driving car market.  
• Ford, GM, and BYD Company Ltd. are some of Tesla’s main competitors.
• However, Tesla faces many challenges to keep its spot as the number-one EV manufacturer in the U.S.

Tesla: An Overview

Founded in 2003 by a group of engineers in Silicon Valley, Tesla has grown from a niche EV manufacturer to a global leader in the automotive industry. Since serial entrepreneur Elon Musk became CEO in 2008, the company has been instrumental in accelerating the automotive industry’s transition to sustainable energy, especially in the U.S.

Tesla’s product line has expanded from its first production car, the Roadster, to include the Model S sedan, Model X SUV, the mass-market Model 3, and the Model Y crossover. In 2023, Tesla delivered its highest total of vehicles yet, 1.8 million cars worldwide, keeping its position as the top-selling EV brand globally.

Tesla has five vehicles on the market: the Model S, Model X, Model 3, Model Y, and the Cybertruck. It says another is nearing production, the Tesla Semi, an electric semi-truck. The concept for the Semi was first unveiled in 2017. After many promised production starts and delays, Tesla said it would launch in late 2025 or 2026. Similarly, Musk has said that robo-taxis, which require fully autonomous capabilities (something of the El Dorado among the tech-EV set), would be out in October 2024, after its own set of previous delays. He also said its entry into the market would help Tesla’s market capitalization surpass $1 trillion.

Beyond vehicles, Tesla has diversified into energy generation and storage products, including solar panels, solar roof tiles, and battery systems for homes and businesses. Tesla is thus more than just a car company since its batteries are part of many home solar installation plans across the U.S. and elsewhere. However, automotive-related revenues are about 85% of its total in 2024. 

31,008%

From 2010 to Aug. 1, 2024, Tesla’s market cap increased from $2.23B to $692.79B, an increase of over 31,008%. That is a compound annual growth rate of 50.25%.

Tesla first turned a profit in 2020, but its financials continue to be volatile. In the second quarter of 2024, the company’s profits plunged more than 40% compared to the same quarter the year before. Investors are wondering if this is a temporary blip or if we’re now past Tesla’s era of explosive growth as competition in the market intensifies.

This comes as the company’s high valuation and production targets have also put pressure on Tesla to maintain its early-2020s growth trend and technological edge.

Tesla’s Competitors

Tesla may be the most recognized company in the EV industry, but that doesn’t mean it’s the only one.

Traditional car companies are increasing their offerings of hybrid gasoline-electric cars, plug-in hybrid EVs, and battery EVs (BEVs). Moreover, in China, where Tesla is a well-known brand, it holds just 6.7% of EV market share.

Competitors continue to ramp up manufacturing and sales efforts for good reason. Fortune Business Insights estimates a compound annual growth rate (CAGR) of 13.8% for the worldwide EV industry, from $671.5 billion in 2024 to $1.9 trillion by 2032.

Asked in January 2024 to name Tesla’s biggest competitor, Musk was clear: “Our observations are that Chinese car companies are the most competitive car companies in the world.” Musk said Tesla couldn’t compete without government assistance helping to block that competition. “I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established,” he said. “Frankly, I think that if there are no trade barriers established, they will pretty much demolish most other car companies in the world.”

“They’re extremely good,” he added.

BYD Company Ltd. (BYDDY)

BYD—which stands for “build your dreams”—is a Chinese multinational corporation that has rapidly emerged as one of Tesla’s most formidable competitors in the global EV market. Founded in 1995 as a battery manufacturer, BYD has leveraged its expertise in energy storage to compete with Tesla as the leader in worldwide EV sales each quarter.

Unlike Tesla, BYD benefits from vertical integration that extends beyond vehicle production, including the manufacturing of batteries and semiconductors. This has allowed BYD to control costs more effectively and maintain a steady supply chain, a critical advantage in the EV market. Among its backers has been Warren Buffett’s Berkshire Hathaway Inc. (BRK.A), which bought into the company in 2008. In recent years, though, Berkshire Hathaway has been reducing its shares precipitously as it banks significant gains from BYD’s greatly increased stock prices.

BYD’s EVs include passenger cars, buses, trucks, and even monorails. Among its bestselling models are the BYD Tang, a high-performance PHEV SUV; the BYD Han, a luxury BEV sedan known for its sophisticated technology and extended driving range; and the BYD e6, a widely used BEV taxi model in various countries. But the most talked about by EV market watchers and reviewers is the Seagull, launched by BYD in 2023 and selling for around $12,000 in China. A shorter-range version costs under $10,000.

Important

BYD’s Seagull, with rapidly growing market share in the EU and in its home country, is largely blocked from the U.S. by 100% sanctions imposed by the Biden administration in May 2024.

A key aspect of BYD’s success in the EV market is its in-house battery production. The company is one of the largest producers of lithium-ion batteries globally, ensuring a reliable supply of its vehicles. Among them is its Blade Battery, which has a design that is far less prone to catching fire, offers higher energy density, and lasts longer.

BYD’s international presence has expanded significantly, with manufacturing facilities and partnerships established in the U.S., Brazil, and India, among other countries. The company’s electric buses are particularly noteworthy, as they are widely used in cities across Europe, North America, and Latin America, part of a global push for cleaner public transportation.

In 2023, the company reported a total revenue of $60.4 billion and a net profit of $1.5 billion. BYD’s EV sales exceeded 1.8 million units, marking a 70% increase from the previous year and putting the company near Tesla in worldwide battery-electric vehicle sales.

In its Chinese home market, the world’s largest for EVs, BYD consistently beats Tesla in sales volume. The company’s success is built on competitive pricing, government support, and products tailored to local preferences. BYD’s growing presence in international markets, including Europe and Latin America, signals its ambition to challenge Tesla globally.

BYD hasn’t just been a thorn in Tesla’s side from its major leap in sales in recent years but from press comments that get under Musk’s skin. Musk has claimed that a future valuation in the trillions awaits Tesla based on a future in the robo-taxi market. That requires fully autonomous cars—and people being comfortable riding in them. In 2023, a BYD spokesperson, Li Yunfei, called the aim “basically impossible,” adding that businesses that invest massive capital into self-driving technology will end up with nothing. A year later, Musk responded on the social media platform X, saying that “BYD needs to change course fast, or they’re in trouble.”

It wasn’t BYD that appeared to be in trouble. Among other recent moves, BYD announced a partnership with Uber Technologies (UBER) to bring 100,000 new BYD vehicles onto the Uber platform across Europe, Latin America, the Middle East, Canada, Australia, and New Zealand. Uber said the two companies will also partner in using BYD autonomous-capable vehicles for the Uber platform.

As BYD continues to expand internationally and refine its product offerings, the competition between these two EV giants is now a part of a major trade rivalry between the U.S. and China. While BYD may not yet match Tesla’s brand cachet in Western markets, its rapid growth and cost advantages make it the biggest threat to Tesla’s global EV lead. They are also a major threat to Tesla’s U.S. competitors, which are aiming their EV efforts at middle-income Americans.

In the mid-2020s, Tesla became one of its own biggest competitors. In the previous half-decade, rental car companies had bought many Teslas, seeing them as the next big thing in their market. A pandemic-era slump and other industry shifts meant companies like Hertz (HTZ) started selling off thousands of their Tesla EVs, putting these bargain-priced alternatives in competition with Tesla’s new vehicles—enough that if they counted as new cars, they would be among Tesla’s top three competitors in 2024.

Ford Motor Company

Ford Motor Company is a multinational automobile manufacturer founded in 1903. It produces electric cars, trucks, and SUVs. The Ford Mustang Mach-E is a popular electric model and has also found favor with reviewers, taking Car and Driver‘s first EV of the year award in 2021.

Ford initially invested a lot in pursuing vehicle electrification but has dialed back its spending after its EV business, known as Model e, lost $4.7 billion in 2023 and another $1.1 billion in the second quarter of 2024. Ford CEO Jim Farley has blamed these losses on consumers not wanting or being able to afford EVs over gas-powered vehicles while inflation and interest rates stay high.

“I think you’re going to see a lot of seismic changes in the industry because of this pricing power reality that we’ve all faced,” Farley said, referring to a common issue for all of Tesla’s EV competitors after the pandemic. He said Ford is adjusting its EV strategy based on these new market realities while promising not to bring any EVs to market without a plan for profitability.

Here are the major parts of Ford’s EV strategy:

Bring smaller, more affordable EVs to market

Unlike Tesla, which makes its profits from the upscale car market, Farley says Ford is committed to making cars that are affordable for the average consumer. Many of the beneficial climate impacts of EVs won’t come to fruition if the vehicles remain the domain of only the wealthy.

“We believe smaller, more affordable vehicles are the way to go for EV in volume,” Farley said in mid-2024. “We’re focusing on very differentiated vehicles, priced under $40,000 or even $30,000. And we’re going to focus on two segments: work and adventure.”

5% Is Enough for 2nd Place

Ford’s EV sales for the first half of 2024 represented a 72% increase year over year.  But they also represented just 5% of Tesla’s sales in the same period. Nevertheless, selling just one EV for every 20 Teslas sold put Ford in second place for U.S. EV sales.

Cut costs

Ford has said its success in the EV market requires getting production costs down to those of Chinese manufacturers and Tesla. Ford is considering reducing vertical integration in some areas of its business. This means the company may outsource certain operations it handles in-house, which could help reduce its costs. In addition, Farley said that Ford faces “a lot of tough choices on footprint,” which in industry parlance refers to potential factory closures or downsizing to cut costs.

Focus on the commercial EV business

As with Tesla and its Semi, Ford sees great profit potential in commercial EVs. They’re an easier sell since consumers see the generally higher price tags for EVs and walk away before calculating the savings over time in gas and maintenance costs compared to gas-powered vehicles. “We see a divergence on electrification adoption between commercial and retail. Commercial customers focus on total cost of ownership,” Farley said.

Despite challenges, Ford continues to view EVs as the industry’s future, and it’s had some success. Among Ford’s EVs already on the market are the Mustang, the F-150 Lightning pickup, and the E-Transit van, and it’s been working on smaller, low-cost models.  

The No. 2 EV brand in the U.S. for the past two years, Ford sold over 43,000 EVs in the first half of 2024, up 71% over the same period a year earlier.

General Motors Company

GM is a U.S.-based automobile manufacturer founded in 1908. In recent years, it has leveraged its vast resources and diverse brand portfolio to challenge Tesla’s dominance.

At the heart of GM’s EV strategy is its proprietary Ultium battery technology, which is found in EVs across its brands: Chevrolet, Cadillac, GMC, and Buick. This multi-brand approach has helped GM target various EV market segments, from mass-market vehicles to luxury models and even electric trucks.

GM continues to expand its EV lineup, which already includes vehicles like the Chevrolet Bolt, which stopped production but then announced a restart given consumer demand, and GMC Hummer EV, with more models such as the Cadillac Lyriq and Chevrolet Silverado EV on the horizon.

GM has partnered with EVgo to build out a network of charging stations across the United States. This move aims to address one of the critical concerns for potential EV buyers and compete with Tesla’s Supercharger network, which still dominates the charging market.

GM’s manufacturing capabilities and well-established supply chain relationships provide significant advantages in scaling EV production. However, as a traditional automaker, GM also faces challenges in transitioning its workforce and facilities from internal combustion engine production to EV manufacturing.

GM reported retail sales of 38,355 EVs in the first half of 2024 and is projecting more growth during the rest of the year. The company said it would produce and wholesale 200,000 to 250,000 EVs in 2024, boosted by a number of new launches, including the Equinox EV, GMC Sierra EV, Cadillac Optiq and Escalade IQ, and Silverado EV.

NIO Inc.

NIO is a Chinese holding company that designs, manufactures, and sells premium smart electric vehicles for the international market. These include the EP9, which it asserts is among the fastest electric cars in the world, and its flagship SUV, the ES8. Nio also offers power products, including access to public charging, power mobile charging trucks, and battery swapping.

In the second quarter of 2024, NIO delivered 57,373 vehicles. The company is also rolling out lower-priced cars to challenge its BYD and other competitors. In 2024, it unveiled the first car from its new lower-priced brand, Onvo. This car is about 10% cheaper than Tesla’s Model Y.

Based in Jiading, China, NIO had a market capitalization of $9.27 billion as of Aug. 1, 2024.

Volkswagen

Volkswagen is one of the largest automotive manufacturers in the world. Its highly recognizable products and brands include Volkswagen cars, Audi, Bentley, Lamborghini, Porsche, and Skoda.

The German giant offers a wide range of EVs and covers every market segment, from entry-level affordable options to bigger, more powerful alternatives. Moreover, it continues to ramp up its product range, with plans to launch 10 new EVS by 2026.

By 2030, Volkswagen said it thinks at least 70% of its European sales will come from its EVs. In the U.S. and China, meanwhile, the company expects EVs to make up at least half of its sales. It’s spending tens of billions to meet these goals.

Founded in 1937, Volkswagen has survived wars, countless cycles of boom and bust, as well as the infamous 2015 emissions scandal in which it admitted that many Volkswagen diesel engine cars sold in America had built-in software that could detect when they were being emission-tested and could alter performance for better results.

Volkswagen is based in Wolfsburg, Germany. As of Aug. 1, 2024, it had a market capitalization of $58.31 billion.

You’ll see seemingly conflicting statistics when ranking the sales of EVs by manufacturer. For example, headlines in early 2024 claimed that BYD and Tesla were the world’s No. 1 EV manufacturers. That’s because some include BYD’s plug-in-hybrid EVs (labeled PHEVs), which brings its total sales to 3.1 million units, against Tesla’s 1.8 million units.

What Are Tesla’s Competitive Advantages?

Despite facing challenges, Tesla maintains several significant advantages that have helped keep it up front in the race to lead the EV market.

Market share is an important competitive advantage to capture and maintain. In the second quarter of 2024, the top five selling EVs in the U.S. were as follows:

1. Tesla Model Y (30.7% market share)
2. Tesla Model 3 (12.9%)
3. Ford Mustang Mach-E (3.8%)
4. Hyundai IONIC 5 (3.6%)
5. Tesla Cybertruck (2.6%)

In the second quarter of 2024, Tesla’s market share in the U.S. fell below 50% for the first time. Tesla’s share of the EV segment is dropping as the EV market expands and more makers either enter or establish a greater foothold in this space. However, at about half of total EV sales, Tesla is still the market leader in the U.S. by quite a margin. The company with the second most significant share of sales was Ford. In the second quarter of 2024, it had 7.2% of the U.S. market.

These are some of the reasons why Tesla remains dominant in the U.S.:

Vertical integration

Tesla’s vertical integration strategy gives it an edge in the industry. By controlling everything from battery production to software development, Tesla has more direct control over its costs. This approach also allows Musk to bring new products to market more rapidly.

Software and AI-related tech expertise

The company’s software expertise is another crucial advantage. Tesla’s over-the-air update capability allows it to continually improve vehicle performance and add new features post-purchase, aiming to improve the user experience while extending the life of its vehicles. This software-first approach sets Tesla apart from legacy automakers still catching up in this area.

It also allows Tesla to market itself to investors as a tech company, which traditionally evokes positive investor sentiment. This is among the reasons Tesla’s market capitalization is so many times greater than that of companies like Ford and GM, whose sales dwarf Tesla’s.

Tesla’s charging network

Tesla’s Supercharger network remains a significant competitive advantage. With over 45,000 Superchargers worldwide, Tesla offers its customers a reliable and extensive charging infrastructure, addressing one of the primary concerns for potential EV buyers.

While other manufacturers are working to build out their charging networks, Tesla’s early investment in this area gave it a substantial head start and continues to provide a major advantage in the U.S. However, an agreement with the U.S. government to share the network with other manufacturers will temper that somewhat.

The Tesla brand

Tesla has some of the best brand recognition in the world. Plus, it gets ongoing word-of-mouth advertising from superfan owners. The company has also cultivated a reputation for innovation and cutting-edge technology that extends beyond automobiles. This brand power allows Tesla to command premium prices and maintain a loyal customer base, even in the face of increasing competition.

Federal policies

There’s an irony to Musk’s very public support of former President Donald Trump. The Inflation Reduction Act of 2022, signed by President Joe Biden, gave more funding to a revised $7,500 federal tax credit for EVs, significantly impacting Tesla’s market position. Initially, Tesla had exhausted its previous tax credits due to high sales volumes, but the new legislation removed the manufacturer cap, making Tesla vehicles eligible again. However, the credit comes with stringent requirements on battery component sourcing and vehicle assembly location, which Tesla has not always navigated carefully.

In May 2024, Biden also increased tariffs on Chinese EVs from 25%—the amount Trump had assigned—to 100%, protecting Tesla from an onslaught of Chinese vehicles entering the U.S. market.

13.2%

Tesla’s global share of the plug-in electric vehicle market in 2023.

What Are Tesla’s Competitive Disadvantages?

Despite Tesla’s significant achievements in the EV market, the company faces daunting headwinds.

An aging product line

Tesla’s vehicle lineup is aging. While the Model 3 and Model Y are newer, their designs are also starting to look dated compared with the fresh, less-pricey models being launched by competitors. The company’s slow pace in introducing new models and updating existing ones puts it at a disadvantage as the rest of the industry rapidly evolves. Even its newer models, like the Cybertruck, have had significant recall issues.

Erratic pricing

In 2023 and 2024, Tesla often adjusted its vehicle prices, usually cutting them and raising them again as it faced a volatile market. This unpredictable pricing has hurt the company’s image as a premium brand and significantly affected the resale value of its cars. Customers who bought Teslas at higher prices feel dissatisfied as their vehicles’ market value drops dramatically.

Challenges in China

China, the world’s largest EV market, presents a significant challenge for Tesla. Despite its early successes, Tesla faces fierce competition from local manufacturers like BYD and new entrants like Xiaomi. The intense competition, recent price wars, and supply problems have led to production slowdowns and highlighted Tesla’s many issues in this critical market.

Those challenges are likely to affect its place in the U.S. market. While the Biden administration’s tariffs have staved off Chinese competition for now, analysts have argued it’s not if, but when, they enter the U.S. market.

Dependence on autonomous driving

Tesla’s pivot toward autonomous vehicles, particularly with the planned robo-taxi service, represents a high-risk strategy. The success of this pivot relies heavily on the development and deployment of reliable self-driving technology, which Tesla has long promised but has yet to deliver. This dependence on an unproven technology adds a layer of uncertainty to Tesla’s future business.

Fluctuation in demand

Tesla’s global sales for the first half of 2024 were a fifth lower than in 2023, revealing a significant drop in demand as its competitors reported major gains. As the EV market matures and consumers have more options from rival automakers, Tesla’s sales growth will increasingly depend on having the right product at the right price.

Changes to its high-end image

With the Model 3 and Model Y accounting for more than 90% of worldwide sales, Tesla’s market position has shifted from premium to more mainstream. This could diminish its status as a luxury brand. It also puts Tesla’s vehicles head to head with less costly EVs, especially in markets beyond the U.S.

The Musk brand

Musk’s personal brand is wholly intertwined with Tesla’s, creating many headaches for marketers of the company’s image. While Musk’s status for many as a visionary with a fan following has undoubtedly contributed to Tesla’s popularity, his controversial public persona and erratic behavior have posed significant risks to the brand. Musk’s provocative missives on X, public feuds, and political statements have alienated many consumers and investors. Musk’s outsized public persona has made it such that consumers feel like they’re not buying from a car company but from Musk himself. More and more, many simply don’t want to buy from him.

Musk’s acquisition of Twitter and subsequent management decisions have further complicated matters, diverting attention from Tesla and raising questions about his focus and judgment. In addition, Musk’s tendency to make bold promises about product features and delivery timelines that aren’t always met has eroded trust in Tesla’s communications. Tesla’s quarterly earnings calls reveal many institutional investors prepared to follow Musk the extra mile, but that’s not the mass market of consumers he needs.

When Tesla’s Stock Goes Down, What Happens to Its Competitors?

In some ways, Tesla’s competitors need the company to succeed. As in 2024, a drop-off in its stock price tends to dampen the mood for stocks across the EV sector.

What Is the Difference Between Vertical and Horizontal Integration?

Vertical integration involves a company controlling multiple stages of production or distribution within the same industry. For instance, a vertically integrated car manufacturer might own the factories that assemble cars, the plants that produce parts, and the dealerships that sell the vehicles. This approach allows companies to reduce costs, improve supply chain coordination, and maintain higher control over product quality and timelines. In contrast, horizontal integration involves a company expanding operations by acquiring or merging with other companies at the same stage of production within the same industry. This strategy aims to increase market share, reduce competition, and achieve economies of scale.

What Are the Prospects for Tesla’s Robo-Taxi?

Tesla’s robo-taxi aims to transform transportation by offering a fleet of autonomous electric vehicles that operate as a ride-hailing service, potentially reducing the need for personal car ownership and revolutionizing urban mobility. The promise of this technology lies in its potential to offer cost-effective, convenient, and environmentally friendly transportation options. However, despite significant investments and progress, Tesla has yet to achieve the level of autonomy required for safe, driverless operation in all conditions. The economic viability of the robo-taxi service hinges on achieving large-scale deployment and operational efficiency. Many analysts have questioned whether such a service could produce the revenues needed, even if Tesla were to surpass all these hurdles.

The Bottom Line

While it has an enormous market capitalization and still enjoys fame for establishing the electrified vehicle market, Tesla has an increasing number of strong competitors. On one side, there is a band of new price-competitive tech companies, including Chinese manufacturers backed by a strong base of home-country consumers. On the other, there are established and well-known firms that have been making cars for decades, such as Ford, GM, and Volkswagen. As these manufacturers develop their technologies and launch more EVs, Tesla could see its market share continue to diminish.

Read the original article on Investopedia.

First payday? Here’s how to put that money to work

Fact checked by Vikki VelasquezReviewed by Katie MillerFact checked by Vikki VelasquezReviewed by Katie Miller

Your first job after high school or college comes with a critical rite of passage into adulthood–earning a regular paycheck. Sometimes, that first paycheck can be a bit of a letdown. You may be surprised that your net earnings are considerably lower than the gross amount. Plus, not all paychecks are created equal depending on your job. You may even panic a little about how you will cover all your expenses. 

The good news? It is possible to get what you need out of your paycheck. Budgeting, financial planning, prioritizing savings, and paying down debt are all ways to help you manage your money, one paycheck at a time. 

Key Takeaways

• Understanding the amount of your first paycheck, including payroll deductions and taxes, is crucial for effective financial management.
• Creating a budget is essential for managing your paycheck and ensures you can get the most out of it.
• Prioritizing saving and investing a portion of your paycheck can lead to long-term financial security and growth.
• Managing debt is important for stability and reducing financial stress.
• Seeking financial education resources can help raise your financial literacy IQ and, in turn, help you make smart money decisions. 

Understand Your Income

At one time, when an employee received a paycheck, they were handed a literal paper check with all the withholdings listed on it. While employers still provide paycheck notices, most issue paychecks via direct deposit directly into employees’ bank accounts. If you’re not in the habit of looking at your digital pay stub, it can be easy to overlook how taxes and deductions affect your pay. 

Sometimes withholdings can even be surprising, says Joni Alt, a certified financial planner and senior wealth advisor at Evermay Wealth Management. 

“I remember after my daughter graduated from college, she and her friends had started their jobs, and they were at our house, and the conversation was, ‘What is FICA, and why did they take my money?'” shares Alt. “I chuckled because they were becoming adults in real life.”

Alt suggests that young people should educate themselves about FICA (Federal Insurance Contributions Act), the paycheck contributions that fund Social Security and Medicare. Employees and employers split FICA contributions, paying 6.2% each toward Social Security and 1.45% each toward Medicare in each paycheck.

To estimate your net pay, you must calculate your FICA contributions, plus other withholdings like state and federal taxes, shared costs for employer-sponsored health insurance, and contributions to retirement funds like a 401(k) or 403(b). This will enable you to create a budget.

How To Calculate Your Net Pay

How much money is withheld depends on your salary, where you live, and how many dependents you have. 

Typical withholdings include:

• Federal and state taxes: Your total will depend on where you live and how much you make.
• FICA (Social Security and Medicare): 6.2% of your salary for Social Security; 1.45% for Medicare
• Health insurance: Most employers ask you to contribute something towards your health insurance. For example, according to 2023 information from KFF, employees with health care coverage contributed 17% of the total costs on average.  
• Retirement benefit contributions: Your amount will depend on how much you choose to contribute. Experts advise giving some amount each paycheck. 

Net Pay Example

Let’s say you earn $61,600 a year, the median earnings for a 25- to 34-year-old with a bachelor’s degree, according to data from the National Center for Education Statistics. At this salary, your gross pay would be $61,600. Divide that by 12 and you have your monthly gross pay of $5,133.33. 

To figure out your net pay, determine how much you contribute to FICA, federal and state taxes, health insurance, and retirement contributions. Then, subtract those contributions from your gross pay.  

Here’s an example of how to determine monthly net pay, assuming a 12% effective federal income tax rate and 4% state tax: 

• Federal and state taxes (16%): $821.33
• FICA (7.65%): $392.70
• Health insurance: $100 
• Retirement contributions (10%): $513.33

After these expenses, your monthly take-home pay would be $3,305.97. If you get paid semi-monthly or weekly, divide your yearly pay by the number of paychecks you receive per year, determine your payroll deductions, and subtract those deductions from your gross pay. 

Tip

Try online paycheck estimator tools like the ones at ADP and Charles Schwab to get a quick estimate of your net pay. 

Create a Budget

Creating a budget is the best way to track your income, expenses, savings, and discretionary spending. It can help you decide where you need to save or splurge. According to a survey by Empower, 53% of Americans across generations found learning how to make a budget to be their most valuable financial lesson. (The next most popular lesson: creating an emergency fund.) 

Having a budget is especially useful when cost-of-living expenses, like groceries and rent, are high. Today, many Americans report feeling pinched due to inflated prices at the supermarket and the gas pump. Plus, over half of U.S. renters are paying over 30% of their income on housing, including utilities, as reported by the Joint Center for Housing Studies of Harvard University.

A Few Elements To Include in Your Budget:

• Net income: This is the money you have coming in each month after withholdings and deductions. 
• Expenses: Rent or mortgage, utilities, car payments or other transportation costs, student loans, credit card payments, groceries, and pet food (if you own an animal companion), plus anything else that you have to pay for (versus want to pay for, which goes under another category). 
• Savings: Any account designed to save, such as an emergency fund (up to six months of expenses, in case you lose your job) or contributions to a retirement fund.
• Discretionary spending: This is the fun money that goes to nonessential items like dining out, entertainment, gym memberships, and anything else you want to spend on. 

Popular Budget Types 

There are several ways to create a budget, including using pen and paper or one of the many budgeting apps. Popular budgeting plans include:

• 50/30/20: This is a plan that divides your paycheck into needs, wants, and savings. Fifty percent goes to needs (rent, utilities, or car), 30% to wants (eating out, saving for a trip), and 20% goes into paying off debts beyond minimum payments and putting money into savings. 
• The envelope method: This form of budgeting uses envelopes for each expense, such as rent, groceries, entertainment, student loans, etc. You allocate a specific amount for the month in each envelope, and once the money is gone, it’s gone. 
• Pay yourself first: This is more of a savings strategy. You automatically contribute to a savings or investment account directly from your paycheck. Anything left over is to be used for your expenses or discretionary spending. 

“When my son was in high school and would ask for money, I would ask him if this was a want or a need,” shared Alt. “The answer often depended upon the current environment and time. People can control how much they spend and/or save. It’s a choice. The 50/30/20 rule is a good guide and starting point. But everyone has a unique situation, so slight modifications may be needed.” 

The most important thing when creating a budget is to consider your individual situation, according to certified financial planner Melissa Joy. 

“I don’t subscribe to any one particular rule about budgeting because they all have benefits, and what works for your budget may not work for your roommate, for example, if you have student loans and they don’t,” says Joy, who also hosts the Women’s Money Wisdom podcast.  

Ultimately, Joy advises making sure to “pay yourself first to meet your needs and understand that there isn’t a one-size-fits-all-all budget. It depends on your own situation.” 

Prioritize Saving and Investing

It can feel difficult to part with your paycheck for a future you can barely imagine, but the earlier you start investing in your retirement, the better. Contributing your retirement early adds up, thanks to compound interest, which allows you to earn interest on your principal and then interest on that interest, growing over time. In addition, any amount contributed to a 401(k) or 403(b) is subtracted from your gross pay, which lowers your taxable income.  

Find out if your employer offers a retirement plan; if so, allocate a percentage of your pay to that account. Some employers will offer to match (up to a certain percentage) their employees’ contributions. Taking an employer match is one of the easiest ways to start investing in your retirement, and it is essentially free money. 

Other accounts you can consider funding, even a small amount if you can afford it, are:

• Emergency fund
• Health Savings Account (HSA)
• High-yield savings account
• Roth or traditional IRA
• Stocks or mutual funds

Where To Start Saving

“I would recommend starting an emergency savings account, over investing in stocks and mutual funds, or opening a Roth or IRA when you are first starting out,” says Joy. 

After you create an emergency fund, Joy suggests contributing to another account, such as an HSA, which can be used as emergency reserves for medical expenses. Note that you are only eligible to contribute to an HSA if you have a High-Deductible Health Plan (HDHP).

Joy also encourages young people to take advantage of high-yield savings accounts. “At this time, these types of high-yield savings accounts can pay off, and there are plenty online to consider that offer high interest rates,” she shares. 

Alt agrees about using a budget as a beginning point and starting an emergency fund first; when you get that going, “put money into saving in your company retirement plan to maximize employer matching contributions.” 

She encourages young people to pay down debts such as student loans, credit cards, and other personal loans. “If there are still extra funds left in your monthly budget, consider contributing to your Health Savings Account (HSA) if available and finally to taxable investments.”

Important

If your current budget doesn’t stretch to allow for extra saving at first, practice patience patient. By sticking to a budget, you’ll pay down your debts and create room to set aside more funds to save and invest, which will pay off in time.

Manage Debt

Unfortunately, most graduates leave school with some debt, either student loans, credit card debt, or both. In the fourth quarter of 2023, the amount of student loan debt in the United States was $1.6 trillion, approximately $37,087.96 per borrower.  The College Board estimates that half of the students (2021-2022) from public and private institutions who graduated with a bachelor’s degree have student loan debt; the average debt amount was $29,400 per loan holder. 

According to a 2023 study by Experian, the average credit card debt among Generation Z (18 to 26 years) is $3,262. It’s not surprising that experts say paying down debts is an important part of budgeting your paycheck. 

Figuring out the best way to pay down your loans for your individual circumstances is key. 

“I recommend doing a personal finance audit every month or so of how you are spending, and then see where you can cut back and put more money towards debts or investments,” suggests Joy. 

How To Reduce Debt 

When you need to tackle debt, there are options, such as the snowball method, where you pay off your smallest debts first, or the debt avalanche strategy, where you pay the minimum amount due on all debts and then use any extra money left to pay the card or loan with the highest interest. You could also choose to use a debt payoff app. 

“Make sure you make your student loan payments on time, and investigate if you qualify for student loan repayment plans or student loan forgiveness programs,” says Joy. In terms of credit card debt? “Get rid of it, especially the cards with high interest rates,” she recommends. 

If you don’t have a credit card, be careful about taking them out, especially if you are on a tight budget. “I would not recommend getting a card unless you can afford to pay it off each month,” cautions Joy. “And if you have debt that you can’t manage, consider credit counseling with a reputable advisor.” 

Seek Financial Education and Resources

Learning more about personal finance is a good way to prepare yourself ahead of time for managing your money in those first paychecks at a new job. Many books for a younger audience, personal finance podcasts, apps, and even banking or investment websites are available.

“I like the podcast Money Wisdom,” shares Joy. “‘[And] You Need a Budget’ is a good budgeting app if you like to track everything because it offers feedback on your finances,” she recommends. “Also, check to see if your workplace offers meetings with financial advisors connected to the retirement plan you are enrolled in.” 

Alt asked her younger colleagues to get a sense of what they like in a budget app. “I decided to take a census of the ‘young people’ in my office about budget apps. Simplifi by Quicken was at the top of the list, followed by Excel spreadsheets. Rocket Money had an honorable mention because it helps identify all the subscription services being utilized and where there might be overlap,” shares Alt. 

She advises young people learning to manage their paycheck to be cautious of the financial education provider, especially if they are trying to sell a product or service. “Those are not the people you necessarily want to speak to because it might not be in your best interest,” she explains. 

Warning

Joy advises that people should “take everything from financial influencers on social media with a grain of salt. It’s always best to speak to professionals for advice.”  

If your family has a financial advisor or planner, ask your parents about meeting with them. They will likely be a trusted source for advice, and you may be able to pay by the hour for guidance. 

“If that’s not available, do research online and look for a fiduciary (an advisor that must put their client’s interest ahead of their own). The National Association of Personal Financial Advisors (NAPFA) is a terrific way to research and look for an advisor that is a fiduciary,” suggests Alt. 

Tips to Make Sure Your Paycheck Pays the Bills

• If you are following a 50/30/20 budget plan, make paying down your debt a “need” and put more money into getting rid of debt. 
• Try the envelope method of budgeting. Put cash in envelopes (real or virtual) based on your monthly income, and then earmark each envelope for expenses (based on your budget), from groceries to entertainment. Set a cash amount aside for each category. Once the cash is gone, you will have to go without. 
• Set up automatic payments to your credit cards and student loans, utilities, and other recurring charges. 
• If there is money leftover after your bills are paid, consider setting up automatic transfers from your checking account to your savings account. Even $25 a paycheck will add up over time. 
• Joy recommends doing a financial audit on a regular basis. You may be able to cut corners by simply cutting down on subscriptions, which can add up. “Look back on a few months and see where your money is going, then audit what you can cut back on,” she suggests. 

Frequently Asked Questions (FAQ)

What Is the 50-30-20 rule?

The 50-30-20 rule is a form of budgeting in which you divide your net income into three areas: 50% goes to expenses (needs) like shelter, transportation, and groceries; 30% goes to wants, like entertainment or other non-essentials, and 20% on savings, like a high-yield savings account or an investment account. 

What Is the “Pay Yourself First” Strategy?

Pay yourself first is a personal finance strategy recommended by many financial planners and advisers. This means setting up automatic payments from your paycheck to be delivered straight to a retirement or savings account before you get a chance to pay monthly expenses or engage in any discretionary spending. 

How Much Interest Does a Savings Account Earn vs. a Checking Account?

Likely, your direct deposit is linked to a checking account that offers no interest or much less interest than a savings account, especially a high-yield savings account. Interest on savings accounts varies from financial institution to financial institution. As of May 2024, the best option for earning interest on a savings account is 5.55% at My Banking Direct, a service of Flagstar Bank, N.A. By comparison, a Sapphire Chase Checking account only offers 0.01% interest. 

How Much Should I Contribute to a 401(K) Plan?

You should always try to take advantage of any matching program your employer offers by contributing at least the percent that they will match. Most financial experts recommend contributing anything versus nothing, but if you can contribute up to 10% or 15% of your annual salary to a retirement account, it will likely pay off over time. If you cannot afford that amount, try to add 1% incrementally to your contributions each year. 

What Is a Budgeting App and Which One Should I Use?

Budgeting apps take the guesswork out of a paper-and-pen budget by allocating funds to different categories as set by the user. There are many budgeting apps on the market—some are free, others have fees. The one you use should align with your personal budgeting style and easily integrate with your financial accounts and your phone. 

The Bottom Line

When you get your first full-time job, it may feel challenging to see your net pay and understand how to make it work for you. However, there are several strategies that you can use to help, including setting a realistic budget, contributing to an emergency fund, participating in your employer’s retirement plan, and taking advice from the right financial experts. A little planning today will set you up for a positive financial future.

Read the original article on Investopedia.

Fact checked by Vikki VelasquezReviewed by Samantha SilbersteinFact checked by Vikki VelasquezReviewed by Samantha Silberstein

Financial stress is a reality for many people, but when it goes unchecked, it can become an underlying cause of mental and physical health issues. For young adults, developing a healthy relationship with money and mastering personal finance concepts can help them avoid financial strain and improve their overall well-being.

Through education and personal effort, financial well-being is attainable, and it’s not about earning a huge salary or owning expensive things. Rather, it’s about taking control over your everyday finances, putting protections in place so you have financial security, and working toward larger financial goals while you enjoy life.

If you recently graduated from college or are just starting your career, here’s what you should know about how money impacts your mental health and strategies you can implement to help achieve financial well-being. 

Key Takeaways

• Financial stress can have a significant impact on mental health, especially young adults.
• Effective strategies for managing financial stress include budgeting, saving, and asking for help when needed.
• Dedicating time to your learning more about money can support your mental health and empower you to make informed decisions.

The Link Between Money & Mental Health

What is Financial Stress?

Financial stress is feelings of worry and anxiety related to money. It could be day-to-day concerns like not having enough money to cover basic needs, or a general sense of not being able to manage debt or achieve personal goals like buying a home or affording a car because of fund shortages.

For young adults who are early in their careers and perhaps facing down major financial responsibilities for the first time, financial stress can be overwhelming.

“Money is one of the biggest stressors in life,” says Carolyn McClanahan, M.D., CFP, founder of Life Planning Partners. “And when you’re stressed over anything, that creates physical issues within your body, like those stress hormones that make you not sleep or bring down your sense of well being overall.”

Money Stress in Young Adults

People may have different types of financial stress depending on their life stage. So while someone in their 50s might be concerned about not being able to retire, people in their 20s are more likely thinking about the here and now, says McClanahan. “How do you meet daily expenses without going into credit card debt? It’s day-to-day things that they think about and because we do such a bad job of teaching financial literacy, many younger people just don’t know how to handle it,” says McClanahan.

Navigating young adult life can be challenging regardless of financial stability since there are so many major changes in a relatively short period of time, agrees Curtis Pope, CFP CFT-I, founder of Pope Wealth Planning.

“There are a lot of unknowns. This stage of life can mean new living situations, new cities, a new job, full independence for the first time in many cases, etc.,” he says. “If personal finances feel unstable during this time, it’s another layer of new challenges during an already tricky time of navigation.”

On top of that, a good portion of young adults are also grappling with student loan bills. According to The College Board’s Trends in College Pricing 2023 report, more than half (51%) of 2021-22 bachelor’s degree recipients graduated with debt, and the average debt among borrowers was $29,400.

Effects of Financial Stress on Your Health

According to a Harvard study, more than half (56%) of young adults ages 18-25 report that financial worries negatively influence their mental health. “How we take care of our physical and mental health all goes together. And if we’re having basic things like money stress or poor relationship issues, then that can start a cascade of poor mental health and physical health,” says McClanahan. 

As a financial therapist, Pope shared a list of some of the most common effects that he’s seen result from financial stress:

Anxiety and depression: Constant worrying about finances can manifest into increased feelings of anxiety and depression, affecting overall mental well-being.

Sleep disturbance and insomnia: Ever lie awake at night doing calculations in your head to try to figure out how you’ll pay for new brakes for your car, or if you can afford a quick road trip with friends? In a study by the American Academy of Sleep Medicine, 87% of people cited finances as a worry that has caused them to lose sleep; one-fifth of those respondents said they “almost or almost always” lost sleep worrying about money.

Physical health problems: Long term chronic stress can manifest into physical health issues such as headaches, digestive problems, and a weakened immune system. The American Psychological Association points out that stress can actually impact every body system, causing long-term problems for your heart, gut health, nervous system, and more.  

Relationship strain: Among Gen Z, 29% of people say money is their greatest relationship challenge. And that’s no surprise given the pressure that financial strain can put on relationships with partners, friends, and family. It could be from disagreements over money or lifestyle choices, but also, money worries can cause people to feel irritable and lash out at others.

Reduced work performance: Financial stress can lead to decreased productivity and focus at work, affecting overall job performance. In fact, nearly 3 in 4 employees (71%) say that financial stress negatively affects both their work and personal lives, according to a study conducted by Morgan Stanley at Work.

Avoiding social interactions: People under financial stress may withdraw from social activities due to lack of funds or embarrassment. One study found 72% of respondents skipped events with family, friends, and co-workers because they couldn’t afford to attend.

Negative impact on self-esteem: Because money is so tied to value and worth, financial difficulties can lead to some people feeling like they are failures, impacting self-confidence. 

Strategies for Managing Financial Stress

For anyone dealing with financial stress, the good news is that turning things around is within your power. “It’s all about learning the tools of how to take care of yourself financially,” says McClanahan. This includes learning budgeting, saving, and understanding basic financial concepts like how your 401(k) works, understanding how to use your health insurance, etc. 

“All those concepts are building blocks to maintaining good financial health so that you can hopefully reduce the effects of money on your mental health,” adds McClanahan.

Here’s a step-by-step plan for coping with financial stress and healing your relationship with money:

1. Get to Know Your Money Habits

Before you can get into budgeting or creating savings goals, you should do a deep dive into your finances to see where you stand. 

“I’m not talking about monitoring your avocado toast intake,” says Pope. “Either create a spreadsheet or simply write down the numbers.” To get the figures you need, ask yourself these questions, and analyze your bills and banking and credit card statements to find the answers: 

• What is my take home pay every month? 
• How much are my fixed monthly bills? Include things like rent, car payment, student loans, insurance, gym, subscriptions, etc. 
• How much money is “left over” after I pay my bills?

This exercise could be eye-opening if you have never stopped to look at where your money was going. 

2. Create a Monthly Budget

Once you have your numbers, you can get to work on your actual budget.

“If there’s $1,000 left at the end of each month, you’ll want to set aside a certain dollar amount for savings and then spend the remainder on lifestyle,” says Pope. By lifestyle, he means the flexible spending that you do each day such as groceries, carry out, shopping, entertainment, etc.

If you find yourself without enough of a leftover cushion to live, then you’ll need to go back to your bills to do some trimming, or look for ways to increase your income.

For example, you might realize that there are streaming services you really don’t use but still pay for, or you might be able to carpool with friends to save on tolls/parking costs. You might also need to set some restrictions on spending when it comes to eating out or buying new clothes.

Tip

Consider using apps to track your spending moving forward to keep yourself accountable and stick to your budget.

3. Build and Maintain Your Emergency Fund

Did you notice that Pope suggested that savings is the first item that you should take care of with your leftover funds? There’s an important reason why. “Having an emergency fund will provide a lot more peace of mind,” he says, and therefore, reduce your overall financial stress.

Start off by automating a set deposit amount into a separate account with every paycheck. Contribute what you can, adjusting as needed based on the budget your created and your income over time. Ultimately, you want to grow your account so that you have enough to cover at least three months worth of your fixed bills, says Pope.

Important

A high-yield savings account is a good choice for an emergency fund since it will help you earn interest on top of what you save.

Though it can take some time to fully fund your emergency savings, even knowing you have a few hundred dollars set aside in the meantime to cover an unexpected expense—rather than having to rely on borrowing—can be empowering and offer some peace of mind.

4. Find Extra Sources of Income

In most cases, people work a steady job and over time as they gain experience, their income increases. But if you can also find a way to introduce extra income streams, you may be able to fast track your financial goals and give yourself some budget wiggle room.

For example, you might be able to take on some freelance or gig work in your spare time. Or, if you are good at something like swimming or playing an instrument, see if there is an opportunity to teach lessons on that skill.

5. Use Education For Empowerment

People tend to stress more when something is unknown or unclear to them, and that can certainly be true when it comes to financial matters. But once you gain knowledge and demystify things that once seemed so complicated, you can feel less intimidated.

Here are some of Pope’s and McClanahan’s financial literacy resource recommendations:

Books:

• The One-Page Financial Plan 
• The Psychology of Money

Podcasts:

• Behavior Gap Radio
• Afford Anything

 Self-education:

• Khan Academy Financial Literacy

6. Seek Professional Help When Needed

Depending on your money goals and current situation, there could be times when you may need to reach out to a professional for some guidance. Here are a few financial service providers to consider:

Financial therapists: “Financial therapists live and work in the overlapping Venn diagram between traditional financial planning and conventional (mental health) therapists,” says Pope. Financial therapy goes deeper into the psychology of money, helping you to think critically about your finances and begin to take positive action toward your goals. 

Certified Financial Planner: A professional can help you with your long-term financial planning and investing goals. Starting to plan and save for retirement while you’re young can help you reap the benefits of compound interest.

Credit counselor: If you find yourself struggling with debt or trouble creating a budget, you can seek help from a non-profit credit counseling agency like the National Foundation for Credit Counseling (NFCC). You can typically get a free consultation, but then services may have a low cost fee thereafter.

Certified Public Accountant (CPA): If your finances are fairly simple, you may not need an accountant just yet. However, it can be a good idea if you decide to start your own small business or do a lot of freelance work since a CPA can help guide you from a tax savings perspective.

How many Americans suffer from financial stress?

Though research varies, a large majority of Americans do feel financial stress from time to time. A 2024 survey by Thrive Global found 9 out of 10 people saying that money has an impact on their stress levels.

What is money dysmorphia?

Money dysmorphia is a flawed perception of finances, or feeling insecure about one’s financial status regardless of one’s financial reality. This distorted view can cause people to make unwise financial decisions, such as feeling like you’re not rich enough to invest money for your future.

What is chrometophobia?

Chrometophobia is an irrational fear of spending money that goes beyond just being frugal. Serious cases could lead to someone avoiding any situation where they would have to pay for something, even for important things like healthcare.

The Bottom Line

Financial well-being is an important component for your overall mental health. By taking the steps to address your financial situation, you can take charge of your money and make it work for you – rather than just working to pay your bills. Once you flip the script, you can stress less about money matters and improve your financial mindset.

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How the company became the world’s largest PC vendor

Fact checked by Katrina MunichielloReviewed by Amilcar ChavarriaFact checked by Katrina MunichielloReviewed by Amilcar Chavarria

Since its founding in 1984, Lenovo Group Limited (OTCMKTS: LNVGY) has enjoyed a prodigious rise to become the top PC provider in the world. In this article, we take a look at the strategic model underlying one of China’s most successful corporations.

Key Takeaways

• Lenovo is a Chinese technology company that designs, manufactures, and sells personal computers, tablets, smartphones, smart televisions, workstations, and servers.
• Lenovo is the world’s largest PC vendor, claiming a 23.4% market share for the second quarter of 2024, ahead of HP Inc., Dell, and Apple.
• Lenovo has impressive competitive advantages over its rivals in the PC marketplace, including its large distribution network and its ability to expand its presence in emerging markets.
• Over the years, Lenovo has used strategic acquisitions and partnerships to access new markets and increase sales.
• Lenovo lags in market share behind its rivals in both tablet and smartphone sales.

“Protect and Attack”

At the heart of Lenovo’s growth has been a strategy—known as “protect and attack”—that was put in motion by CEO Yang Yuanqing in 2009. As its name suggests, this strategy combines defensive and offensive elements. Defensively, Lenovo built upon its success in China, where it occupied a dominant position as China’s (and the world’s) top vendor of PCs. Offensively, Lenovo seeks to grow internationally by leveraging acquired assets and expanding sales to emerging markets.

In carrying out this strategy, Lenovo makes use of two interrelated business models, referred to by Lenovo executives as their “Transactional” and “Relationship” business models. The transactional model emphasizes sales to retail consumers and small to medium-sized businesses, both directly (through online and physical Lenovo storefronts) and indirectly through distributors and retailers.

The relationship model targets enterprise customers such as educational and governmental institutions, as well as large businesses. Sales occurring through this model are characterized by a greater degree of personalized service by Lenovo staff and are executed through a combination of internal sales representatives and business partners.

Protect: Lenovo’s Competitive “Moat” in China

As Warren Buffett famously remarked, the most enduringly successful businesses are those that possess economic “moats” protecting their profits from encroachment by competitors. On face value at least, Lenovo has many such moats in China.

Perhaps the most impressive advantage enjoyed by Lenovo in China is its immense network of distribution channels. Lenovo has access to thousands of sales points in its Chinese distribution network, the majority of which are exclusive distributors of Lenovo products.

The advantages of this network extend beyond mere scale. Lenovo’s local expertise as a company born in China lends it an advantage over non-Chinese competitors. A case in point—Lenovo’s “wedding computer,” a low-cost product adorned in red (a color connoting luck in China) and emblazoned with the Chinese character for “happiness.” The local insight embodied in this product, which proved wildly popular among rural Chinese consumers, suggests that foreign competitors may face difficulty in unseating Lenovo in the hearts and minds of Chinese consumers.

Lenovo’s executives have made it clear that protecting these competitive advantages in China is a top strategic priority. But they have also made clear that their ambitions do not end there.

Attack: Emerging Markets and the World Stage

For most companies, becoming a market leader in China would be amply ambitious. For Lenovo, however, it is only the start of their dreams. Having established themselves as the leaders of China’s PC market, they have since undertaken to expand their presence in emerging markets such as India, Russia, and Brazil.

This strategy is not without sacrifices. Initially, these expansions generally cause operating losses as a company invests in establishing its sales presence in the target market. However, this unprofitable period is endured with a clear goal in mind: once a double-digit market share is attained, Lenovo’s policy is to switch their priority toward a balance of continued growth and profitability.

In theory, Lenovo’s long-term goal is to recreate the dominant position it enjoys in China in each of its expansion markets. In practice, however, this is far easier said than done. Lenovo’s executives are well aware that the diverse markets in which they operate—which include the Americas, Europe, Africa, the Middle East, and Asia—are each home to unique consumer preferences, competitive landscapes, and regulatory regimes.

Lenovo’s Use of Acquisitions and Partnerships

Simply copying the factors that contributed to Lenovo’s success in China and exporting them throughout the world would unlikely result in success in other markets. Instead, Lenovo has sought to leverage the local expertise of competitors through acquisitions.

Lenovo has a history of negotiating strategic acquisitions and partnerships. In October 2014, Lenovo completed its acquisition of Motorola Mobility from Google Inc. (GOOGL).

In November 2017, Lenovo announced its purchase of a 51% stake in Fujitsu’s PC division. The deal was part of a joint venture between Lenovo, Fujitsu, and the Development Bank of Japan. The goal of the venture is to drive growth in the development and manufacture of Client Computing Devices (CCD) for the global PC market.

From PCs to PC+

Although Lenovo’s rise has rested mainly on the PC market, in recent years it has moved toward more diverse revenue streams. Underlying this movement is CEO Yang Yuanqing’s belief that PCs are developing toward what he calls the “PC+ Era,” in which PCs exist as the central hubs linking a network of interconnected devices such as tablets, smartphones, and smart TVs. Implicit in this vision is a desire to steer Lenovo from a world leader in traditional PCs to a world leader across the range of “PC+” devices.

While the company focuses on diversification, it has a long way to go to achieve the huge market share enjoyed by its top competitors in both the smartphone and tablet markets.

As of the second quarter of 2020, Lenovo came in seventh place in global smartphone market share, capturing only 3% of total sales. Huawei and Samsung ranked first with 20% market share, followed by Apple, which had 14%. In the fourth quarter of 2020, Lenovo came in third place in tablet sales with a 10.7% share of the market, well behind Apple, which earned a commanding 36.5% share of the tablet market.

The Bottom Line

If Lenovo’s “protect and attack” strategy is to succeed, the company will need to continue to defend its leadership position in China and the global PC marketplace, all while expanding its foothold in emerging markets and “PC+” product categories such as smartphones and tablets. While the long-term potential of Lenovo’s strategy remains to be seen, few can deny that the company has taken significant strides in recent years.

At the time of publication, Jason Fernando had no positions in any of the securities mentioned in this article. He does not intend to trade any of the securities mentioned in this article within 48 hours of publication.

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Learn how and where to apply for a personal loan if you only have an tax ID number

In some cases, you might be living in the United States but not be able to get a Social Security number (SSN). In that case, you’re issued an Individual Taxpayer Identification Number (ITIN) that can be used for identification purposes, including applying for loans.

One of the first things a lender will ask for when you apply for a personal loan is your SSN. If you don’t have one, your ITIN might be used instead. Not every lender accepts an ITIN, though.

Here’s what you need to know about getting a personal loan with an ITIN.

Key Takeaways

• An Individual Taxpayer Identification Number (ITIN) is usually used by nonresident and resident immigrants in lieu of a Social Security number (SSN).
• You must fill out a W-7 form with the Internal Revenue Service (IRS) to receive an ITIN.
• Some lenders offer ITIN personal loans, but you might need additional documentation to complete the application process.

What Is an ITIN?

An Individual Taxpayer Identification Number, or ITIN, is a nine-digit number designed for those without Social Security numbers (SSNs) to file their taxes. An ITIN is usually meant for resident and nonresident immigrants who aren’t eligible for SSNs. Additionally, dependents and spouses of those immigrants might be able to apply for an ITIN.

You can get an ITIN by filling out Form W-7 from the Internal Revenue Service (IRS). Even if you don’t file taxes in the United States, having an ITIN can be useful if you plan to apply for a personal loan with a U.S.-based lender. Some lenders accept an ITIN if you don’t have a SSN.

How to Get a Personal Loan With an ITIN

If you decide to get a personal loan using your ITIN, there are some steps you need to take to move forward. Here’s how to proceed:

1. Find out where you can open an account with an ITIN: Some non-bank lenders can work with you as long as you have an ITIN. However, if you want to get a loan with a bank or credit union, you might need to have an account with them. Learn the requirements, and open an account with an institution that offers ITIN personal loans.
2. Gather necessary documentation: In addition to providing your ITIN, a lender might need other identification, such as a driver’s license, passport, residency card, or official documentation from another country. In many cases, you also need to show your residency card or visa. You might also need bank statements or tax returns (from the U.S. or another country) to prove your income. Finally, make sure you have documentation of your address from a utility bill, credit card statement, lease agreement, or some other accepted paperwork.
3. Complete the personal loan application: Once you have your documentation together, fill out the loan application. Check to see if there’s a different ITIN personal loan application and make sure you’re using the correct application. Submit all required documentation with your application.
4. Provide additional information if needed: You might need to give the lender more information, or you might be required to get a co-signer. Keep tabs on the process and pay attention to communication from the lender so that you can address any issues quickly.
5. Sign the agreement and receive your money: After you’ve been approved, you can sign the personal loan agreement and receive your funds. In many cases, you might need to receive the money through direct deposit, so it’s a good idea to set up a bank account before you apply.

List of Banks and Credit Unions to Get a Personal Loan With an ITIN

If you’re looking for lenders that offer ITIN personal loans, here are some places to start:

• Wells Fargo: The bank offers loans from $3,000 to $100,000 with annual percentage rates (APRs) starting at 8.49% (with a relationship discount for account holders). Term lengths range from 12 to 84 months.
• SoFi: Receive $5,000 to $100,000 with APRs starting at 8.99%. You can get a rate discount with direct pay. Loan terms range from 24 to 84 months.
• Strata Credit Union: Members can access loans with APRs starting at 12.20% for unsecured personal loans. Amounts and term lengths vary, but you need to be a credit union member to apply.

Most of these lenders require you to provide documentation about your employment as well as your residency status in the United States. You’ll need to disclose your visa information as well as your ITIN in many cases.

Alternatives to Personal Loans With an ITIN

If you decide a personal loan isn’t the right move for you, there are some alternatives. Some of them might require an ITIN, while others might allow you to get by without applying for and receiving an ITIN.

• Credit card: A credit card with a relatively low rate can allow for easy purchases and simple repayment. Additionally, you don’t need to reapply for additional funds.
• Payday loans: Payday loans can be easy to get and are often based only on your paycheck and how often it arrives. However, APRs can be incredibly high, so it’s important to be careful and only use them for short-term issues.
• Friends and family: You might also choose to get personal loans from friends and family. If this is possible, it can provide a way to get the funds you need without extensive documentation.
• Secured loans: In some cases, you might be able to get a loan by utilizing valuable items you own as collateral. This can be a way to get funding without a lot of documentation, but you need to be careful—if you don’t make payments, the lender could take your valuables.

Can You Buy a Home With an ITIN?

Yes, there are some lenders that will allow you to borrow for a mortgage with an ITIN.

Can I Get a Credit Card With an ITIN?

Yes, even if you don’t have a SSN, some credit card issuers will let you get a credit card with only an ITIN.

Can I Open a Bank Account Without an ID?

No—in general, you need to have some type of identification to open a bank account. However, it doesn’t necessarily need to be an ID from the United States. You might be able to use an ITIN combined with another form of identification, such as a passport, a driver’s license, or an ID issued from another country.

Can Undocumented Immigrants Build Credit History?

It’s possible for undocumented immigrants to start building a credit history, since there’s no law prohibiting them from getting a credit card. However, an ITIN might be necessary to start building credit, and there might be other requirements.

Will a Co-Signer Improve My Chances to Get a Loan With Only an ITIN?

In some cases, a co-signer can improve your chances of getting a loan. A co-signer with good credit and good income can boost your ability to get a personal loan if you only have an ITIN.

The Bottom Line

You can get a personal loan with an ITIN if you don’t have a SSN. Before you apply, though, it’s a good idea to do some extra research to find out which lenders offer ITIN personal loans, in addition to learning about their requirements. There might be extra hoops to jump through, but once you have an ITIN, you should be able to apply for personal loans.

Read the original article on Investopedia.

Fact checked by Vikki VelasquezReviewed by Colleen RamosFact checked by Vikki VelasquezReviewed by Colleen Ramos

Acing Series 7 Options Questions

The Series 7 exam, also known as the General Securities Representative Exam (GSRE), is a test all stockbrokers must pass, in order to acquire a license to trade securities. Although this exam covers a broad array of financial topics, questions about options tend to be the most challenging.

This article breaks down the world of options contracts and the investment strategies associated with them while providing useful tips to help test-takers achieve passing scores.

Key Takeaways

• Although options contracts questions in the Series 7 exam are numerous, their scope is limited.
• The steps detailed in this article can be helpful in achieving passing scores.
• Practicing as many options questions as possible can dramatically increase the chances of exam success.

Options Questions

Of the 50 or so options-related questions on the Series 7 exam, approximately 35 deal specifically with options strategies.

Options strategies questions in the Series 7 exam, cover the following areas:

• Puts
• Calls
• Straddles
• Spreads
• Hedges
• Covered contracts

Within these sub-categories, questions focus on the following primary areas:

• Maximum profit or gains
• Maximum loss
• Breakeven
• Expected direction of stock movement for profit—including up or down, bullish or bearish

The Options Basics

By definition, a contract requires two parties. When one party gains a dollar on a contract, a connected counterparty loses precisely that same amount. This transaction is referred to as a zero-sum game, where the buyer and seller reach the breakeven point simultaneously. 

The majority of options investors aren’t interested in buying or selling stocks. Rather, they are typically more intent on profiting from trading the contracts themselves. In that sense, the options exchanges are much like horse racing tracks. While some people visit the track to buy or sell a horse, most are there to bet on the races.

Terminology Tangles

There are many synonymous terms in the options space. As the following Options Matrix chart (Figure 1) demonstrates, the term “buy” is interchangeable with “long” or “hold”, while the term “sell” can be replaced with “short” or “write.” The Series 7 exam notoriously interchanges these terms, often within the same question, therefore it behooves test-takers to recreate this matrix on a piece of scratch paper before starting the exam. 

Series 7 Rights and Obligations

As Figure 1 demonstrates, buyers pay premiums to secure all the rights, while sellers receive premiums for shouldering the obligations—also known as risk. To this end, an options contract is similar to a car insurance contract, where a buyer pays the premium and has the right to exercise the contract, where he cannot lose any more than the premium paid. Meanwhile, the seller has the obligation to perform, if called upon by the buyer, where the most he can gain is the premium received. These same principals apply to options contracts.

Time Value for Buyers and Sellers

Because an option has a definite expiration date, the time value of the contract is often called a “wasting asset.” Keep in mind that buyers naturally want the contract to be exercisable, even if they’re unlikely to exercise since they’re traditionally more apt to sell the contract for a profit. On the other hand, sellers want the contract to expire worthless, because this lets them retain their entire premium, thus maximizing gains.

Four No-Fail Steps to Follow

Series 7 test-takers are often unsure how to approach options questions, however, the following four-step process should offer some clarity:

1. Identify the strategy.
2. Identify the position.
3. Use the matrix to verify the desired movement.
4. Follow the dollars.

Series 7 test-takers should pair these tips with the following formula for the options premium:

Premium = Intrinsic Value + Time Value

Consider the Following Question

An investor is long 1 XYZ December 40 call at 3. Just before the close of the market on the final trading day before expiration, XYZ stock trades at 47. The investor closes the contract. What is the gain or loss to the investor?

Using the four-step process, a test taker may establish the following points:

1. Identify the strategy—a call contract
2. Identify the position—long = buy = hold (has the right to exercise)
3. Use the matrix to verify desired movement—bullish, wants the market to rise
4. Follow the dollars—Make a list of dollars in out:

$ Out	$ In
–	–
–	–
–	–

The Answer

Questions in the exam may refer to a situation in which a contract is “trading on its intrinsic value,” which is the perceived or calculated value of a company, using fundamental analysis. The intrinsic value, which may or may not be the same as the current market value, indicates the amount that an option is in-the-money. It is important to note that buyers want the contracts to be in-the-money (have intrinsic value), while sellers want contracts to be out-of-the-money (have no intrinsic value).

In the problem, because the investor is long the contract, they have paid a premium. The problem likewise states that the investor closes the position. An options investor who buys to close the position will sell the contract, offsetting the open long position. This investor will then sell the contract for its intrinsic value because there is no time value remaining. And because the investor bought for three ($300) and sells for the intrinsic value of seven ($700), they would lock in a $400 profit.

By examining Figure 2, entitled “Intrinsic Value,” it’s clear that the contract is a call and that the market is above the strike (exercise) price, and that the contract is in-the-money, where it has an intrinsic value. Conversely, the put contracts operate in the opposite direction.

Formulas for Call Options

Long Calls:

• The maximum gain = unlimited
• Maximum loss = premium paid
• Breakeven = strike price + premium

Short Calls:

• The maximum gain = premium received
• Maximum loss = unlimited
• Breakeven = strike price + premium

Formulas for Put Options

Long Puts:

• The maximum gain = strike price – premium x 100
• Maximum loss = premium paid
• Breakeven = strike price – premium

Short Puts:

• The maximum gain = premium received
• Maximum loss = strike price – premium x 100
• Breakeven = strike price – premium

In Figure 1, the buyers of puts are bearish. The market value of the underlying stock must drop below the strike price (go in-the-money) enough to recover the premium for the contract holder (buyer, long). The maximum gains and losses are expressed as dollars.

Therefore, to determine that amount, simply multiply the breakeven price by 100. For example, if the breakeven point is 37, the maximum possible gain for the buyer is $3,700, while the maximum loss to the seller is that same amount.

Straddle Strategies and Breakeven

Questions regarding straddles on the Series 7 tend to be limited in scope, primarily focusing on straddle strategies and the fact there are always two breakeven points.

Steps 1 and 2

The first step when you see any multiple options strategy on the exam is to identify the strategy. This is where the matrix in Figure 1 becomes a useful tool. For example, If an investor is buying a call and a put on the same stock with the same expiration and the same strike, the strategy is a straddle.

Consult Figure 1. If you look at buying a call and buying a put, an imaginary loop around those positions is a straddle—in fact, it is a long straddle. If the investor is selling a call and selling a put on the same stock with the same expiration and the same strike price, it is a short straddle.

If you look closely at the arrows within the loop on the long straddle in Figure 1, you’ll notice the arrows are moving away from each other. This is a reminder that the investor who has a long straddle anticipates volatility. Now observe the arrows within the loop on the short straddle, to find that they are coming together. This reminds us that the short straddle investor expects little or no movement.

Step 3 and 4

By looking at the long or short position on the matrix, you’ve completed the second part of the four-part process. Because you are using the matrix for the initial identification, skip to step No.4.

In a straddle, investors are either buying two contracts or selling two contracts. To find the breakeven, add the two premiums, then add the total of the premiums to the strike price for the breakeven on the call contract side. Subtract the total from the strike price for the breakeven on the put contract side. A straddle always has two breakevens.

Series 7 Straddle Example

Let’s look at an example. An investor buys 1 XYZ November 50 call @ 4 and is long 1 XYZ November 50 put @ 3. At what points will the investor break even?

Hint: once you’ve identified a straddle, write the two contracts out on your scratch paper with the call contract above the put contract. This makes the process easier to visualize, like so:

Instead of clearly asking for the two breakeven points, the question may ask, “Between what two prices will the investor show a loss?” If you’re dealing with a long straddle, the investor must hit the breakeven point to recover the premium. Movement above or below the breakeven point will be profit. The arrows in the chart above match the arrows within the loop for a long straddle. The investor in a long straddle is expecting volatility.

Note: Because the investor in a long straddle expects volatility, the maximum loss would occur if the stock price was exactly the same as the strike price (at the money) because neither contract would have any intrinsic value. Of course, the investor with a short straddle would like the market price to close at the money, in order to keep all the premiums. In a short straddle, everything is reversed.

Long Straddles:

• Maximum gain = unlimited (the investor is long a call)
• Maximum loss = both premiums
• Breakeven = add the sum of both premiums to the call strike price and subtract the sum from the put strike price

Short Straddles:

• Maximum gain = both premiums
• Maximum loss = unlimited (short a call)
• Breakeven = add the sum of both premiums to the call strike price and subtract the sum from the put strike price

Beware of Combination Straddles

If in the identification process, the investor has bought (or sold) a call and a put on the same stock, but the expiration dates or the strike prices are different, the strategy is a combination. If asked, the calculation of the breakevens is the same, and the same general strategies—volatility or no movement—apply.

Series 7 Spreads

Spread strategies are among the most difficult Series 7 topics. Thankfully, combining the aforementioned tools with some acronyms can help simplify questions about spreads. Let’s use the four-step process to solve the following problem:

Write 1 ABC January 60 call @ 2

Long 1 ABC January 50 call @ 8

1. Identify the Strategy

A spread occurs when an investor longs and shorts the same type of options contracts (calls or puts) with differing expirations, strike prices or both. If only the strike prices are different, it is referred to as a price or vertical spread. If only the expirations are different, it is referred to as a calendar spread (also known as a “time” or “horizontal” spread). If both the strike price and expirations are different, it is known as a diagonal spread. 

2. Identify the Position

In spread strategies, the investor is either a buyer or a seller. When you determine the position, consult the block in the matrix illustrating that position, and focus on that block alone.

It is essential to address the idea of debit versus credit. If the investor has paid out more than he has received, it is a debit (DR) spread. If the investor has received more in premiums than he paid out, it is a credit (CR) spread.

There is one additional spread called the “debit call spread,” sometimes referred to as a “net debit spread”, which occurs when an investor buys an option with a higher premium and simultaneously sells an option with a lower premium. This individual deemed a “net buyer”, anticipates that the premiums of the two options (the options spread) will widen.

3. Check the Matrix

If you study the matrix above, the two positions are inside the horizontal loop illustrate spread.

4. Follow the Dollars

(DR)	(CR)
$800	$200
$600

Tip 1: It may be helpful to write the $Out/$In cross directly below the matrix so the vertical bar is exactly below the vertical line that divides the buy and sell. That way, the buying side of the matrix will be directly above the DR side and the selling side of the matrix will be exactly above the CR side.

Tip 2: In the example, the higher strike price is written above the lower strike price. Once you’ve identified a spread, write the two contracts on your scratch paper with the higher strike price above the lower strike price. This makes it much easier to visualize the movement of the underlying stock between the strike prices.

The maximum gain for the buyer, the maximum loss for the seller and the breakeven for both will always be between the strike prices.

Formulas and Acronyms for Spreads

Debit (Bull) Call Spreads:

• Maximum loss = net premium paid
• The maximum gain = difference in strike prices – net premium
• Breakeven = lower strike price + net premium

Credit (Bear) Call Spreads:

• Maximum loss = difference in strike prices – net premium
• The maximum gain = net premium received
• Breakeven = lower strike price + net premium

Tip: For breakevens, remember the acronym CAL: In a Call spread, Add the net premium to the Lower strike price.Using the above example of a bull or DR call spread:

• Maximum loss = $600 – the net premium. If ABC stock does not rise above 50, the contract will expire worthlessly and the bullish investor loses the entire premium.
• Maximum gain = use the formula:

The difference in Strike Prices – Net Premium
(60-50) – 6 = 10 – 6 = 4 x 100 = $400

• Breakeven: Since this is a call spread, we will add the net premium to the lower strike price: 6 + 50 = 56. The stock must rise to at least 56 for this investor to recover the premium paid.

Write 1 ABC January 60 call @ 2

Long 1 ABC January 50 call @ 8

• Maximum gain = 4
• Breakeven point = 56
• Movement of ABC stock = +6
• The difference in strike prices = 10

When the stock has risen by six points to the breakeven point, the investor may only gain four points of profit ($400). Notice that 6 + 4 = 10, the number of points between the strike prices.

Above 60, the investor has no gain or loss. When an investor sells or writes an option, they are obligated. This investor has the right to purchase at 50 and the obligation to deliver at 60. Be sure to remember the rights and obligations, when solving spread problems, such as the following question:

Write 1 ABC January 60 call @ 2

Long 1 ABC January 50 call @ 8

To profit from this position, the spread in premiums must:

1. Narrow
2. Widen
3. Stay the same
4. Invert

This question may be somewhat simplified by the fact that the answer to questions regarding spreads is almost always either “Wide” or “Narrow”, therefore “Stay the same” and “Invert” may be eliminated from consideration.

Secondly, remember the acronym DEW, which stands for Debit/Exercise/Widen. Once you’ve identified the strategy as a spread and identified the position as a debit, the investor expects the difference between the premiums to widen. Buyers want to be able to exercise.

If the investor has created a credit spread, use the acronym CVN, which stands for Credit/Valueless/Narrow. Sellers (those in credit positions), want the contracts to expire valuelessly and the spread in premiums to narrow.

Formulas for Put Spreads

Debit (Bear) Put Spread:

$begin{aligned} &text{Maximum Gain}=text{DSP – Net Premium}\ &text{Maximum Loss}=text{Net Premium}\ &text{Breakeven}=text{Higher Strike Price – Net Premium}\ end{aligned}$​Maximum Gain=DSP – Net PremiumMaximum Loss=Net PremiumBreakeven=Higher Strike Price – Net Premium​

Credit (Bull) Put Spread:

$begin{aligned} &text{Maximum Gain}=text{Net Premium}\ &text{Maximum Loss}=text{DSP – Net Premium}\ &text{Breakeven}=text{Higher Strike Price – Net Premium}\ &textbf{where:}\ &text{DSP = Difference in Strike Prices}\ end{aligned}$​Maximum Gain=Net PremiumMaximum Loss=DSP – Net PremiumBreakeven=Higher Strike Price – Net Premiumwhere:DSP = Difference in Strike Prices​

For breakevens, bear in mind the helpful acronym PSH: In a Put spread, Subtract the net premium from the Higher strike price.

The Bottom Line

Although options contracts questions in the Series 7 exam are numerous, their scope is limited. The four-step process detailed can be helpful in achieving passing scores. Practicing as many options questions as possible can dramatically increase the chances of exam success.

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Fact checked by Vikki VelasquezReviewed by Doretha ClemonFact checked by Vikki VelasquezReviewed by Doretha Clemon

It is no secret that starting any business from scratch isn’t easy. If you dream of owning a coffee shop, however, with hard work, solid experience, analytical skills, and a well-designed business plan, you can succeed.

Understanding the economics of owning a coffee shop is a vital step in making your dream a reality. Most importantly, you need to take into account the initial, fixed, and variable costs as well as the ergonomics of the business.

Before you get discouraged at seeing the big numbers below, don’t forget that startup capital is available for small business entrepreneurs with a plan.

Key Takeaways

• Starting a coffee shop typically begins with the completion of a business plan.
• Licenses and permits are required to form and operate a business.
• Operating from an ideal location is critical for attracting customers and securing a solid workforce.
• Costs for starting a sit-down coffee shop can cost up to $275,000.
• In addition to startup costs, new coffee shop owners should consider fixed and variable costs to operate their business.

Getting Started

Licenses and Permits

The time has come for you to turn your dream into a reality; you’re starting a coffee shop. However, before you brew, you should begin with a plan. A business plan outlines the goals, objectives, and strategies for operating and growing your business.

The type of business plan used depends on the purpose of the plan. For startups and businesses seeking traditional financing, a comprehensive traditional business plan is preferred. Businesses that primarily want to quickly communicate startup plans favor the lean startup business plan.

To legally operate your coffee shop, you will need licenses and permits from governing authorities. Business licenses and permits establish your business as a legal entity and allow you to offer goods and services to customers and operate within specific jurisdictions.

When applying for a business license, your business name will be validated for use—a step likely executed by you during the planning phase. You will also select the type of entity (e.g., sole proprietorship, limited liability corporation (LLC), corporation, etc.) your business will operate as.

Supply Chain

You’ve conquered planning and organizing your business, and now its time to source your products. Your products should match the tastes of your target audience and should come from a reliable source. The coffee, additives, and other related products should be of good quality and competitively priced.

The supplier should have a good reputation and a history of quality service, be consistent with deliveries, and respond quickly to inventory needs. Before selecting, conduct a comparative analysis of several suppliers to find the most accommodating ones. Ask for references and research reviews to verify their standing.

Location, Location, Location

A key real estate principle critical to the success of a business is “location is key.” Where you operate is just as important as how you operate. Therefore, your company should be within reach of your target audience. In addition to attracting customers, you also want to attract and retain good employees.

An important factor to consider is costs. The costs to start are largely dependent on where the business is located. Choosing a popular, trendy spot may be attractive, but it may also be cost-prohibitive. If expenses are too high, it may be difficult to pass on savings to customers and generate profits.

Other important considerations are the proximity to competitors and whether the location allows for your company to grow. For example, will competitors squeeze you out of the industry, or will you create a new experience unrivaled by competitors? Also, will the location allow your company to grow?

Cost Analytics

Initial costs will vary significantly depending on the coffee shop’s location, size, and equipment needs. Here are some rough estimates:

• A sit-down coffee shop typically costs between $80,000 to $300,000 to set up.
• A coffee shop with a drive-through shop can cost over $300,000.
• A small kiosk or food truck may cost about $60,000.
• A franchised sit-down coffee shop can cost between $300,000 to over a $1 million.

Starbucks does not sell franchises to individuals. Instead, it sells licenses to use its products and branding in a store setting.

Startup Costs

Understanding the initial costs is the first step in deciding if you can start up a new coffee shop.

Business licensing and permit fees are usually the first costs incurred to establish a coffee shop. Costs range from the hundreds to the thousands, depending on where the business is located and the type of entity is it categorized as.

Other significant outlays of cash will be for equipment like espresso machines, which can cost up to $26,000 each. Many coffee shops roast their beans, requiring coffee roasting machines. Industrial coffee roasters can cost as low at $8,000 up to over $50,000.

Then, depending on what kind of shop you’re opening, you’ll need to head to a restaurant supply store for tables and chairs, a serving counter and a bakery case, and all of the miscellaneous things that go into a fully-outfitted coffee shop.

Fixed Costs

Fixed costs make up the bulk of the monthly expenses of any for-profit company. These include rent, which should not exceed 15% of sales, and staff costs, including salaries, payroll taxes, and benefits.

Note that fixed costs stay constant from month to month, and the retailer must pay them irrespective of the sales for the month.

That said, you need to cover your bottom line each month to pay these expenses.

Variable Costs

Variable costs are proportionate to the products or services a business produces. In this case, costs depend on how many cups of coffee and how much milk and sugar are used, so they can be hard to predict from month to month.

Note

Marketing costs range between 3% and 6% of sales.

As the owner, you want to increase revenue as much as possible to cover fixed and variable costs. That means promoting multiple sales, preferably of higher profit margin goods.

Fancy coffee drinks are more profitable than plain coffee. Bagged coffee beans are a natural extension of the business. High-quality baked goods and other snacks can bring in more customers more frequently.

Ergonomics

Efficiency and productivity are vital in running any successful business, especially coffee shops, which need to sell large quantities of low-priced items to cover their costs.

Ergonomics can make or break your coffee shop. Managers need to ensure that the layout of the workstation allows baristas to work efficiently and get people in and out the door quickly.

The workstation should be designed perfectly with easy access to the fridge, cups, coffee grinder, accessories, storage supplies, and sink.

Understanding ergonomics can greatly increase your revenue by making your workers and workspace more productive.

Where Do You Find Investors for the Opening of a Cafe?

Friend and family are the primary source of funds for startups and may provide the quickest access to funds. In addition, angel investors and venture capitalists are other types of investors available to fund startup cafes.

What Problems Are There With Neighbors When Opening a Cafe?

Neighboring businesses and residents may find the opening of a cafe undesirable due to increased traffic and noise. Also, the influx of customers may compromise other businesses’ parking or obstruct business access.

How Do You Plan a Restaurant Grand Opening?

Restaurant grand openings require significant planning and funds. Staff must be adequately trained to greet, serve, and accommodate customers. Before the grand opening, conduct a dress rehearsal with staff, and hold a soft opening with select guests who can spread the word and give valuable feedback to benefit the grand opening. For the grand opening, make sure you present a menu that features all offerings. Also, have sufficient coffee products and supplies to meet demand. Partner with other businesses to promote the opening, and provide incentives, such as giveaways and exclusive offers.

How Much Does Opening a Cat Cafe Cost?

The average cost to open a cat cafe is between $22,500 to almost $90,000.

The Bottom Line

Starting a coffee shop can be the realization of a lifelong dream. But before you fire up the roaster, consider what it takes to begin. A successful business often begins with proper planning. Outline your goals, objectives, and strategies for successfully operating your business.

Also, starting a coffee shop can be an expensive venture; so, consider and budget for the costs. Despite expenses, running your own coffee shop can be rewarding and lucrative.

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