Money Well Spent

The Hoarder In Us All

2012-03-02T16:46:00.002-08:00

I write this in my home office. In the room with me on shelves against three walls are most but not all of my books...maybe 600 or so. I am reluctant to count now that it has occurred to me to do so...

Sometimes I watch snippets of the TV show Hoarders. I find it as scary as the movie The Exorcist and just as disturbing so I have never been able to sit through an entire episode!

The thing is, I am worried that my books represent a symptom of hoarding. I really can't justify the expense that I incurred acquiring them all; I mean I almost never read a book twice or use one for reference.

And I have learned to stay off Amazon when I have been drinking! I avoid SUI (shopping under the influence) just like I avoid DUI (driving under the influence)!

I am not much of a drinker, a couple of beers on Friday or Saturday night but just a couple of beers will loosen the ol' purse strings.

The plan is to simplify my life by getting rid of a bunch of my books, although just the thought of doing so makes me a little uncomfortable. After all, I spent years building my library. And the truth is I enjoy being in the company of books.

Buddha is said to have said, if you would seek peace stop chasing so many things. In my case, I am going to stop chasing physical books. I will fight the urge to add to my collection.

The good news is, that I have help in kicking the habit! KINDLE! I just purchased a KINDLE Fire and there is so many books and other writing available for free that I will be able to get my fill without actually buying a physical book ever again...that's the plan anyway.

But I still have to deal with the hoard of books I already own. I do not plan to get rid of them all however but instead will give away ten or so month to a local charity that has a couple of collection boxes in my area where you can drop off donations.

I am hoping it will not be like pulling teeth because I hate going to the dentist!

The First Three Secrets to Enjoying Your Life More

2012-02-14T07:24:00.000-08:00

PART ONE:

SECRET NUMBER ONE: The big secret is to understand that in order to be happy you need to establish goals that meet five criteria.

SECRET NUMBER TWO: The second secret is to understand that goals are important in that they allow you to enjoy life on a day to day basis.

SECRET NUMBER THREE: The third secret is that you not allow life to become an out-of-body experience; that is, most of us simply spend too much time in the past and/or the future. When you do that, it is impossible to enjoy the present to the fullest. The common mistake that many people make is that they think that goal-setting is all about the end-result; that is, that the goal of goal-setting is to achieve the goal, itself.

WRONG!

More on Secret Number One: Why are goals important? Well, let's say you want to be happy. The question then becomes: How do you define "happy?" Or, let's say, you want to be successful. The question then becomes: How do you define success.

Happy is too abstract a concept to be turned into a goal but success, on the other hand can be defined, quantified and, most importantly, success can measured.

You are successful to the extent you are making progress in the direction of your goals. That's it, there is no other definition of success.

You might say: "I want to be a good parent." But what does that mean, exactly? And how do you measure your progress towards that goal? Simple answer: You can't!

But what specific actions, in your mind, would be the characteristics of being a "good? parent?

How about something like: Spend more time with my child. How do you define more? Although "spend more time with my child" is more specific than the goal of "be a good parent," it is still too vague and lacks the other characteristics of a "good" goal.

Here is a link that introduces effective goal-setting techniques: SMART GOALS. It is important that you grasp the fundamentals of effective goal-setting before we continue.

This is part one of a series...more to follow.

Three Steps to Being a Better Machine

2012-02-11T04:26:00.000-08:00

It is easy to let the important things in life slide...to not give them the attention they deserve. And the single most important thing in life is you. But most of us do not take as good care of ourselves as we should...we let it slide.

But the genesis of everything is our ability to float above the chaos that is life on a daily basis...to surf the waves of fortune good and bad and keep our head above the water.

When we do that, we suffer and so do the results we achieve. You are a biological machine. Leaving aside the discussion of soul and divinity, you are this amazing and complex machine with all these moving parts that work in harmony to get you through your day, day after day. Amazing, really!

But like all machines, you, the machine, require a certain amount of daily maintenance. Most of us are not so good about being good to the machine.

We eat junk food, drink alcohol, don´t get enough exercise or quiet time, and fail to sleep enough regularly. And you might think you are getting away with it. I mean, after all, you are functioning, right?

Well, the truth is, if the machine is not in an optimal state, you could be doing better. In particular, clarity of thought and decision making suffer.

Here are three things you can do to move towards becoming a more productive, well-oiled machine:

1. Take a walk, alone, daily or at least every other day, outside and in nature, if possible.

2. Go to sleep early and wake up early. In most cases, all that happens in the later hours of the evening is TV. TV is bad for you, it is bad for the machine. And our thinking at night is not as good as it might be. Most of us think best in the morning after we have been awake for a while and after a good night´s sleep. And develop a sleep routine and schedule and stick to it. By doing so, your body will adjust and sleep will come easier and be deeper.

3. Eat less. And simply refuse to eat anything two hours before you plan to go to sleep. Try to plan your meals to the extent that you do not have to resort to fast food and cut back on sugar, alcohol, caffeine, and other dietary stimulants and fats, as well.

Look, this is all stuff you know, just like you know you need to avoid debt and save more of the money you earn. But we all slip up or fail to adhere to the fundamentals. So keep it simple and keep just those three steps in mind, like a mantra. It will do wonders for the machine and your karma.

The Zen of Many Bridges

2012-01-30T06:58:00.000-08:00

We are all whole; that is, everything we do, each and every individual action we take and everything that happens to us impacts our entire life not just one aspect of our life. And, so, there is no such thing as compartmentalizing; not really, and regardless of how enticing the concept might seem at first.

Money is a perfect example of the point I am making. If you screw up the money part of your life, then your whole life is screwed up. You will not be able to contain the damage done off in some corner of your life and keep it, somehow, locked away there. NO WAY! The effects of your money problems will ripple through your entire life. If any part of your life is in chaos, then your whole life is in chaos not just that one part.

And, unfortunately, there is no inverse of that notion. If, for example, things are fine in your marriage but worries about your finances are keeping you up at night, your marriage will be of considerable comfort but you are awake, regardless.

What is the lesson? When your goal is to manage any SINGLE aspect of your life, like your finances for example, the real goal and the actual outcome of taking steps in the direction of your goal will be to make your WHOLE life "better." Again, take money as an example.

Back when my money life was all screwed up, my entire life was screwed up. I was unemployed, had no savings, over $50,000 in debt, and living in the basement apartment of my brother's house. He was letting me live there rent-free with the understanding that when I got back on my financial feet we would work out a more equitable arrangement. (Like me actually paying him some rent!)

But that is not to say that I was without assets. I was healthy and would be able to work once I found a job and that is (was) HUGE! Also, I had a good education including a Master's degree in business. And I had a variety of skills, abilities, and work experience. So, I went out and found a job and then a better job and knowing I needed to get smarter about money, that is exactly what I did! And, as my personal financial management skills got better, my ENTIRE life started getting better.

And here is the good news: Improve any aspect of your life and your entire life gets better. And small steps absolutely count! In fact, most goals we will establish can only be achieved in small steps of progress towards that goal. For instance, at first, my goal was just to start saving a part of every dollar I earned.

And when I actually took action to that end and, as I saw my savings grow, I started feeling much better about myself and more optimistic about my chances to actually get my finances under control. A small step, I know, but there is full-on magic in those small steps because each one will improve your life and make it that much better!

In time, each of the individual small steps I took started to add up and create a sort of synergy. Take one step and you have traveled three feet, take enough of the steps, however, and you have walked a mile. And keep moving forward in that manner and you can travel across the country and around the world! If you keep making progress in any one aspect of your life and towards accomplishing a goal in that regard, that progress, itself, is the reward of your efforts!

And here is where I introduce you to, what I call, the Zen of Many Bridges:

Each goal you have is like a bridge over the chasm of where you are and where you hope to be once you achieve that goal.

The thing is, you can make progress on more than one goal at a time. And each goal presents you with the daily opportunity to make small, incremental progress towards achieving it. And the more small steps you are taking on a daily basis towards your four or five major goals, the better your life is getting, continuously!

There is an incredible positive energy to be realized when you are able to actually see your progress in this way! To see that you have taken control of your life and are making your dreams come true! Because what is a goal? It is simply a dream with a due date.

But here is the secret to making your life better by applying the Zen of Many Bridges: Your goals must be documented and each must be broken down to the small steps that will be required to achieve that goal.

Then, every day you review the documentation where you have written down your goals and the steps towards them and you check-off the steps you took that day. This is a visible and very real means by which to recognize your daily accomplishments towards making your dreams come true. And, as I have stated, the best way to measure your success is to measure your progress towards making your dreams come true....in a later post I will show you how I follow and apply this process in my own life.

Everyday Optimism

2012-01-21T08:11:00.000-08:00

Most of us think that you are successful when you haveachieved a goal. That is true but it is only true in a sort of limited perspective on the whole notion of personal achievement and success. Achieving a goal is a result. Think aboutthat for a minute. It is something of a misconception to focus on the goal, itself, as ¨the prize,¨ as in ¨keep your eyes on the prize.¨

It feels great to achieve any goal and especially a BIG goal like, say, financial independence. But the reward for achieving a goal comes well BEFORE you cross the finish line!

My big goal was to achieve financial independence. It tookme about 15 years once I had set that goal for myself and that was startingfrom less than zero. How is it possible to start at less than zero? Easy: I wasover $50,000 in debt. I was also unemployed, had no savings, and, except forthe kindness of family, I would have been homeless.

I knew that I would not achieve my goal of financialindependence if I kept doing those things that had led me to my financialmeltdown. Since I grasped that fact, it followed that I had to do somethingdifferent with my money.

Not knowing what changes were necessary in how to manage mypersonal finances, I considered my situation intently and asked myself onequestion: What one action would have most affected the outcome for the good?

The answer, I decided, was this: Saving a part of everydollar I earned. So that is what I did from that point forward.

And, here is where it gets interesting, as saving moneybecame a focal point in my life, it was as if the universe aligned in my favorto grow my savings even more than I was able to do from my income alone.

There is a saying: No wind favors a ship without adestination. Whatever the opposite of that is, call it luck or serendipity,whatever, it is that force that started working in my favor once I had my goalto become financially independent by saving a part of my income.

Look, there are only two ways to achieve financialindependence: Money saved from income, either paid to you by someone else or fromself-employment, is one of those two ways. The other is a windfall of sufficient size. And there are two kinds ofwindfalls: One type of windfall is unearned and the other is earned. Unearnedis something like an inheritance or winning a large lottery jackpot. An earnedwindfall is of the entrepreneurial variety such as starting a business thatgenerates a substantial profit or taking a business public.

Since it is the case that few of us can count on a windfall to achieve financial independence, your only other option, then, is saved income.

That is how I got there but I had the help of, what I canonly describe as, good fortune. I invested some of my savings in real estate.Nothing fancy here, I just bought a house as my primary residence and it went up in value. I cashed outof that property with $50,000 and bought another property, again as the place I would live, and cashed out three years later with another $50,000 profit.

I was alsothrifty and lived simply, mostly because that is my preferred lifestyle. I donot feel as if I sacrificed much.

It also helped that I had a good job that I enjoyed andworked hard at and that my doing so was rewarded with steady pay increases. Atthe same time I kept my expenses low and fairly constant as my income rose. Bydoing so, I was able to save more and more over time.

One day, I realized, my passive income was more than my expenses.I had achieved my goal! But that does not mean I was successful at that moment.No! My TRUE success was in doing all the right things to have achieved my goal and, from that perspective I was successful from the day I began the journey towards financial independence.

You are successful to the extent that you are able to makeyour dreams come true AND to the extent that you are MAKING your dreams come true. It feels great when you realize that you haveaccomplished a goal but SUSTAINED success is in the quality of your journey to that end. Successis one thing but happiness, as in a feeling of contentment that you are engagedin achieving your dreams, is how you keep hope alive in your life.

And hope is important but so is everyday optimism but the two arenot the same thing. Hope is based on faith while optimism is based on empirical evidence thatyou, personally, have it within your control to make your life “better.” And by “better.” what I mean is that you aretaking actions every day that are moving you in the direction of your goals. Everyday optimism is EMPOWERING because it is based on KNOWING that you have actively engaged the POWER you have to change your life.

Waiting for Godot or Someone Like Him

2012-01-15T09:01:00.000-08:00

This is just about my favorite week of the year as a sports fan. The divisional playoffs in football and the beginning of the Aussie Open down under. I believe there are a lot of analogies and allegories that can be drawn from sports and applied in life. On Saturday, when the Pats demolished the Broncos, there was yet another life teaching moment provided us by the sports world:

A good pro quarterback running a good pro offense will beat a good college offense being run by a good college QB.

The lesson to be learned? You won't win without the right system. In the game of money, the same rule applies. You will win the money game only to the extent that you have a sound system in place and you, as the QB of your money game, have the necessary fundamentals in place.

Look, none of us are Tom Brady. But Tom did not arrive on the stage as the Tom he is today. One reason that many people with all the necessary skills do not succeed is that they could not bring themselves to do the hard, hard work required to take those skills to the next level and then the level beyond that: Brady worked hard to become Brady.

One reason many of us fail to make the most of the money we earn is that managing our income at a high level requires a lot of work. And part of that work includes putting in the effort to learn what it takes to manage your personal finances well.

And how do you know how "well" you are doing? That is the first benchmark, right? You are successful in managing your money to the extent that you are able to finance your dreams. So, how are you doing in that regard? Are you just scraping by? Are you living paycheck to paycheck? Are your debts the cause of concern to you?

If so, you are not headed for the Superbowl of personal financial management. Most of us will never make it to the big game...but that does not mean you can't. You can...if you are willing to do the hard work, stay focused on your goals, and stay the course.

I know this woman who, when I met her almost ten years ago, was pawning her jewelry to make ends meet and hoping for a man to come along and save her. Ten years later she is still pawning her jewelry and hoping for a man to come along and save her. You do not have to wonder how hard she worked in the past ten years, right? She is, obviously, no Tom Brady!

Life, it has been said, imitates art. But I think it is the more often the case that life imitates sport.

Instant Karma

2011-12-29T14:47:00.000-08:00

This is a blog about personal financial management...in a way. In another way, and when you view the posts from a wider perspective, it is a blog about bringing all aspects of your life into alignment to the goal of living better.
Managing your income and how you spend what you earn and how to make room in your finances to save a part of every dollar that comes into your life are all steps towards greater financial peace of mind AND whenever you increase your peace of mind in any aspect of your life, the overall level of peace of mind you have in your life, in general, will go up, as well.

So, any single action you take that has the end effect of making some aspect of your life better, your whole life gets better. And there is a single step you can take today that will make your life much, much better the instant you decide that you will take that step: STOP LYING!

Refuse to lie for any reason to anyone including, perhaps most importantly, yourself, When you lie, you throw your universe all out of whack. You might think lying will gain you some relief in the short term, but you are wrong. Lying will throw your karma for a loop and eventually your lies will come back to bite you.

And, then, there is all the work that goes into keeping track of your lies. That act of trying to keep your lying ducks in a row is a very complex process that will burn a tremendous amount of mental energy. Think of a woman cheating on her husband and all the work and mental gymnastics it will take to keep her affair in one part of her life and her relationship with her husband partitioned off in some other part of her life, both in the physical world and in the internal world of emotions.

Could the benefits of her affair possibly be worth all the attendant effort? I don't see how.

Lies are the seed corn of bad karma. And we get into the habit of lying when we use small lies to grease the skids of life on a daily basis. One point I am always making is that it pays to do the right thing and lying is not the right thing. You can justify your lies but that does not make them right. You might even profit as the result of a lie, but it will be a false profit and life will balance the scales.

A lot of us lie to ourselves about money. We tell ourselves that we will use the credit card just one more time and THEN we will get responsible. But if you are willing to lie about one thing to yourself, then you are willing to lie to yourself about anything and as often as it suits your purposes.

Back to the cheating wife: If a person will cheat on their spouse, and cheating like that is just another form of lying, then she will lie to anyone whenever it is in her own best interest. Anyone that would cheat in a marriage cannot be trusted about anything, ever.

When you stop a lie-based behavior, whether it's lying to yourself about what you can and cannot afford or lying to your spouse, the karma-debt you accumulated by your previous lies will still need to be paid but, at least, you will stop piling on debt on the wrong side of the scale.

Drug dealers all think that because they get away with their criminal behavior today, they will get away with it tomorrow. And they keep thinking like that until one day their run ends. See, the thing is, there are a lot more bad guys then there are cops but, eventually, the cops show up. It is not the cops are dumb, they're just really busy.

The karma cop is like that...you go along lying and your life seems pretty good...no harm, no foul, you think. WRONG. Your karma is just waiting to catch up with you..and it will, rest assured that it will.

House on Fire Finances

2011-12-24T05:53:00.000-08:00

What’s right is right and what’s right is balance. What youmight call the Goldilocks Effect, the trick is to find the correct fit for you.But guess what? As unique as you are as an individual, we all have much more incommon than not. And the center will, in fact, hold.

OK…maybe not forever. Will anything matter one-thousandyears from now? But right now in the present and the world in which we live inthe path is illuminated from the middle of the road. It is, obviously, possibleto spend too much as we live our lives day to day. But it is just as possibleto spend too little. The right balance is at the center of those two extremes:Spend what is right for you.

That is an unwavering equation as definite as geometry. Andwhen your spending is all out of whack—which happens to a lot of us in the timearound the Christmas holiday—guess what? The center did not move, you moved!And the path is clear—move back to the center between the extremes of over andunder-spending.

Much of the discomfort and even pain that we experience inlife, at the individual level, happens when we move left or right of center andthe farther afield we stray the higher the pain will be and the greater distancewe will need to traverse to return to the middle ground. That is why it is soimportant to stop the bleeding—and the sooner you do the sooner you will be onthe path back to center: It will be easier to recover from $500 of debt than$5,000 of debt.

Define your center. Know where it is as it represents notonly your financial goal but the destination, as well. “This is how much I canspend and this is how much I should save.” And unless you know those numbersand have them clear in your head, your center is not defined and achieving yourfinancial balance will be impossible.

You should strive for order in your life; for its ownsake, certainly, but also because order is much more practical than chaos: Everything should have its place and when not inuse, it should be where it should be. You should be able to find your things inthe dark. That same logic applies to your financial order, too. And when youare in the financial dark, you must know where your center is so as to be able to move readilyin the direction of financial balance.

When your house is on fire, you must know what you want tosave and where to find it as you race out of the inferno; either that or whatis most important to you will be lost to the flames because in times like that, you will not have the luxury of time to seach for something if it is misplaced or not where it should be.

Merry Christmas and Happy New Year!

Blessings and Chaos

2011-12-12T07:07:00.000-08:00

Every day is a blessing and one reason is that each day is also a chance to start over. If you are in debt to the extent that it has become an issue, today you can begin down the path to address that issue. You can change.

And, the truth is, you will change, whether you want to or not. Change will happen either internally and of your own volition or change will happen to you.

If debt is an issue, sooner or later you will need to address it or it will be addressed for you: Either you apply the self-discipline to learn what you must do and do it or external forces will go to work and force your hand. How so?

Well, those external forces are the credit markets, mostly. First you reach your credit limit. that is, you max out all your cards and can't get anymore and you are forced to start living within your means. By then, however, all hell has broken loose!

Your creditors are calling you, you come up short towards the end of each month, you find yourself living paycheck to paycheck, and, if you are married, the fights about money will begin.

Another aspect of life that makes it a blessing is how it can change one day to the next. But that is also what will make any thoughtful individual nervous. Like a cat on a hot tin roof, you have to be a little jumpy, at least, knowing that as quickly as life can change for the better, it can change for the worse.

Life abhors a vacuum and chaos is the natural order of things; chaos as change is always swirling around us. So buy some insurance and hope for the best. And be proactive in meeting those aspects of your life that must change -- do not wait for outside forces to dictate the nature of the change that is coming, that must come, to you.

Beginner's Mind

2011-12-09T06:11:00.001-08:00

You were not born knowing how to manage money; none of us are. Life does not come with the instruction book we could all certainly use. So, we are left no choice but to muddle through it and most of us will make a mess of things at least a few times as we go along.

I did and I have. As I recount in my book, Money Well Spent, I was broke, unemployed, and over $50,000 in debt in my early thirties. I give myself credit for at least being smart enough to figure out that the way I had managed my money up to that time was not producing the desired outcome. And so I changed.

No big deal, really. The only revelation I had at the time was that I wished I had saved more of what I had earned to that point. That being the case, I made a commitment to myself that once I found a job I would save at least ten percent of every dollar I earned.

Where did that ten percent figure come from? After the fact, actually. You see, I also knew that I needed to learn more about how money should be managed and I started to read all the books on that subject that I could get my hands on.

As I write this, I am in a room in which the walls are lined with bookshelves. Among the books are over two hundred titles having to do with personal financial management. I read a lot on the subject back then and I still do.

Most of us are drawn to sports for a single reason: It is so easy to determine who is winning and who is not. In life, it is not so easy to figure out who is ahead and who is behind; lifestyle and consumption are how most of us measure success and assign others to the winner and loser categories.

I like managing money for the same reason that I like sports: It is easy to keep score. I am not a big consumer, however, and if you were to judge me by my level of conspicuous consumption, you would probably guess wrong about my financial condition.

In my book (books, actually), financial success is financial independence. And the way to manage money is to that end; financial independence, I mean. And it is as easy to determine when you have won the money game (achieved financial independence), as it is to know when a player on your favorite team has crossed the goal line.

As a species, we like goals. But while many of us are raised playing sports and taught the rules of the games we play from a young age, we do not receive the same kind of education when it comes to managing money. So most of us screw it up to one extent or another.

And, then, there is hubris. Most of us seem to think that we will do just fine managing our money without coaching or study in the subject. How's that working? Well, here in the US, about a million of us will lose our homes to foreclosure this year and another million or so will declare personal bankruptcy. Most of us obviously do not know what we are doing as evidenced by those numbers.

I did not begin to get my money right until I accepted that I did not know what I needed to know. Being in that state is what, in the Buddhist tradition, is known as "Beginner's Mind." It is a state in which you are open to learning. When, in contrast, you think you know it all, your mind is closed.

If you want to do better, be it with your money or any aspect of life, you must first accept that you have a lot to learn. Only then will you be in the proper state of mind to begin down the path to enlightenment.

A Simple First Step

2011-12-03T07:18:00.001-08:00

Some steps prove effective although why they do so is not readily apparent...at first. For those with money "issues," a simple and effective first step in the direction of correcting those issues is, what I call, a spending diary.

A Spending Diary is simply a daily log of every individual instance of spending. If you spend two bucks on a cup of coffee, it goes in your spending diary...pay the electric bill? It goes in your diary. Then, at the end of each day, you total the spending for that day and enter that total in your diary.

Also, at the end of each day, you enter the total for the month to date. So, if on Wednesday, the first day of the month, your total was $40.17 and Thursday your daily total was $16.54, on the line after the Thursday daily total you would enter the total for the month to date of $56.71.

There are a couple of business maxims that apply to explain some of the magic of a spending diary in helping you get control of your money: One is that what gets measured gets managed and the second is that you can't manage what you don't measure....both are sort of the same but not exactly.

But the real power of a spending diary is that when you keep one, it makes you think about how you are spending and it provides you an easy format to see your spending patterns. If you want to get back onto the road towards greater financial peace of mind, a simple first step is a spending diary.

You can learn more about how to use a spending diary in my book, Money Well Spent.

Shower the People

2011-11-08T07:51:00.000-08:00

A few years ago I was in San Diego (CA) on a business trip. San Diego is my home town and most of my family lives there. When the meeting I was there to attend was over, I had two options: I could go visit my Mom and Dad or I could head back to Yuma and avoid the rush hour traffic. I opted to drive back to Yuma (where I was living at the time).

A week later, my Dad passed away and I missed the opportunity to see him that one more time. I will regret that decision to not go and visit him for the rest of my life. I think about it frequently.

There is a difference between stingy and thrifty. Thrifty is a learned behavior; stingy can be genetic (or something) or acquired like a disease. If a person is not predisposed at birth to be stingy, a person can become stingy for two reasons: It can be a symptom of a developing psychosis or it can be as the result of fear.

I am not naturally stingy and I was never thrifty until being so was imposed on me. At one point in my early thirties I was unemployed, broke (which I define as having no savings), and over $50,000 in debt. (The whole story can be found in my book, Money Well Spent) I had been a spend-thrift up to that point in my life and when I thought about money it was only to consider how to spend it.

My financial recovery started when I began using a budget for the first time in my life. By budgeting, I learned how to control expenses in order to save some of what I earned and a budget also gave me the information I needed to make informed choices about how to spend and where to save, instead.

What I have learned is that a person can be stingy or thrifty in almost every facet of life. I was and still tend to be stingy with my emotions. Emotionally-stingy people seem to be more common than financially stingy people. But whereas money is a zero-sum prospect and a limited commodity for all of us, emotions are limitless.

But you are stingy with your emotions for the same reason you are, if you are, stingy with money: Either you have a problem or you are afraid to let your emotions go.

James Taylor has a song in which he says: Shower the people you love with love. I am trying. It cost you nothing but when you give yourself like that, it can make you feel vulnerable and people are so unaccustomed to being showered with love that it can scare them as much to receive it as it scares you to give it.

I wish life were more simple.

When All Else Fails...

2011-11-07T08:53:00.000-08:00

write the history of your future.

Right now, my life is not great. I am at a crossroads and I hate crossroads. I like certainty and routine. Right now, there is little certainty so I am adhering closely to the comfort of routine. I do not know how important facets of my life will turn out.

This is not the first time I have been in this position but it has been awhile now. I have forgotten the steps that worked the last time.

So, the first question to ask yourself in the midst of chaos is this: If it were ten years from now, and I was writing the history of the last ten years, what will have happened in an ideal world?

Then write that history down and it will be that history that will serve as your road map to the next ten years. If ten years is too much of a stretch for you, try five years or even one year. The idea is to get you thinking about what you want to happen. That process of thinking deeply and intensely about what you want to happen serves two purposes:

One: It takes your mind off the worry about what might happen, and;

Two: It serves as you letting the universe know what you want.

Here are your two options:

One: You can ask for what you want, or;

Two: You can not ask for what you want.

In which scenario do you think it is more likely that you will get what you want? Obvious, right?

But most of us tend to focus on what we don't want. That is called worry. We all tend to worry too much and worry never paid the bills.

Focus on what you want. Make it part of your daily routine to spend some time thinking only about best possible outcome. Doing so will be you giving yourself a break from your monkey brain that wants only to jump from one thought to the next. If you let your brain have its way you will be exhausted and too tired to focus on what you want.

Calming your monkey-brain tendencies is not easy. So most of us need to begin this process in short spurts and extend the period gradually over time. The goal is too calm that inner monkey and thereby calm yourself.

And the first step is to focus on the non-material aspects of life that you want more of. You might think that what will make you happy are things -- that is, material objects -- but you are wrong. Material objects are merely the physical representation of our emotional wants.

You might think you want a girlfriend (or boyfriend, whatever) but that is only the physical representation for what you really want -- love.

If you ask the universe for the wrong "thing," it is more likely than not that the wrong "thing," is exactly what will be delivered to you. Asking the universe for physical objects is a waste of time. Consider your eventual happiness, your place beyond the immediate darkness, as a climb up a ladder. The trick is to make sure that you are not leaning that ladder against the wrong wall.

That is difficult, knowing what you really want, I mean. But that is where true enlightenment begins -- self-awareness. And the road to self-actualization begins with self-awareness. I mean, it only makes sense, right? That to be who you want to be, you must first define who you want to be.

But once you have done that, success is in the steps you take daily towards becoming who you want to be but that is only half of it. The other half is to find happiness in those daily steps; to find happiness in the journey and not to focus on the outcome alone. If you do that, if you allow yourself to think that your happiness is dependant entirely on outcome, you will never be happy because our goals change and our goals are lines in shifting sands.

You cannot wait to be happy until you have achieved your goals; it is not healthy to defer your happiness like that:

Learn to be happy now. Ask for what you want. Write a history of your future.

A Forgetting God

2011-10-29T07:13:00.000-07:00

People will do anything for money. That is an accepted fact. Lying, cheating, and stealing for money is so common that no one is surprised to when it happens. Selling one's child for money is old news and even killing one's own children to collect the life insurance hardly raises an eye-brow anymore. It is just not all that surprising when it happens these days and isn't that just about the saddest commentary on the state of our civilization that there can be?

Sell your body for money? No problem -- happens day and night, 24/7. Is there no line in the sand that people will not cross for money?

Now, you might think that you have your line in the sand that you will not cross. You believe that there are some things that you would not do for money...not so fast!

There is a joke (of sorts)...a man asks a woman if she will sleep with him for one-million dollars...she hesitates...

And what is revealed is her hesitation is her line in the sand and a million bucks might be it. But the punch line is this: Circumstances will move that line. A lot of hookers are pounding the pavement because they have kids to feed and perceive that they have no other recourse (if only in their own minds, and in your own mind is sufficient, of course).

There are (at least) several good reasons to achieve financial independence and one of the best is that it can protect you from the shifting sands of circumstance. Greed will work against you in this regard, however. If you feel as if you do not have enough, regardless of how much you have, then you are one of those people who might just make the news.

True financial independence can only occur when you are content. And contentedness must have the space in your psyche to reside. The thing is, contempt and contentedness compete for space in the virtual world between your ears. Humility is the only emotion that can defeat the natural human tendency to seek to feel superior to others. And it is that desire to feel superior that breeds contempt.

Jesus would wash the feet of the poorest he encountered. Do you get that? I mean, I know it is obvious, but maybe you will gain some insight if you consider his actions, ask yourself: why? Why did He do that? Meditate on it.

And I am not preaching here; this is not the Church of the Almighty Dollar, after all. Humility is not a uniquely Christian perspective; but it is the highest order of spirituality, I think, because it is so hard for so many of us to be humble and to humble ourselves as Jesus did in that act.

People will do anything for money, then justify it in their own minds and sleep like a baby. That is simply the way we are wired. But it is possible to re-wire the way you think. And you can begin that process by focusing on the practice of the outward expression of three emotions: Compassion, gratitude, and humility.

How so? Well, you see, those are not just emotions, they are also each a life skill. They are tools that will help you build the shelter to house your heart.

Sometimes I feel like God is getting old because he seems to be forgetting things. So, to help Him out, I keep a list and I look at it each morning. There are only three words on that list: Compassion, gratitude, and humility.

What Niall Doherty Said (Apple is Not the Answer!)

2011-10-28T09:38:00.000-07:00

The world is filled with people who think they are smarter than you. You will encounter these people every day. The fact is, however, that most of them will not be smarter than you and the other fact is that they will be just as ordinary as you are. A high IQ counts for nothing in life. People with high IQs can solve math problems. So what? Life is infinitely more complex and difficult than any math problem.

And, yet, that is how most of us approach life -- as a problem to be solved. It doesn't work like that. But the real issue here is that when someone thinks they are smarter than you, it breeds contempt. And the more time someone spends with you when your guard is down, the more contempt that person will come to have for you.

Finally, that person will think you're a fool and move on because who wants to be with a fool?

That is why so many marriages fail -- one spouse or the other starts thinking they are smarter than the other and contempt creeps into the relationship. At that point it is over. In fact, the number of failed marriages is to be expected; what is amazing is how many people manage to stay married. (Please note here that I did not say that anyone ever makes a marriage work.)

My Mom and Dad were married for almost seventy years. My mother once said to my ninety year-old father, "All my widowed friends are very happy."

That tells you more about the relationship than I ever could. Those words paint a picture worth a thousand words.

In this post here, the author makes the point that you do not have to answer the question asked you. When someone asks you a question, you do not have to answer that question, you can answer any question you would like or prefer to answer.

For example: "Honey, does this dress make my ass look big?"

"Apple," you answer. As if the question you had been asked was, "What's your favorite pie?"

That works with some people and in some situations but not always. And it never works with life. If you attempt that ploy with life, it will just keep asking the question over and over again. And the wrong answer will not suffice. If life asks you a question and you get the answer wrong, life will keep asking the question until you get the answer right -- if you ever do. There is no rule of life that says you will eventually get all the answers right.

And smart people are no different in this regard. And, of course, money is not the answer to a single question that life will ask you. And all of life's questions only have a single answer.

Contempt is a terrible emotion. But it is the single most common emotion among those who are full of themselves. A life filled with contempt is hardly worth living but contempt-filled people are so not as smart as they think but the real problem for smart people (which is most of us in an IQ-kind of regard) is that they perceive their contempt as a sign of their own superiority.

Hey, smart guy -- life is asking you a question and guess what? Contempt is not the answer. Smart as you are (or think you are) you are failing the exam!

The answer, and the only emotion more powerful that contempt, is compassion. Compassion -- not only for others but for yourself, as well.

But if you keep answering contempt, life will just keep asking the question and it won't matter how much money you have. In fact, nothing in your physical plane will ever make you happy. And you will wonder why. That "why" you are feeling, that nagging just outside the realm of stuff you can actually put your finger on? That is poverty of spirit and it is where those filled with contempt actually reside.

Being filled with contempt and being content cannot occupy the same space -- it is one or the other.

Compassion is a reflection of gratitude and true gratitude can only be realized when you accept that, as hard as you worked to accumulate what you have, all success comes down to luck. It is hard to be grateful and arrogant at the same time; two more emotions that cannot occupy the same space.

True success requires that you develop a certain skill set in order to function at a high level. Compassion and gratitude are skills every bit as much as they are emotions and yet they are both under-valued by the majority of people, in general. When you do that, when you under-value two of the skills that will get you the farthest in life, it doesn't matter how smart you are, IQ-wise. You will be a miserable human being in the only way that matters.

Are you grateful and compassionate? Do you possess those skills? Probably not at a level that is required to achieve true success. And, because you over-rate yourself in those regards, it is beyond you to see your failings in applying compassion and gratitude daily. And, by the way, you don't have to take my word for it, check this out!

So, if today you find yourself thinking that you are the smartest guy in the room, understand that life is messing with you. And not vice versa.

The End is Not Near

2011-10-09T08:03:00.000-07:00

If anyone tells you that the situation in the real estate market is getting better, they are probably a real estate agent. Here in the neighborhood where I live, predominantly Hispanic and who occupy the lower rungs of the socio-economic ladder, things are getting worse. And the day before yesterday, my next-door neighbor left her house because the bank foreclosed.

She is a woman approaching fifty years of age and had three grown children living with her. They were not the best of neighbors and they did not maintain their property, but I would not have wished this on them.

And I know what is coming: The house will be left to rot as the bank, inept in the fashion of most uncaring bureaucracies, will not be up to the task of maintaining it properly. And there goes the value of the surrounding properties even further into the tank!

The economy might be getting better where you live but here where most of the people are scrambling just to keep a roof over their heads and food on the table? The poor are getting poorer.

And in this neighborhood there have always been vultures. They circle and swoop in to take advantage of a population that is largely of a low educational level and that speak English, if at all, as a second language. It was one of these vultures that got my neighbor. He knocked on her door at some time during the boom and convinced her, as he did several others in this community, to refinance. It was that refinance that was the beginning of the end of her American Dream.

How do those people, from the door-knockers to the pond scum writing the loans sleep at night? And where did my neighbor and her kids go? Where did all those displaced by the disaster Wall Street laid on us go? I know the rich do not feel our pain; I know they don't care.

Is there such a thing as karma? Probably not. Bad people are still getting rich on the pain of the poor.

My neighbor left a couch on her front yard. I am hoping she will come back for it, but I doubt she will. It sits in grass a foot high; the perfect metaphor for what is left of the American Dream and the dream of what America might have been.

If You Don't Understand Maslow, You Won't Understand Life

2011-10-08T11:01:00.000-07:00

If you have not yet done so, read Maslow. In particular, read and consider carefully the implications of his Hierarchy of Needs. I am not going to try and explain it to you here: You need to do the hard work of gaining wisdom yourself or do without.

Money is a tool to move up the hierarchy of needs but it is not those needs, themselves. Money is not the roof over your head or the clothes on your back but in our society it can provide the means to those ends. Money can provide for the lowest level human needs but after that it is all up to you; money can't buy you the love and affection of others and those are higher level needs.

As hard as you work for money, you will need to work twice as hard to earn the love of others. That's right, you earn love just like you earn money. And you can waste love as easily and carelessly and thoughtlessly as you can waste money. Priceless love can be frittered away in return for a moment of selfish pleasure. It happens everyday.

Penny wise, pound foolish, right? But pound wise, love foolish is much more common because even a poor man can thoughtlessly throw away what would have been an eternal love. But love is a rung on the ladder of life and if you missing that rung, you will climb no higher. Money and the things it can buy are all the lower level needs, love is a wealth of an entirely different sort.

As closely as you guard your purse, guard your meaningful relationships, especially the relationships with those who love you, that much and more because those relationships will make you wealthy beyond your wildest dreams.

Instant Money Karma

2011-10-03T08:43:00.000-07:00

The principal real estate of life is the space between our ears...it is where we all live most of the time. And that space has a feng shui about it and most of us keep that space about as neat as a pig sty. We are all such messy thinkers...what Buddha referred to as "monkey mind."

Much of our problems in life we create of our own unintentional volition and our money problems are no different. Everyday we want something else...like a monkey our desires leap from tree to tree and we think that it is the lack of what we want most today that is the single biggest reason that we are not happy.

But that's not how happiness works, obviously. Not in the "real" world, the physical world, that is, and not the original "virtual" world that we conjure up moment by moment through the alchemy of thought.

If money did not exist, would we all be rich?

Want some instant karma? Consider the feng shui of the living room in your head. And the easiest way to improve that space is to be found in the words of Buddha and Thoreau.

Buddha said this: If you would seek peace, stop chasing so many things.

Thoreau said this: Simplify, simplify, simplify.

Is Now the Time to Buy a House?

2011-09-17T06:44:00.000-07:00

People get into all sorts of trouble looking for easy answers. The trouble begins when they ask stupid questions like the one in the title to this post. A question like that is simply a reflection of the laziness of the person asking it.

The answer to a question must by necessity be as complicated as the question itself. In other words, you cannot expect a simple answer to a complex question.

The answer to a complex question is always the same. The answer is always: It depends.

In now the time to buy a house? It depends. And what it depends on mostly is you. The particulars of your situation and your motivation. If you ask that question, then you must be considering it, right? I mean, you must be thinking of buying a home. So the question that must precede the answer is this: Why do you want to buy a home? What is your motivation?

Are you doing it as an investment? Do you want the stability you think owning a home will provide? Do you need more space, less space, space to plant a garden? The thing is, whatever your motivation, there is more than one way to skin a cat. And that is good--having options, I mean.

And, sometimes, having options is bad because options work to preclude easy answers.

The other thing is, however, is that you don't have as many options as you think and the outcome of any option in particular is unknowable. The butterfly effect, chaos theory, and all that!

Ultimately, you need to make a choice and procrastinating is a choice and it is as valid as any other. Beyond the reach of the headlights is the unknowable outcome of every decision we make. But we drive through the night steering through that small patch of illuminated space in front of us that we are able to see.

But to the extent you can extend the reach of the light you cast and illuuminate as much of the way forward as possible, the better.

2011-09-16T15:27:00.000-07:00

Will Real Estate Ever Recover?

2011-09-04T08:11:00.000-07:00

In a word -- no! Of course, that word is greatly dependent on your definition of the word, "recover." If by recover you mean will we ever return to the days when the balloon was as big as it ever got, that would be around 2005, then, no, the market will never see those days again -- ever!

The driver behind the run up in home prices for the five years or so before 2005 was driven by Wall Street greed and consumer ignorance. Consumers are still largely ignorant, so that part of the equation is unchanged, will forever be unchanged, in fact, but Wall Street has been taken to the wood shed -- no more liar loans, reverse equity mortgages, and no-money down deals. And taking those products off the table pretty much cuts out that segment of the population that was fueling the speculation.

Now we will see a new "normal." But that will take some time -- first the market will need to be cleared of the deadwood -- foreclosures, mostly, but short-sales are depressing and will depress the market until a workable balance of supply and demand comes back. And normal won't happen in this economy.

And, if we slide into another recession there will be more blood in the streets.

But if you step carefully, you can avoid getting the gore on your shoes. In some places, now is not a bad time to buy a primary residence. Do the math, know what you can afford, and do not over-reach in that regard, in particular. If your job is shaky, however, stand pat: The Fed has already stated their intention to leave interest rates low for the next couple of years, at least. And home prices are not going anywhere fast!

How Can It Always Be a Good Time to Buy?

2011-08-09T15:45:00.000-07:00

OK. So, the market crashed hard two days in a row. Yesterday after it closed I tuned in to watch some of the market shows on cable TV. Every one of the talking heads there said that now was the time to buy because you could pick-up bargains by doing so.

Seems I have heard this song before. If the market is up or the market is down, it is always a good time to buy according to the "experts." How is that possible?

I am not a stock-hater. On the other hand, I do not have any money in the market. But I understand why people invest. As I see it, the market is about the only game in town for most people with money that needs to go somewhere. And it is something of a no-brainer if you stick to the buy-and-hold philosophy.

Active trading of stocks I cannot speak to but I do not know anyone who has ever made money over the long-term that way.

My question is this: Is there really such a thing as a stock market "expert?" I mean, I watch the so-called experts on TV and hear them use their jargon and sound really knowledgeable but the truth is that not one of them knows for certain where the market is headed.

Yesterday they were telling me to expect more blood in the streets. And now, today, the Dow climbed over 400 points! What experts? And what were they saying after most of them were so gloom and doom yesterday?

You guessed it -- now is the time to buy! I would love to trade in a market in which it is never a bad time to buy. I wish I were selling products like that!

Pay It Forward or Pay It Back

2011-08-02T07:30:00.000-07:00

If you need to finance a large purchase, or any purchase for that matter, there are two ways to do it: You can pay it forward, that is, you can save the required amount of money or, you can pay it back and by that I mean that you can get a loan.

If you choose to pay it forward, you earn interest but, if you choose the pay it back method, you pay interest. Of course, when you choose to pay it back, you also receive beneficial use of the product during the pay-it-back period; for example, when you finance a car, you only own some percentage of it but you are allowed 100% beneficial use while you pay off the loan.

If, on the other hand, you decide to pay it forward and save up the money to pay cash for the car, during the period you are saving the necessary amount you do not get beneficial use of the car you plan on buying. So, you earn interest on whatever amount you have saved towards the amount necessary to pay cash, but it comes at the cost of beneficial use enjoyed by those who choose to finance their acquisition cost. And, conversely, when you pay it back, you pay interest but gain beneficial possession while you repay the loan.

And, depending on how you value that beneficial use, the interest you pay might just be worth it to you. Again, using a car to help illustrate my point, during the time you are paying back the money you borrowed to finance the acquisition of the car, you also get to use the car and that right, or beneficial use, has some value.

Paying interest is not a moral issue and either is debt although the official guidebook to morality for a lot of people is the Bible and the Bible has many negative comments about debt and debtors in it.

In general, however, I do not see all debt as all bad: Often, assuming debt is simply a financial decision to be weighed rationally. Sometimes, however, there is little rational decision-making going on by those who take on debt: People want stuff they can’t afford, and I mean petty, unimportant stuff here, and so use credit cards to finance the acquisition of whatever they fancy.

The single negative aspect that all debt does share would seem to be is the chunk it takes out of your paycheck every month but even that is not as significant as it might be depending on the debt. Consumer debt such as trivial stuff charged to credit cards is pretty much all bad. But what about a mortgage?

Housing is always going to cost you something even after you pay off your mortgage. Housing is an expense, although that component of your housing expense that goes towards paying the mortgage is a debt. Debts can be retired but expenses are with us for life, pretty much. Property taxes are an expense, for example, and as long as you own a home, with or without a mortgage, you will have the expense of property taxes.

If you choose to rent instead of buy your housing, you will never retire the principal component of your housing expense. When you finance the purchase of your home using a mortgage, there is always that possibility, at least. And a mortgage also allows you to fix a certain amount of your monthly housing costs in your budget which will, in turn, allow for better financial planning on your part; assuming a fixed-rate mortgage, of course.

A mortgage is still debt and the smart money is always prudent in this regard: Never assume more debt than is safe and by safe I mean more than you can afford. And, to keep a rational lid on the amount of interest you will pay over the term of your mortgage, never buy a house with monthly principal and interest costs that exceed 25% of your monthly net income with a twenty-year mortgage.

Usually, at the time you retire the debt, there will still be some value remaining in whatever it was you financed; a car, for example. But whatever amount of the original cost is not there has been, effectively, consumed. Any purchase you finance that is 100% consumed at the time of purchase should be carefully considered as it is about the most expensive of all pay-it-back propositions.

The most common examples of 100% consumed purchases are usually in the entertainment portion of our spending such as dining out; choose to finance a night on the town with a credit card when you know you will not be able to pay it off when the bill comes due, is one specific example.

But rent is also 100% consumed from month to month while, on the other hand, unless you are underwater in your mortgage, some portion of your mortgage payment will pop up on your net worth statement as equity. This is not. however, the entire story on the rent-versus-buy debate.

And it is never ALWAYS the case that pay it forward is better than pay it back.

There Is No Such a Thing as Good Debt

2011-07-28T07:39:00.000-07:00

Some financial pundits label some debts as good and some debts as bad. There is no such a thing as a “good” debt.

And the general public, victims of the media that repeat the good debt-bad debt (GDBD) thinking, have come to believe the line.

College students, especially the young ones who must find a way to finance the outrageous costs of a college education, have been fed this same GDBD line with disastrous consequences in too many instances.

For example, read this articles HERE at the Huffington Post.

Why do I think there is no such thing as good debt? Well, first, you need to understand that we can all only “spend” our income in three “places.” Those three places being the past, the present, and the future.

We all have to allocate (spend) a portion of our income to the present to pay on-going expenses such as utilities and food: That is money spent on the present.

And then we should all be saving money for the future, even if only enough to fund retirement. Money we “save” is actually put away in the anticipation of spending at some later date so it is more like an account to fund deferred spending: So present income saved for the future is money spent in the future.

And finally there is present income that goes towards paying our debts such as mortgage and automobile payments, some kinds of credit card debt (any balance carried over from one month into the next and not paid in full when due), and student loans.

Mortgages and student loans are two kinds of debt that are typically promoted as good debt by those who promote the GDBD philosophy. After all, both those debts represent an investment, right?

Well, ask the millions of borrowers that are presently upside-down in their mortgages if a house is an investment.

But that is really not the point I am making here. My point is this: All present income spent to pay a debt means that much less money to allocate towards the present and the future. All debt has that negative aspect about it and THAT is the reason that I make the claim that there is no such a thing as good debt.

I will concede some ground on my position to this extent: Not all debt is all bad. Auto loans are not all bad, in some instances. Some auto loans are better considered as an expense because we consume the vehicle during the month (by driving it and by it providing us transportation) and then pay the bill for that consumption at the end of the month—just like we do we food or utilities.

But it can only fall into the not-all-bad category if we are not over-paying for our consumption.

Student loans are sold just like any other consumer product. The problem is that those who consume that product are often uneducated in the ways of personal finance. And, just as often, the people who should be providing them financial counseling are just as uneducated in that regard.

And there is considerable peer and societal pressure on young people to go to college at any cost—even if they have no business being there.

Student loan debt is just like any other debt and it is to be avoided. And the cost of college is a cost that should be paid as you consume it—like dinner at a restaurant. Putting a meal like that on a credit card and paying it off over the next year is just plain stupid.

My niece’s son, Jon, is in eleventh grade now and has no interest in going straight into college. Instead, he is planning to go into the military. Neither college nor the military will be the right choice for every individual in all circumstances but I believe it is the right choice for him.

And the goal of almost every college student is to receive an education that will provide an entry into a career. The military can be a career and it does not require a college degree and the attendant $25,000 of debt that goes with it on average.

I both served in the military and I have five college degrees all acquired after my time in the service. Almost all my costs for college were paid by the benefits I received for serving in the military. Later I went on to write several books on the subject of personal financial management, became a money coach, and taught personal financial management at the college level.

One of the books I wrote details a plan to build a million-dollar net worth while in the military. The name of that book is, The Millionaire Recruit. For more on that book, see HERE.

I know of no similar plan to get rich while in college and accumulating student loan debt. And I no of no such a thing as a good debt.

Should We Even Expect Houses to Appreciate?

2011-07-22T07:08:00.000-07:00

So, I was reading the forums over at Patrick.net which is a blog about the housing market...

While there I find this post HERE

One comment there compares houses to cars and states that there is no reason to expect houses to appreciate just like we don't expect cars we purchase to appreciate -- in fact, just the opposite. When we buy a vehicle for every day use, we know, in fact, we accept willingly, that we are consuming the value of that car with every mile we drive.

And when we sell our car, we know that it will sell for less than we paid for it. In fact, if you were to drive a brand new car off the dealer's lot and put it on Craigslist that same day, we would expect it to sell for some thirty percent less than we paid for it just hours ago!

Why don't we accept the same financial dynamic when we get a mortgage to purchase our primary residence? Why do we expect a house to increase in value when, just like a vehicle, we are, on a daily basis, extracting value from it?

Well, for one thing, a house is not consumed like a car. How many fifty year old cars are still being used for every day transportation? On the other hand, a considerable percentage of the housing stock in the US is over fifty years old. (And even more in Europe!)

One financial aspect that cars and houses share is that once you own either free and clear of any financing, the largest part of the cost of ownership is gone; namely the mortgage or loan payment. At that point, both begin to pay you back in the sense that the payment comes off your monthly budget. Simply do a net worth statement or monthly budget to see how not having a car or house payment would change your monthly bottom line.

The difference in the two scenarios is that the house retains considerable value and, in the seemingly parallel universe where we all once lived in the not too distant past, can actually appreciate. (What a concept!).

And the actual worth of the value of housing you receive when you pay off your mortgage will often be considerable, as well. And the actual market value of living in your house mortgage-free can exceed the dollar amount of the mortgage payment.

My mortgage payment is less than $350 a month but my house would rent for much more than that.

In either case, when you own a car without a loan or a house mortgage-free, the cost removed from your monthly cost of living is imputed income -- income received in some form other than cash -- and imputed income is a form of "passive" income.

We should all be looking to build our passive income in order to diversify our total income and to the goal of financial independence; owning assets free and clear is one way to accomplish that even if that income is imputed as opposed to cash.

See more of my longer articles HERE.

And you can download free previews of some of my books to your computer or e-readers such as Kindle HERE.

The Best Jobs in America

2011-07-19T08:14:00.000-07:00

The best jobs all have one thing in common—a defined-benefit pension plan. (DBPP)

That being the case, the single aspect of such a plan to consider is the long-term, financial viability of the employer offering the plan. The best employer, when judged like that, is the Federal Government. Why? Because they can print money. Many states still offer DBPPs but states can’t print money and so the value of a state plan is less than that of a federal plan.

A DBPP allows the recipient to make a highly reliable, long-term financial plan. And it allows you to plan for retirement with a much higher degree of accuracy than someone with a defined-contribution pension plan. (DCPP)

But the reason that a DBPP is much more valuable than a DCPP is that the eventual payout from your plan is not dependent on your own financial acumen in managing the investments held in the plan, as is the case in a DCPP. Most people simply are not prepared for that responsibility. And if you screw it up you could end up working until you die at your desk.

Note to readers: Schedule for new posts is Tuesday and Friday.

The Road to Nowhere

2011-07-14T06:50:00.000-07:00

There are only three roads to financial security—a windfall, savings, and being an entrepreneur. Most people won’t win the lottery so we can say that, realistically, there are only two roads—starting a business or savings from earned income.

For many entrepreneurs, however, their road to financial security is saved income from earned income generated by their business. An atypical road for the entrepreneur is to build a business that they then take public and see the value of their stock in the business make them instant multi-millionaires. That road is more akin to the windfall wealth because so few entrepreneurs will ever realize that sort of gain.

Most “entrepreneurs” are just small-business owners who slog away just like those who have a job working for someone other than themselves.

But the “savings” road to financial security is no more a sure thing than is being a small business owner. We have all heard the statistic that fifty percent of all business start-ups go out of business within a year but how many of those who work for someone else are actually building financial security?

According to one survey, almost eighty percent of us here in the USA are living paycheck to paycheck. When you live like that, there is no money to save and so all you are doing when you don’t save is surviving. Any hitch in your income stream and you might be just a few missed paychecks from homeless and living on the street. A gruesome scenario, really, but for almost eighty percent of us that is the reality of our lives.

Most of us are simply not cut out to be entrepreneurs so the only real road to financial security is a job and earned income. But not just any job will enable you to build financial security and a job alone won’t do it—two other elements are required:

The first element that be added to the mix is that the job must be a good job in terms of income—you must earn enough to save. It is possible to build financial security with a minimum wage job but that will require that you live a very Spartan existence. Most of us don’t have the self-discipline to do what is required in that situation, so most minimum wage earners will not typically build financial security.

What it takes is a good paying job with pay that grows in a somewhat predictable way and that provides you with some critical benefits—namely health insurance and a pension plan. Without those your present and future financial security is non-existent.

But a “good” job requires that you bring certain things to the table and most often the first requirement is an education. Higher education is getting more and more expensive, we all know that; but that’s only part of the problem with achieving financial security. The big problem is the quality of our “free” K – 12 educational systems.

It was the quality of our public schools that once made it possible for our children to succeed and in poor communities (communities where the average income is close to the federally-established poverty-line) it was the quality of the professionals managing the school that compensated for poverty in the home.

As school budgets are cut across the country the effect has been to diminish the quality of our public schools. This has been the case in poor communities, in particular. As pay and benefits for teachers and administrators go down, so does the quality of the skill-level of those individuals. This is a fact due to simple economic forces.

Being a good teacher who actually cares about their students is a tough job and that most often will not receive the praise it deserves. Poor communities are an even tougher place to teach because the students are often less prepared to learn than students in more economically-advantaged communities. From the perspective of an experienced educator with all the other issues they face, the question becomes: Who needs that?

If someone had devised a plan to keep the poor in poverty, and had coordinated an effort across the country to implement that plan, that plan and the perfect execution of that plan would look a lot like what is going on right now in our school districts located in our poorest communities.

Take Care of Your True Wealth

2011-07-06T07:12:00.000-07:00

I read a lot of financial blogs and I read the words of a lot of twenty-somethings who are working very hard at reducing debt, skipping the morning Starbucks, clipping coupons, and putting out a ton of effort to save a few bucks.

Meanwhile the nation is gripped by an epidemic of obesity!

I just had a medical procedure and the final bill came to almost $150,000. This included two overnight stays in the hospital. I was checking out the bill—$1 for a 325mg aspirin! My health insurance policy will cover almost 99% of the bill and I will be out of pocket about $3,000. Under the terms of the policy, my co-pay in any one calendar year tops out at $5,000 so I won’t reach that limit unless there is a complication…let’s hope not!

Here’s the thing, I take pretty good care of myself. I exercise, don’t smoke, hardly drink and when I do it’s only a couple of beers, and I am not over-weight. In other words, I did everything right and was felled by genes. I should have picked my parents better.

Achieving financial independence is one thing but having the health to enjoy it is another. It is even more important to guard your health than it is to guard your purse. It will not matter hardly at all if you are wealthy but in poor health. Walmart keeps a virtual fleet of those sit-down riding carts for the use of their infirm shoppers. I watch them cruise by with their baskets full of junk food and varicose veins.

Save more, eat less and feed your body more of the correct fuel. Start by drinking nothing but purified water—that alone will save you a whole lot of money and by doing so you will avoid the calories that accompany most other types of drinks. And if you have kids, give them only water to drink with their meals—sodas and juices are dense with calories and/or chemicals.

And do your wealth and health a big favor—watch the documentary, Fat, Sick, and Nearly Dead.

My recent medical episode has convinced me to do even more to protect my true wealth—my health—and to devote as much time and energy to that effort as I do to managing my personal finances because the payoff will be so much greater!

The Difference Between Goals and Dreams

2011-07-04T08:10:00.000-07:00

So I watched the Wimbledon final on Sunday and it was great! I love watching tennis although I have never played it, not really. I was a pretty intense racquetball player once although only OK in skill level—but I really enjoyed playing and hanging out at the gym with other players.

Anyway, Novak Djokovic, the winner of the championship, said something interesting. He said that becoming the number one player in the world was a goal of his but winning Wimbledon was a dream.

Is there a difference between a goal and a dream? The difference, I think is that you are motivated to achieve a goal but inspired to achieve a dream. The difference is subtle but real and it is there but, the thing is, goals and dreams both have much in common. To achieve either, and here I am talking about the big ones like a college education or saving up for a down payment on a house, will take considerable effort, focus, and determination—and both cost money.

Dreams or goals, they all come with a price tag attached but until you take two steps, a dream will remain just a sort of idea floating around in your head. One, you need to document your dreams and goals and the second step will be to establish a date in the future by when you want to accomplish any goal or dream, in particular.

Then you simply do the math. For example, let’s say you have always had a dream to spend a summer in Paris. So, first, you write it down and define the price tag—let’s say $4,500. Then you set the due date—let’s say 36 months from today. Now the math: 4500 divided by 36 equals $125. And that is the amount you will need to save every month for the next 36 months to save up the money to make your dream come true.

Before you put this plan into action, all you had was a poorly formed idea; now you have a date to start packing! Simple but powerful stuff, right? But as simple as it is, are you working towards financing your dreams and making them come true? Or are you frittering your money away on stuff that really doesn’t matter?

The hard part, of course, is to stay the course and apply the discipline necessary to actually carve the money out of your budget. It is that hard work and staying the course that is the difference between those who realize their dreams and those who only dream.

I cover this topic in depth in my book, Money Well Spent.

More Signs of the Apocalypse

2011-06-21T09:46:00.000-07:00

The article HERE is yet one more sign of the rising level of financial desperation in our country. The gentleman in the article actually robs a bank and then has a seat in the waiting area of that same bank to wait for the cops to show up! Why? So he can go to jail and get health care!

Again, sad for the individual involved and sad for the country and a very bad indicator. In almost every other developed nation in the world, and even some third world countries such as Mexico, no such extreme measures would be necessary because health care is the right of every citizen.

I wonder when I read a story like this about the kind of life this man has led up to now that left him in such dire straits. Was he simply bad with money or did he fail to make hay while the sun was shining? By in large, people do a fairly bad job of managing their financial lives. That is one good reason against self-directed defined-contribution pension plans and also against the privatization of Social Security.

I can hear some of you wailing: I don’t want the government to manage my money, I want to do it! Good luck with that and, of course, some of you would do all right…maybe better than all right. But the vast majority? They would end up robbing banks for the health care benefits.

Think not? Then simply refer back to my last post where I cite the results of a recent government survey that found that half of all adult Americans could not raise $2,000 in 48 hours without selling some asset and almost 30% couldn’t even come up with it even then! The fact is the facts are sad…but true.

America is Broke

2011-06-14T19:27:00.000-07:00

It is as simple as that! According to a survey conducted by the National Bureau of Economic Research, 50% of Americans could not raise $2,000 if they had to. If that’s not broke, what is? How did we arrive at this state? How did we allow it to happen?

I know a lot of really poor people and as many who are struggling to remain middle class. I live in a community where unemployment during the time when people aren’t picking crops is 50%! I do not recognize this America.

If you are familiar with Maslow, you know that you can’t develop your human potential if you are worried about putting food on the table and a roof over your head; and worse still if you have those worries and a family, as well!

It makes me sad, profoundly, deeply sad to think that any parent in this country is on this truly dire a financial footing; but what for it? How can they change this condition? I would assume most of this 50% is poor or working poor, right?

I don’t know. Simple as that—I can’t help them. Have a plan for every dollar, budget, and spend less than you earn—is there any relief in those words? That common wisdom can’t overcome the lack of education or self-discipline or any other forces at work undermining that 50%.

And 50% is close enough to being a majority and if a majority of a nation is broke, then the nation is broke—and not just financially; that kind of broke is a thing of the spirit. In other words, America is spiritually broke.

Saving Money Won't Make You Rich

2011-06-12T06:38:00.000-07:00

When my brother passed away, he had a monthly income of over $15,000 and a net worth of a several million dollars. He had a lot of money but he was not rich, in fact, most would describe his life, from all outward appearances, as that of someone who was financially poor.

Living a “rich” life requires the prudent deployment of our income—spending, in other words! Saving money will enable the accumulation of money but only spending money will give you a “rich” life. The question you need to answer, then, is what are you saving for? It is your answer to that question that will define your “rich” life. Prosperity is not defined by money in the bank; the key feature of prosperous living is being able to make our dreams come true.

Eventually, my brother was saving simply to accumulate money but he was not accomplishing a thing in terms of living a “rich” life. He was self-employed and had serious health issues. Once, when he became ill, he ended up in the hospital and the bill came to $100,000. He settled the bill for $35,000 cash.

My brother was motivated to save out of fear for his health and of being alone in his old age. And, for him, fear proved to be a sufficient motivator driving his accumulation of money. The problem, I think, was when he came to equate spending money with being less safe in the face of his fears, so he hardly spent money at all.

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Women and Their Financial Fears

2011-05-27T16:43:00.000-07:00

According to the findings of an informal survey of sorts discussed HERE, the primary fear of women is growing old without money -- not without love, or companionship, but being broke. Some put it more starkly, striking a more plaintive note -- they are afraid of becoming a bag lady; homeless.

And I get it -- women when they divorce are likely to wind up in a less comfortable financial condition than men. And so will the children in those instances. But even a large amount of money in the bank won't quell those fears entirely because to some extent those anxieties are not rooted in reality.

With married women, older married women without a fat resume and a higher education in particular, I think it has to be the nagging fear that the husband can come home any day to say he's leaving. Maybe the divorce money will be enough but, probably, they think it won't be.

Some of it is societal. I mean, any women can see what our society values -- youth, especially in women. One blog I follow (HERE) is written by a single woman in her sixties who is struggling with financial issues. She can be frankly honest and in doing so provides a real window into what she is thinking in the same vein. And I think she speaks for a large part of her cohort in similar circumstances.

I wonder how men would answer that question -- what is your biggest fear? Men, I think, don't worry about money as much simply because the fact is we tend to earn more and we are judged differently later in life. I do think the money issue is working itself out to some extent at least. Average income among educated women in particular is reaching parity with their male counterparts. But the societal issues of being an aging or aged female are a tougher nut to crack, so to speak.

And I can see some biological components to it at some level. Society has leveled the playing field to some extent for men when it comes to survival of the fittest but for women? It may well have tilted the playing field against them more than ever in some ways.

There are some sound strategies for working women in the article, HERE. And, basically, what it all comes down to is that women, if anything, need an even higher level of financial literacy than men and need to have a sound financial plan in place and cooking. It might not calm those fears entirely, but money in the bank has to help:

Teach your children well and teach your daughters to count on money as much as, if not more, than the love of some Prince Charming.

The Sine Qua Non of Personal Financial Management

2011-05-25T07:47:00.000-07:00

Before any financial advice is of any use to you, you must first have some money to manage, right? In most cases, if you have an income that income will be earned by having a job. The problem is that most people forget step two: Income diversification. Having only a single source of income is risky business!

Married couples who both have paying jobs do enjoy some income diversification but that diversification will be nullified if they spend all they earn. One form of income diversification is to spend less than you earn; not only does that allow you to save, it also makes your dependence that much less.

For example, if you earn $40,000 a year but live on $30,000, you can bank the other $10,000 AND if you lose your job you are not pressed to find another $40,000 job. But real income diversification is achieved when you have multiple streams of income and, the more of your total income that comes from passive sources, the better!

At some point, enough passive income will increase your personal freedom. If you are not pressed to maximize your employment income, you will be more able to do work that is actually important to you! But it is important that you also consider this: You can achieve that same result by controlling your cost of living.

My book, Is It Wednesday Yet?, explores these issure in depth. You can read a free preview HERE.

The Case Against Credit Cards

2011-05-19T08:50:00.000-07:00

I am a fence-rider. It is just not in my nature to posit in absolutes such as: You should never use a credit card. Although in some specific cases, I do believe the absolute applies. If you are a shopaholic, for example, and you use credit card to enable your over-spending—you should never use a credit card.

I have a few credit cards but I only use one or two on a regular basis although not all that often. But I do not use a credit card for every day shopping on expenses such as groceries and gasoline.

The reason I have and use those two cards is because they both offer five percent cash back on purchases in certain categories; I monitor these categories and when I am planning a purchase of over $100 or so, I time that purchase and buy with the credit card offering the five-percent rebate in that particular category. The categories change from month to month for both cards.

But other than special instances such as that, I pay cash and I believe that most people should simply because it is proven that most of us will spend more when we shop and plan to pay with a credit card. Exactly how much more depends but I have seen estimates that range from ten to forty percent—or more!

That being the case, I do believe it is based simply on my own shopping patterns, most of us can curb our spending simply by planning to pay in cash when we shop. The cards I use for the five percent rebate offer one percent at all times on all purchases but that one percent will be mostly lost to the fact that you end spending more than you had planned—it is actually a sort of sleight of hand used by the credit card companies to help consumers justify, in their own mind, shopping with plastic.

So, I shop from a list when applicable, such as for groceries, toiletries, and the like and I pay with cash. I also use the envelope system to keep track of how much money remains in each budgeted item in my budget. I also deposit receipts into the appropriate envelope. It is harder to describe my money management scheme than it is to actually apply it and I believe it helps me to keep my financial ducks in a row.

Budgeting Made Complex

2011-05-12T09:07:00.000-07:00

If you have decided that it is time to consider a monthly budget to manage your money, the common mistake is to think that you know how it’s done based on your thinking that the concept seems fairly simple. The logic behind using a budget is a simple—all great ideas are simple but actually doing it is more complex than the concept, itself.

If you think about it, there are only two actions you can take with money—you can spend it or not spend it. You might think that any money you don’t spend is saved, and that is a one perspective, but really “saved” money is most often not spent today for the purpose of spending at some later date.

It is seldom the case that money is saved with the idea that it will never be spent.

For example, money saved for retirement; the money we save for retirement is put away in anticipation of the need to fund spending we will do once we no longer have a source of earned income. Earned income is usually money we earn from a job or some other form of employment.

The money you save then is really more like deferred spending. From that perspective, your monthly income can only be allocated in one three ways: Yesterday, today, or tomorrow. Money you pay for on-going expenses such as rent and utilities is spent on today; money you save (deferred spending) is allocated to tomorrow; and money you allocate to paying your debts is money spent yesterday.

If you think about it, then, your income can only be allocated to an expense, a debt payment, or savings; and those are the three major categories of a monthly budget.

A monthly budget serves two purposes—the first is that it allows you to plan your spending in advance of receiving your income and the second is that it provides you a benchmark for the individual line items in your budget as you spend throughout the planning period—the month.

That second feature is where the budgeting of a budget comes into play. Once you spend all that is allocated for a line item, your spending in that line item is to be curtailed for the remainder of the month to stay “within budget.” Obviously, it does not always work that way, however.

But, if you think about it, the only place we can over-spend is in our expenses. Savings and debt payments are, generally speaking, fixed. And even some of our expenses are fixed as well. In fact, the real purpose of a budget is to assign all of our monthly variable expenses a fixed monthly amount by the process of “budgeting.”

Simple enough, right? I mean, if you allocate $400 a month to a variable expense, to stay “on budget” all is required is that you not spend more than that amount in the coming month. So why do our efforts to manage our income with a monthly budget often fail?

What to Read Sunday

2011-05-08T09:03:00.000-07:00

ForeclosureGate

Die Broke

What is BitCoin?

Enjoy (?). Happy Mother's Day! R/

The Group Home Guy

2011-05-06T08:15:00.000-07:00

There was a house for rent in my neighborhood. It had been empty for three months or so when the for-rent sign came down and a guy in his mid-twenties showed up with a truck full of belonging. He was by himself and I was watering the lawn, watching as he unloaded some of the smaller items. When the truck was almost empty except for a chest of drawers, I called out to him to ask if he needed a hand and that was how I came to meet him.

That has been a few months now and since then he has moved three other guys about his own age in with him. When he found out I write about personal financial management, he started coming over more frequently to discuss money issues. I have become a mentor for him, I suspect, although he is doing just fine.

As it turns out, he is living rent free and turning a small profit from his living arrangement. He rents the house for $600 a month and collects rent of $250 from each of the other tenants. He told me that he also has two other houses that he rented and with the permission of the owner, has turned into group homes. His group home business is in addition to his full-time job.

He also told me that he is looking for a large home to purchase and turn into an assisted-living facility. This has been his plan all along but first, he said, he wanted to learn how to manage multiple tenants before taking the leap. One thing at a time, one day at a time, is how he put it.

Turns out he graduated high-school but has no college; he’s getting a real-world education, however. And he has plans to just keep growing his group-home business until he can quit his day job. His goal, he told me, is a monthly net income $10,000. Interesting guy, interesting enterprise, wouldn’t you say?

Why Budgets Fail

2011-05-03T08:15:00.000-07:00

I am of the opinion that you need to budget your income on a monthly basis. Almost twenty years ago now, I had a major fail with my personal finances. The way I dug myself out from over $50,000 of debt was in part by using a monthly budget for the first time in my life.

My budgeting process had fits and starts as I learned how to budget correctly and modify the basic concept to my own needs. The process was never complete, however, and my monthly budget could not be the tool it could be, until I was able to actually capture all my monthly spending.

That might sound obvious to you; that is, it will sound obvious to make the point that a budget must reflect all your spending, and it is but it isn’t:

You see, a considerable amount of money we spend every month is in the form of credit against future earnings and expenses like that are easy to miss, ignore, or otherwise fail to include in your monthly budget.

Overlook any of these costs and, when they come due, the bill could wreck your spending plan for the month. It is when they get bitten by bad accounting like that one too many times that people give up on budgeting and proclaim: Budgets don't work! This is a case of confusing bad management with destiny; that and blaming the tool for the lousy craftsmanship.

The book that helped me to get my monthly budget right is, How to Live Within Your Means and Still Finance Your Dreams, written by Robert Ortalda. That is an old book now, first published in 1990, but it as relevant today as it has ever been – proof positive that good financial advice can be timeless.

Ed Schultz is Wrong!

2011-04-27T18:15:00.000-07:00

I saw a commercial today on MSNBC that featured Ed Schultz (of The Ed Show that is shown on that same channel). In the commercial, he is standing amid stacks of shipping containers and, speaking to the camera, he says that we need to fill those containers to get America moving again; implying that we (America) need to manufacture goods to repair our economy. He is wrong, here’s why:

Manufacturing is no guarantee of a good job. A substantial percentage of the manufacturing jobs America has lost in the past few decades have gone to Mexico and those jobs suck! I know from firsthand experience, I know people who have worked and who now work in those factories. They make about $100 a week but it is not the low wages that make those jobs not jobs we should covet – we do not need just any manufacturing base, we need unionized factory jobs.

The rich who own those factories moved those jobs for one reason and one reason only – to escape the grip of unions. If those factories had not had unions and were still run like they were at the beginning of the industrial revolution, those jobs would still be here today!

To state, as Ed Schultz does, that we need manufacturing jobs is simply to rewrite history and ignore the base instincts of the factory owners to oppress workers and keep wages as low as possible. It was unions that created the great American middle-class and it is the rich who are destroying it. And without a growing and vibrant middle-class the USA will become a third-world nation.

In many measures, in fact, we are already there. For example, almost one in five children in our country live in poverty. And then there is this:

USA Ranking on Adult Literacy Scale: #9 (#1 Sweden and #2 Norway); OECD USA Ranking on Healthcare Quality Index: #37 (#1 France and #2 Italy); World Health Organization 2003 USA Ranking of Student Reading Ability: #12 (#1 Finland and #2 South Korea); OECD PISA 2003 USA Ranking of Student Problem Solving Ability: #26 (#1 South Korea and #2 Finland); OECD PISA 2003 USA Ranking on Student Mathematics Ability: # 24 (#1 Hong Kong and #2 Finland); OECD PISA 2003 USA Ranking of Student Science Ability: #19 (#1 Finland and #2 Japan); OECD PISA 2003 USA Ranking on Women's Rights Scale: #17 (#1 Sweden and #2 Norway); World Economic Forum Report USA Position on Timeline of Gay Rights Progress: # 6 (1997) (#1 Sweden 1987 and #2 Norway 1993); Vexen USA Ranking on Life Expectancy: #29 (#1 Japan and #2 Hong Kong);UN Human Development Report 2005 USA Ranking on Journalistic Press Freedom Index: #32; (#1 Finland, Iceland, Norway and the Netherlands tied); Reporters Without Borders 2005 USA Ranking on Political Corruption Index: #17 (#1 Iceland and #2 Finland); Transparency International 2005 USA Ranking on Quality of Life Survey: #13 (#1 Ireland and #2 Switzerland); USA Ranking on Environmental Sustainability Index: #45 (#1 Finland and #2 Norway)- Yale University ESI 2005; USA Ranking on Overall Currency Strength: #3 (US Dollar) (#1 UK pound sterling and #2 European Union euro); USA Ranking on Infant Mortality Rate: #32 (#1 Sweden and #2 Finland); Save the Children Report 2006 USA Ranking on Human Development Index (GDP, education, etc.): #10 (#1 Norway and #2 Iceland); UN Human Development Report; and, to close the litany there is this: Only 18% of Americans own passports and bother to travel outside of the US.

What does all this have to do with your PERSONAL finances? The job you have today is not guaranteed. Given the chance, your boss will give your job to anyone who can do it cheaper; maybe even if that indiviudual cannot do it as well. As America slides down the economic slippery slope upon which we now find ourselves, you are at risk and so are those you love.

The good news is that there are steps you can take to protect yourself and your family; listening to Ed Schultz, however, is not one of them.

The Myth of the USA Free Market Economy

2011-04-25T18:04:00.000-07:00

Think you’re playing on a level field? Think again. A nation that was once the world's largest producer and bank to the world has become the world’s biggest borrower and consumer. And the American Free Market Economy is now a myth: There is no financial free market and there has not been for a while now. The best example of this is interest rates.

The interest rate paid to savers is being manipulated by the government. Fed actions are making savers poorer and so it is a disincentive to save. But the government needs to keep interest rates artificially low because it needs to borrow as much money as possible as cheaply as possible. If the Fed allows interest rates to rise, it will cost them more both to service debt and borrow new money.

In a true free market, interest rates are not manipulated to the benefit of the government.

But the debt chicken will eventually come home to roost; it must.

The USA has one advantage that you or I do not have and that is the ability to print money. But it cannot keep doing so indefinitely. And although the power to print money is postponing the day of reckoning, we are at the point where the presses will soon grind to a halt. And the ghost in the machine is China.

China will be the world’s largest economy by the end of this decade. Someday soon it will exert its power. Already it is telling the USA to get its financial house in order. Imagine that: China dictating to the USA!

What’s this mean to you on a personal level? Hold on to cash because interest rates will soon rise and cash will be king. Of course, inflation precedes an interest rate hike; the financial gods giveth and the financial gods taketh away. Gas has already hit $5 a gallon and some experts are saying $10 and even $20 a gallon is not out of the question.

At what price point do Americans give up their cars and take up the bicycle? We will soon find out. We might just simply get priced out of the market. At $10, I think, the world will shift on its axis. Here is something else for you to imagine: China taking up the car as Americans are forced to take up the bicycle. That is a flip-flop of epic proportions!

It is not a question of whether or not China will overtake us as the world's largest economy. And the question is not how long will the USA remain number two, the question is this: How long will the USA remain a first-world country?

Here in the small border town where I live, the price of gas is already affecting driving habits. I live in the county that often has the highest unemployment rate in the country. In my neighborhood, empty houses are springing up like weeds on an unkempt yard.

In fact, unkempt yards are popping up like weeds on unkempt yards. When times are tough, the first thing to go are the niceties like water for the yard and gas for the lawnmower. Things have been bad for some time in these parts and the future is looking like it will get worse, much worse, before it gets better…if it ever does!

Look, at some point, people cannot recover. The job gets lost, then the house, the family disintegrates, and the Mom and kids fall below the poverty line. And once you are poor, the condition can be self-perpetuating for generations to come.

Is the Concept of Net Worth Obsolete?

2011-04-21T08:23:00.000-07:00

It is simply getting harder and harder to save a part of what you earn. Of course it is possible, but with incomes for the middle-class being stagnant for the last decade, the cost of just keeping your head above water is eroding the ability of the family with an average income to save at all.

The price of a gallon of gas is fast approaching $5! Here at our house, we are very prudent in our consumption of tomatoes simply because the price here locally is almost $3 a pound—more than ground beef!

There is only so much cutting-back to be had in any budget and eventually savings gets laid on the table—it is, after all, the least painful place to cut.

And here is the really bad news: We in the middle-class are actually getting poorer every day, day after day, thanks to government policies. Every time the Fed prints new money to add to the money supply, it devalues your dollars and so the actual value of your savings.

And by keeping interest rates artificially low to the benefit of banks and consumers, savers are losing ground to inflation. I just had a CD rollover to one-half of one percent! At that rate, why bother saving? Do the math and at that rate it will take almost 150 years for your money to double! Again, why bother?

Has the very concept of net worth been invalidated? How can you measure something that the government is impacting like it is? Your net worth is largely an illusion, in particular that portion of it you ascribe to real estate equity (if you have that component in it). As the rich gain ownership of a larger and larger portion of the common pie, the only way they can do so is at the expense of the rest of the financial classes.

Here is the truth: There are the super-rich who comprise one-percent of the population in the USA, and there is the rest of us. They are getting richer and you are getting poorer, regardless of what your bank balance or balance sheet is telling you.

What’s the Opposite of a Dowry?

2011-04-19T07:59:00.000-07:00

You know what a dowry is, right? It was a collection of valuables that the bride would take into the marriage to entice the husband into the contract. The concept of a dowry was never big in the USA but it is still common in some parts of the world.

Student loans are big in the USA and having the effect as a sort of anti-dowry here. Any prudent person considering marriage should consider the student loan debt that the other will be bringing into the marriage and, in particular, whether or not that debt is in default.

Big chunks of student loan debt are simply a bad way to start a marriage. The average student loan debt just recently exceeded the average amount of credit card debt in the USA. I can see student loan debt being a deal breaker. And I know love is blind but it is not necessarily stupid, is it?

So here then is another reason to think twice about taking on student loans instead of working your way through college: It could very well limit your choices in a spouse. And, in that sense, student loan debt has become a class issue.

The Poverty of Financial Independence

2011-04-17T12:19:00.000-07:00

When is enough enough? And what is financial independence? The answer to both of those questions is largely personal, I think. But I am not sure what the question is if the answer is financial independence.

You can be financially independent on very little passive income if your expenses are exceedingly low as well. But is just barely enough something to which we should aspire? Would you wish barely scraping by on a friend?

There is considerable discussion on the internet about the subject of financial independence but the authors of some of those sites are, in my opinion, being disingenuous to bolster their case as experts on the subject.

The gorilla in the room when the subject is financial independence is health care. And if you have not addressed the financial issues associated with the cost and the inflation in the cost of health care, then I do not see how you can call yourself an expert on the issue of financial independence if you ignore it.

Some of the FI blog writers have a spouse whose job provides the both of them health care but can you do that and call yourself financially independent when you are financially dependent on your spouse and your marriage? I think not.

It is entirely possible to achieve financial independence and address the issue of health care, as well. And there is more than one way to achieve that end. In most cases, what works in this regard is a combination of individual strategies.

Of course, one can simply do without and hope to stay healthy. One backup to that plan is to also hope that nothing catastrophic occurs that will wipe out your savings and force you onto the public dole while you cover minor health care costs from savings. Hope, however, is not much of a plan.

The “keep your spouse employed in a job that provides health care” plan also works but I have already explained my thoughts on that plan; if your status as FI is dependent on you staying married and your spouse keeping her job, you are not actually FI.

Paul Terhost, the author of one of the two seminal texts on financial independence, covers minor health care expenses out of pocket and keeps a policy in Argentina that covers any contingency that will be more expensive.

I did it the old fashioned way—I earned a pension that includes health care for life but does not include comprehensive dental care. For most non-routine dental care (exams and cleanings, which are covered), I have a dentist just across the border in Mexico.

The most typical way to achieve coverage at the lowest cost is to cover routine costs out-of-pocket while you maintain a policy that covers all costs above a certain monetary threshold; the exact amount of that threshold can vary but is usually in the five or ten thousand dollar range.

Of course, if you have a pre-existing medical condition, that option might not be available or so costly as to preclude your ever achieiving FI. In that case, you must fall-back to an employer policy in some form or another or do without; although, if you do that, any FI you claim is an illusion and not real.

But even when the costs of health care precludes true financial independence, the goal to achieve financial independence in terms of your other costs of living remains a prudent objective.

But, again, the health care issue aside, the real question is why someone would pursue financial independence in the first place.

In many cases, based on comments at the various FI blogs, job dissatisfaction seems to be the primary driving force behind the pursuit of FI. But as a fix to that issue, FI is overkill—totally unnecessary!

If you do not like your job, the correct answer is to get off your ass and find another one. Easier said than done I know but it will be much, much easier to simply find a new job, one you like, than it will be to achieve total financial independence!

If you’re just lazy and don’t like working, the odds are slim that you will achieve FI because doing so requires focus, self-discipline and a large measure of sacrifice all sustained for an extended period of time; none of those are traits common among the lazy.

If you would simply like to work less and have more free time to pursue other interests, the pursuit of FI is, again, over-kill. In that case, simply arrange your finances so that you can meet your costs of living with a part time job. That is the route I cover in depth in my book, Is It Wednesday Yet?

You might also like: Why I Never Saved for Retirement

Does America Need to Make Stuff?

2011-04-13T08:02:00.000-07:00

Nobody I know in the United States works in manufacturing. I know a few teachers and government workers, a few military, and a lot of service workers, but no one who actually builds stuff.

It was the work of building stuff that created the middle-class in this country and it was the middle-class that made America great.

But it does not follow that factory jobs are good jobs. I have friends and family in Mexico and several of them work in factories building computer screens or assembling trucks, small electronics...

But those are terrible jobs and they are paid only about $100 a week. The conditions are terrible and women are given pregnancy tests by the employer and released if they test positive. Why? Because the boss does not want to put up with the frailties that often accompany being pregnant, in particular the lost days at work.

What made factory jobs the engine that drove America were the unions that extracted worker rights from the factory bosses. Without unions we would still have most of the factories we lost simply because all the workers on the shop floor would be getting paid what Mexican factory workers get paid.

America is becoming a service economy and most of those jobs are unskilled. That means that anyone can do them with minimal training and, to the extent possible, those jobs will go to the young who will work for less and do not suffer the typical health issues that accompany aging. Older workers are getting tossed in the street by this economy and the kinds of jobs that a service economy produces.

One percent of the population owns more of the wealth of this nation than the bottom ninety percent combined. The odds are that you and your kids will not make it into that one percent. The odds are that your kids will work in the service industry. The odds are your kids will not make it into the middle-class and, if you have, good luck holding on.

Good factory jobs are not coming back and the unions are losing ground.

That electronic goody you just love, your i-this and i-that, that big flat screen hanging on your wall? Made in sweat shop somewhere and by our love of cheap plastic housing silicon chips we are contributing to the exploitation of workers and children around the world and so here at home as well.

What's this got to do with personal financial management? We are people, individuals, not individual corporations and good jobs should be viewed as part of the commons. And sometimes the bottom line cannot be the bottom line. Those low prices at Walmart come at a cost we simply cannot afford!

Your Credit Card Debt is a Sunk Cost

2011-04-06T08:05:00.000-07:00

Paying off Credit Card (CC) Debt payoff is an easy drug to push. And like all drugs, there is seemingly no end to the number of junkies.

Assuming the following: $10,000 credit card debt

4% Minimum Payment required

18% interest rate

Then the following applies when you pay the minimum:

Length of time to payoff: 142 Months (minimum payment = 4% of declining balance)

Total Interest Paid: $5,789

Average Annual Amount of Interest Paid: $489

Average Monthly Amount of Interest Paid: $41

Fixed Payment @ 4% of Initial Balance: $400

Length of time to payoff: 32 Months

Total Interest Paid: $2,628

Average Annual Amount of Interest Paid: $985

Average Monthly Amount of Interest Paid: $82

Fixed Payment @ 4% of Initial Balance + $50: $450

Length of time to payoff: 28 Months

Total Interest Paid: $2,255

Average Annual Amount of Interest Paid: $966

Average Monthly Amount of Interest Paid: $81

In other words, the most amount of interest you can avoid is $5, 789 and that is if you pay the balance off today! Not gonna’ happen? Then you will avoid less than that amount. If you simply keep paying a fixed amount equal to the minimum balance on month one of your repayment schedule, you will avoid (save?) just over $3,000.

Not chump change, I know, but what if you kept paying the minimum on your CC debt and instead paid an extra $50 a month to your mortgage instead? Simply by savings that extra $50 a month at 5% interest and making a lump sum payment to your mortgage at month 142, you will shorten the term of your mortgage by 42 months and will save just about $25,000.

So, what’s it gonna’ be: $25,000 or $3,000?

$100,000 30-Year, Fixed Rate Mortgage @ 6%:

Monthly Payment: $599.55

Balance at the end of 5 years: $93,054.36

Total of Payments: $35,973

Total of Interest: $29,027.36

Average Annual Amount of Interest Paid: $5,805

Average Monthly Amount of Interest Paid: $484

Now, let’s say you have an “extra” $50 a month to “invest” in a savings account paying 5% a year, or you can use it to purchase equity or pay down your CC debt. What will our finances look like after five years?

Balance of Mortgage: $68,877.10 ($3,488 Avoided Interest, $34,534 Saved)

(The saved amount is equal to the payments x 24 months which is the time of the mortgage reduced)

Balance of CC debt: $22,000 (450 x 32 @ 5% annual interest rate)

(This assumes you save the amount that was previously going to pay your credit card after 28 months for the next 32 months)

Balance if $50 saved for 60 months @5%: $3,400

Your credit card debt is a sunk cost. Any unsecured debt that has no present day value to you is also a sunk cost. A house payment or car payment are both different and not a sunk cost in your monthly budget in the same way: You need housing and transportation just like you need electricity and gas for your car. In other words, housing and transportation are actually expenses even when you have amortized the cost into the form of a monthly debt payment.

It is not financially prudent to make decisions going forward on decisions made in the past. The decision to accrue credit card debt in the past should not be the basis of future financial decisions; but that is exactly what you are doing when you focus on paying that debt when your money could be better spent elsewhere.

Mostly we do that because our debt has become an emotional issue but also because we are after the temporary high of instant gratification – the same impulse that led to the purchases that led to the debt! In my book, The Debt Whisperer, I go into depth on this issue and reveal a plan to pay off your debt smartly and put the sunk cost its place.

The intent of this post is to get you to think about the "common wisdom" being widely promoted by the gurus like Dave Ramsey and others -- it may be common but the wisdom part of it? Not so much!

And, in fact, if you have a problem with credit card debt, that debt is not your real problem and the highest return on your money is probably not measured in absolute dollars as I explain in The Debt Whisperer.

The Most Expensive and Dangerous Part of Everyday Life…

2011-04-03T08:27:00.000-07:00

most of us routinely engage in is driving. One day, years ago, I was on a freeway in San Diego, California during rush hour – perhaps the most dangerous driving situation that there is. The road was packed and traffic was just crawling along and as I looked at the cars in my immediate field of vision I noticed something that struck me as very strange at the time – almost every vehicle had only one person in it.

When I become aware of this, and the traffic started moving again, I looked into every car that passed me or that I passed and I would estimate that in 90% of them there was only one person in the car. I had never paid attention to this before and I found it very curious.

Most of these people, I assumed, were on their way to work. I was on my way to visit family and had come in from out of town and had simply forgotten the traffic issue. Now I know better and avoid entering or leaving the city during morning or afternoon rush hours.

At the time, I wondered what the effect on traffic would be if only every car had two people in it instead of one. I assumed that traffic would be much lighter. And, not only that, I also thought about how much gas would be saved and from there I mulled over all the other costs that go into driving that would be avoided at the same time; I estimated it would have to be millions of dollars a day!

But the cost of driving on the individual level and on the country and even on the planet is more than financial. Traffic fatalities are the leading cause of death in many of the younger age groups and among the highest in all age groups. Driving is dangerous and each of us forget that most of the time. Twice this week I have ran a red light simply because I was distracted; in either case the outcome could have been disastrous!

One way to address both the inherent costs and dangers of driving is to drive as little as possible.

The cost of driving a mile is almost $1 when all the individual costs are added up. Drive 10,000 miles a year and you can spend as much on driving as you do on a mortgage! And if you are a two car family, your cost of transportation can be the biggest part of your budget although many of the expenses are invisible in some sense.

For example, you probably do not consider that the tires on your vehicle are wearing out mile by mile because the wear is not noticeable. But one day the bill comes due and if you do not have the funds to replace them, maybe you don’t and try to get by just a little longer by driving on bald tires. You have just made a dangerous situation even more so by doing that!

And, not only that, anyone who defers maintenance like that makes the road more dangerous for all of us! And then there are those who have no regard for the commons or the safety of others: You see these people all the time – they are the ones who multi-task when they should be focused only at the task at hand – driving! I was stopped at a light the other day and in the car next to me the driver was eating a hamburger and talking on the phone.

I would have to guess that distracted drivers kill more people every year than guns. Perhaps the number one determinant of financial success is your ability to earn income. Nothing you do on a daily basis does more to put that ability at risk than driving.

Real Wealth in a Nutshell

2011-03-28T09:03:00.000-07:00

It is possible to be financially independent on almost any level of passive income because being financially independent is dependent on both your income and expenses. If all you spend every month is $1,000, it will not take a fortune in savings to achieve financial independenence. If you could keep your nest egg earning 5% a year in interest, you would need approximately $250,000 to do so; that is, if your cost of living never went up but that is unlikely. That is why it is important to invest your savings in some way that they increase in value with inflation.

The internet is filled with blogs and articles proposing to tell you how to achieve financial independence but most strategies fall short for a few reasons at least. One wild card in any such formula is the cost of health care and another is the fact that most plans default to the stock market. Plans for achieving financial independence based on some long-term average stock market return are really, really bad. But what alternative is there?

College Loans Are Not Good Debt!

2011-03-26T09:03:00.000-07:00

I wrote this as if speaking directly to the student but it is really for parents:

Education is marketed just like any other commodity in America and we are largely being sold a bill of goods. In particular, any school you see peddling its wares on TV is probably a waste of money. But even most four-year institutions are a bad idea for the middle class because they are simply too expensive for what you are getting.

You need to spend wisely in all facets of life but in particular when the item you are shopping for is expensive because that is where the greatest opportunity to save is to be found.

Many prospective students shop the name-brand aisle and end up paying top-dollar when it is not necessary and even wasteful.

And I know what goes on in college and on college campuses. I attended several and have five degrees including a graduate degree in business. Many students are actually somewhat at risk in their first two years of college right out of high-school, particularly if they are attending away from home and do not have the touchstone of the family home and parents to help them stay pointed in the right direction.

Things can go wrong in an instant. Take the case of Natalie Holloway, for example.

Frugality can absolutely be applied to obtaining a college degree and the goal should be to spend as little as possible while getting as much value as possible for your money. The best way to do that is to attend a junior college during your freshman and sophomore years. That way you get the college experience and a feel for assuming more responsibility for yourself.

And you should also work at the same time you are going to college in order to pay your bills and save for the cost of your junior and senior years. Your goal will be to graduate with as little debt as possible and zero is the baseline and ideal.

If you are fortunate enough to be able to live at home while getting your degree you should do so. If your parents are able to help you avoid debt by contributing to your education, count your blessings.

And, of course, you should take advantage of any free money out there in the way of grants and scholarships. To help you do so, talk to the financial counselors at your school as early in the process as possible; ideally, while you are still in high school.

Some degrees will not payoff in the real world but that’s OK because education is valuable for its own sake. But those degrees should be pursued on a part-time basis to allow you the time to work full-time and acquire the experience that will be of real value on your resume.

Some degrees, on the other hand, will make you immediately more employable after you graduate and even while you are still in school. And if you consider education as an investment just like any other, then you should seek to maximize the return on that investment and that means picking your major with that idea in mind.

Investing with the intent to achieve the maximum ROI possible is a concept that will serve you well all your life, not just in college. College loans are not good debt, it is only debt that can be not as bad as other debt. If you keep that in mind, it might help you be more prudent when it comes to financing your degree.

Forget Paying Off Your Credit Card Debt…

2011-03-25T09:31:00.000-07:00

if you have a mortgage on your primary residence. Why do I say that? Because if you are paying more than the minimum payment due in order to reduce the amount of total interest you will pay, you will usually get bigger bang for the buck paying down the principal on your mortgage.

Paying off credit card debt is an easy drug to push. And, like all drugs, there is seemingly no end to the number of junkies. So, let’s examine the facts:

Let’s assume you have an “extra” $500. Should you use it to pay down the principle balance on your mortgage or apply it to your credit card debt?

Well, if you have $5,000 in credit card debt at 18% interest, the minimum payment would be $200 a month (4%), you would pay it off in about three years and pay approximately $1,500 in interest over that time. Use the $500 to pay towards this debt on the first month you begin paying on that debt and you will avoid less than $320 of interest expense by doing so!

On the other hand, use the $500 to pre-pay interest on the first month of your mortgage and you will save yourself almost $2,000 in interest and shorten the term of your mortgage by over four months saving you a total of just about $2,200. That is a return almost seven times greater than what you would save by paying the $500 on your credit card debt instead.

Need I say more?

Of course, if you do not have a mortgage, then attacking your credit card by paying more than the minimum due can be the smart thing to do—but don’t assume that! Do the math, consider your alternatives, do the right thing! And, most importantly, do what is in your own best financial interest.

If you have little or no savings, spending more than the minimum required towards your credit card debt is definitely not in your best interest!

The Business of Strategic Default and the Pain

2011-03-24T19:23:00.000-07:00

No mortgage is affordable without income. And prolonged unemployment can consume 100% of your assets even if you have conducted your personal finances in a responsible and prudent way. This is the case, in particular, for anyone whose earned income represents 100% of their income.

Saving a part of your earned income as a hedge against unemployment is certainly a prudent and responsible thing to do. And that same financial strategy applies in the business world, as well: A business saves money, to a large extent, as self-insurance against a period of lower revenues.

But at some point in an extended period of revenues below what is necessary to sustain itself, a business must close the doors. Businesses fail every day and in the present economic climate, they are failing at a rate that is higher than usual. But we attach little morality to these business failures—“it’s just business,” after all.

To a large extent, one should conduct one’s personal finances like a business. A well-run business uses a host of financial records and data to manage the enterprise efficiently and in an informed way. Ideally, we would all use metrics to manage our personal finances like any and every well-run business.

In a perfect world, we would all use a monthly budget and spending plan, income and expense statement, and track our net worth. And there would be no moral component to our financial decision-making; that is, our decisions would all be rational and based on the economics of the issue at hand.

The thing is, in our personal finances, the bottom-line is not always the bottom-line and we make financial decisions that are not based solely on the economics involved.

For example, we buy more house than we can truly afford simply because the wife just loved the kitchen counters or the husband the three-car garage. In other words, our emotions are a component of our decision-making.

And a part of our emotions is a sense of morality. And a part of our emotions is a sense of what will other think of our actions we are considering. And it is not a rare occurrence that others use these emotions against us and ply the psychology of marketing with such ability that we act contrary to our own best interest.

The latest example of this is taking place right now in the arena of the “strategic default.”

When a mortgage-holder determines that the economics of the situation make it apparent that it is not in their own best economic self-interest to continue making the mortgage payment, whether or not they have the financial ability to do so, they can decide to make what is known as a strategic default.

They will decide to simply walk away from the house and their financial obligation but, the truth is, there is seldom anything "simple" about it.

There is a fierce debate taking place across the country right now as to whether or not there is a moral component in the decision to make a strategic default: I think there is not. In my opinion, it is simply a business decision made more difficult that it should be and complicated unnecessarily by a fog of emotions and the question of morality.

And, of course, our home is much more than a house; we have, usually, an emotional attachment to it further complicating the issue. In many cases, it is this emotional attachment that will keep someone in a house long after the prudent and responsible financial move would have been to walk away. Our emotions, in other words, got the better of us.

But eventually we make the right decision ourselves or it is forced upon us.

Corporations are able to diffuse the emotional and moral component of financial decision-making by insulating the decision-makers with layers of bureaucracy. And, then, there is always the fall-back position: It’s just business.

But in a family there is no such organizational haze to spread out the blame until it no longer exists. Usually, it is a husband and wife, sitting at the kitchen table feeling like failures. And usually there is crying involved.

It is impossible to guess at an average of how many strategic defaults are as the result of dispassionate decision-making, but I would guess it is a small percentage of the total. In most cases, the last thing anyone wants to do is lose their home. And I would imagine that among those who do walk away there is not only regret but major financial loss, as well.

Shame on them? No shame on anyone who injects morality and blame and forgets that there but for grace of God go you and I.

In many cases, a strategic default is anything but strategic; it is a retreat, pure and simple. Your credit, your future, and your life ruined in the short-term and for years to come; many who default will never recover financially or emotionally and never own a home again.

Isn’t a ruined life retribution enough?

Did some of them make a mistake and over-reach in their attempt to achieve the American Dream? Probably: But so what? We all have made mistakes in our lives. Cast the first stone? I do not think there is one among us who will meet the Christian prerequisite to do so.

There is enough blame in our present housing mess to go around and it is wrong to add one drop to that pool. When did America become a nation of haters? Where is the compassion of one nation under God? When did it become every man for himself (and woman and child)?

It is entirely possible that America will not get out of this current financial crisis alive and if we do we will not be the same, regardless. After all, the Great Depression changed the country forever.

And, while those of us in low places try to figure out what went wrong and place the blame, those in high places are doing nothing to fix “it” because they see nothing wrong with a system in which they just keep getting richer.

The very rich, the two percent that own 96% of the world’s wealth, are laughing all the way to the bank at the hoi polloi as they wag fingers, tongues, and whistle past the graveyard.

The difference between morals and morality is too subtle for most of us. And when we seek to lay blame usually we point our finger downward or outward from our moral high-ground.

We need to lay the blame on “others” so that we can sleep at night firm in our belief that it could not happen to us because…because?…because “we” are "different"…we’re smarter, better educated, more blessed, better people, more moral…yea, right!

We are being played. We are being set one against the other and we are being fooled by tricky no more sophisticated than sleight-of-hand.

Shame on them? No. Shame on us! Compassion is about the last commodity the top two percent have left to the rest of us. And compassion is not a zero-sum game; there is an endless reservoir of it if we only choose to tap into it. All of us, except the poor in spirit, can afford to be generous in our compassion.

It's Not Rocket Science and You Don't Need to be Einstein!

2011-03-22T08:40:00.000-07:00

You would think that personal financial management is not rocket science, right?

I mean, you get your check, you pay the bills, you go out to dinner and a movie. But we all know, either from our own experiences or from watching our family and friends implode financially, that managing your money must be harder than it appears to be.

I have known couples who have divorced over money issues, seen a young couple lose their home to foreclosure right in my own neighborhood, and watched a middle-age couple taking on debt at a horrific rate simply to maintain a lifestyle they really cannot afford.

Not one of those involved is stupid. So, what happened? How did they let their financial lives go to pot?

We are all individuals but with a lot in common. Our motivations are nothing special or unique. And we almost all share one trait in common: A propensity to do what is easiest and feels good in the moment.

Mostly the problem is that we spend too much because we do not have the self-control to spend with more discipline and in alignment with our actual financial resources.

If nothing else, you would think that we would all control our spending simply to avoid the mess that our life will become if we don’t but, apparently, that is just not enough motivation for many of us.

The methods of prudent money management are not guarded secrets to which the hoi polloi are not privvy!

There are no secrets because the fundamentals are simple: Spend less than you earn and save the difference.

How hard is that? So something else must be going on, right?

When someone asks me how to spend less I tell them to begin by simply cutting all the discretionary line items in their monthly budget by 10%. Almost every time, I am met with a dumb stare and I know that the next words out of their mouth will be something along the lines of, "I don't actually have a monthly budget..."

Albert Einstein is quoted as saying that the level of thinking that got you into a mess will almost always be insufficient to extract you from it. (I'm paraphrasing here.) If you do not have a monthly budget, you cannot be helped unless you first accept that maybe your thinking that you don't need a budget is part of the problem.

I am not a big advocate of nickel and diming your way to financial peace of mind simply because it is not my own preferred financial-style.

Instead, I advocate paying with cash for all spending where that is practical such as buying gasoline, groceries, and convenience store purchases.

Why? Simply in an attempt to protect yourself from the lure of easy credit.

Credit cards, debit cards, and even checks were all invented by the financial industry to make it easier for you to spend money. Based on the results most of us have achieved managing our credit, none of those conveniences have proven to be such a good idea.

And, for most clients on the road to financial recovery, I have them implement a modified envelope-system to manage their spending as a graphic way to illustrate to them the reality of their finances.

Many Americans in the middle-class are using debt to finance a lifestyle beyond their means because it is largely pain-free at the moment you whip out the plastic. But even pain is not enough to overcome our desire for gratification, instant and in all forms, that seems to be the predominent instinct in our lives. I mean, women keep having babies even after they know hpw much pain is involved!

And we are, as a social class, on a binge in almost every regard.

Too many of us are fat and in debt; a lack of self-discipline reflects throughout all aspects of our life – obesity is just the most obvious outward sign of a weakness in that regard.

And even smart people get fat! So smarts alone and knowledge alone is obviously not enough.

Eventually, to regain control of your money and your life, if you have in fact lost that control, you will need to reign in the more base impulses that keep you at the buffet table trough long after you are full. It's not rocket science and you don't need to be Einstein!

What is Your Financial Destiny?

2011-03-17T08:03:00.000-07:00

Want to learn how to tell the future?

It’s easy, really:

Just look at what you are doing today because it is your actions in the here and now that are creating your future.

Here—let me show you just how easy it is to tell your financial future:

If you are presently living paycheck to paycheck, then that means you are not saving.

If you are not saving then you have no financial safety net. Without a financial safety net, every time you come up short of cash, you will make up the difference with a credit card. And we all know what future lies ahead at that point, right?

Here, let me spell it out for you:

I see a growing credit balance in your future! I see fights with the spouse over money!

I see you becoming a circus act as you try to juggle your various financial obligations and the demands on your income!

I see you headed towards the precipice of financial ruin—bankruptcy!

See? How hard was that? But let me let you in on a little secret: I really don’t have psychic powers!

The fact is that anyone who is living paycheck to paycheck will have the same financial destiny in front of them—UNLESS they take steps to change it before they go over the financial edge.

And the first thing you need is a plan as I explain in my book, Save More From Now On!

You do not need a snowball, or a snowflake, or a snowstorm—you need to save more from now on!

Either that or the tomorrow you are creating by your actions today is bound to arrive all too soon.

The Foundation of Middle-Class Wealth

2011-03-13T14:48:00.000-07:00

The foundation of middle-class wealth is your primary residence—your house, in other words. Hard to reconcile that statement with the headlines of the past few years and declining values in the housing market, I know, but it is as true today as it has ever been.

But the key to building wealth is to buy smart—a well-thought out and well-executed home-buying strategy is what will make you or break you.

For example, on our path towards financial independence, my wife and I took some very deliberate and well-planned actions to lower the cost of housing in our budget. We bought an investment property (single-family residence rental) with the intent to live in it when I left the rat race.

The house was relatively inexpensive ($90,000) and we updated it to our liking; able to write-off a lot of the cost of doing so as tax-deductions (rental property). Once we achieved FI, we sold our big house and moved into what had been our rental property that we had had rented for $750.

Between the sale of our previous home and the one before it, we had netted almost $120,000. Those steps were also part of the long-term plan to achieve FI.

Our total housing expense these days (PITI) is just about $500 a month, approximately 8% of our monthly income. The banking industry will tell you that your monthly cost of housing as a percentage of your monthly income should not exceed 28%.

Our monthly income is not insubstantial and puts us squarely in the middle-class; our debt however is ZERO! No car payments, no credit card debt—ZERO, ZILCH, NADA! And, if we wanted to, we could pay the mortgage off from savings at any time. We keep it so as to retain a higher liquidity position.

And we do not consider our mortgage to represent debt but rather our housing expense and a below-market one at that. I mean you have to live somewhere, right?

Our house is actually paying us to live in it! If we rented instead, we would be paying $750 a month; instead we pay $500, as I mentioned previously. And every month, a part of our payment is converted from cash to equity on our net worth statement; so the real cost is actually less than $450 a month and going down!

Our home is the foundation of our success in achieving FI. But it took substantial planning and skillful execution to get here. FI will not happen without a plan, wealth same thing. But you won’t get there if your monthly cost of housing is excessive in relation to your income.

Being FI is based on your cost of living every much as it is based on your income. The three largest components of the average budget are housing, taxes, and transportation. My wife and I attacked those costs and they now account for less than 25% of our monthly income. The national average, on the other hand, is almost 50%! The difference is what makes our life so affordable and how we were able to ditch the rat race!

How to Sacrifice a Perfectly Good Dollar Bill

2011-03-08T06:23:00.000-08:00

Sometimes, nothing makes a point quite like a good visual aid!

Do you get debt? I mean, do you understand the role that debt plays in your finances?

Sometimes we get so caught up in the minutia of living that we lose the perspective that would help us to easily grasp what is happening in our life and in our personal finances. This phenomenon has been aptly described as not seeing the forest for the trees and we do that a lot!

The perspective that works best for me, when I think about how I spend my money, is one dollar at a time.

And by that what I mean is that I take that dollar and consider it as representing my entire income for that month and then I consider how I am spending that dollar.

And, for the most part, we all spend that dollar the same way; we all slice that dollar up into three pieces: debt, expenses, and savings.

And you can even think of those three slices from another perspective—yesterday, today, and tomorrow.

Debt is money going to pay off spending you did in the past—money spent on yesterday. Expenses are your recurring costs of living and that is money you are spending on today. And the money you save is in anticipation of financing spending you plan to do in the future—tomorrow, in other words.

If you were to calculate what percentage of your monthly income was going to each of those categories—yesterday, today, and tomorrow—and then take a dollar bill and cut it up, proportionally, into those three pieces, it would be readily apparent exactly where your money is going. And, in fact, cutting up a dollar bill like that is an exercise I do with my coaching clients.

And what I tell them is that debt is money that is already committed; that is, money over which you have VOLUNTARILY given up control. That piece of the dollar bill that represents the percentage of their income that goes to make the payments on their debt, I take off the table. “That money is not yours,” I tell them!

And the secret to managing all your money is as simple as that—reclaiming control of your money by eliminating debt. Stop spending money on the past!

But here’s the thing: Not all debt is money spent on the past. More on that in a later post or you can read more HERE.

The Joys of Financial Independence

2011-03-07T07:23:00.000-08:00

Usually I run and walk on the treadmill in our gym but Saturday, the weather was so nice, I took it outside just to catch some rays and breathe deeply.

It was 76 degrees in my small town corner of the world; a bright but gentle and warm sun, a slight breeze blowing across the lettuce field and through my hair, a half-mile track.

On my way home I stopped at the library and hit pay dirt—the latest John Grisham book!

The anticipation of a new JG read is sweet! So, I read a little before bed that night and Sunday, as well, but saved the rest for today. Once the house gets quiet it’s gonna be just me and the mind of Grisham!

This blog, the website, my latest book (Save More From Now On!), and my latest home-renovation project (tearing out the door frame on the gym and replacing it with a new frame and door) all get put on hold for the next few hours. Ah, the joys of financial independence!

My time is mine, money is no object—work less, live more.

Call it: The simple alchemy of passive income to transform the lead weight of working for a living into the solid gold of a life lived on your terms and to the beat of your own drum.

No job, no schedule that can’t be broken, no problem!

Time to Cash in Your Chips?

2011-03-05T16:57:00.000-08:00

Why do casinos insist that you play with chips and not cash? Because they know, and have known for a long time, that we will spend more when we bet with money that’s not actually money—up to 35% more!

Guess who else figured this out? McDonald’s for one—when they started accepting credit cards the average purchase went from $4.50 to $7.00—a whopper of an increase of 45%!

Credit cards or casino chips—there’s no difference, people!

I accept the fact that there are those among us who can prudently use a credit card to the extent that they pay the balance in full every month and get cash back or airlines miles or some other reward—but that is not the point of this post!

Even those who do pay their card off every month and collect rewards will still tend to spend more than they would if they spent in cash!

And heading out of the house with a pocket full of cards—or even one—is all the license you need to give in to impulse or other forms of unplanned buying.

Does it take more thought and planning to pay with cash? Absolutely! And that is a good thing—that is a thing called thoughtful spending!

Credit cards, debit cards, and checks are all inventions of the financial industry created with just a single purpose in mind—to promote spending by making it easier and more convenient. That you do so is in the best interests of that same financial industry and not your own.

It is time to cash in your chips people and GET REAL! Cash is, indeed, king.

My Long-Term Goal is to Get Rich Quick!

2011-03-02T07:50:00.000-08:00

I’m not kidding. I have this plan see and, if it works, there will be (I hope) a considerable payoff as the ultimate reward for all my hard work.

But the subject of this post is not that plan; this post is really about the breathing deep the sweet and rarified air of financial independence and how FI changes one of the most fundamental aspects of the life most of us in Western society and the USA, in particular, live.

Anyway, where was I...

Click HERE to see what's possible and what I am working towards. Like me, the writer featured at that link worked for years getting her product ready for market.

The thing is, the plan is seamlessly integrated into what I do every day—organic like and not something I am sweating bullets about.

My financial well-being is not dependent on my plan actually producing the results that are the long-term goals of the plan, itself.

In other words, I don’t need the money, although I do approach it as a money-making enterprise.

And, in fact, building this business is my dream job! I would do it for free! (And, in fact, at this point I am, almost, doing just that!) And even if it never does achieve the big score, I am doing what I love every day and that is the ultimate BIG SCORE in my book (books).

The first step was to get the products in place; I have completed that step and now have ~~six~~ seven books including the flagship—Money Well Spent.

Money Well Spent covers the fundamentals of personal financial management but the advice in that book is not entirely main-stream.

Most of my other titles are on more specific subjects such as how to get out of debt in a way that is in your own best interest as opposed to the best interests of the banks you owe. And the subtitle for my book, Is It Wednesday Yet?, says it all—how to live rent-free, save tax-free, and escape the rat race by this time next year or sooner!

I put up a website and this blog as marketing tools. The next step is the hire a developer to make both more visually appealing.

So far, I have been working on this project, part-time, for five years. I achieved financial independence over three years ago and have not had a “real” job since I walked away from the corporate world about that same time.

Now it’s time to build the brand, it has been a real learning experience with more to come, I’m sure.

The real pay-off of achieving financial independence is that it is incredibly liberating! It is amazing what you are free to do when money is no object. I budget my empire-building just like I budget for gas and groceries so I can well afford to implement my marketing strategy without breaking the bank.

I’ll let you know how it’s going in later posts.

The Invention that Ruined Your Life

2011-02-28T08:01:00.000-08:00

There are, basically, two kinds of debt—secured and unsecured. But there is also a weird sort of third category that not always recognized for what it actually is and that is the hybrid debt that is partly secured and partly not secured.

Hybrid debt has been around for a long time and every time someone buys a new car without a substantial down payment of thirty percent or so, they are taking on hybrid debt!

As you know, a new car will lose some of its value as soon as it is purchased because it becomes used in the instant that it becomes someone’s property other than the dealer’s.

If, for example, you were to finance 80% of a new car purchase and the car was to depreciate 30% at the time of that purchase, 10% of what you owe is unsecured. Owing more on a loan than the value of the collateral securing that loan is worth is what is known as being underwater or upside-down in that loan.

Mortgages, considered forever as a secured loan, have become problematic in this regard and many mortgages have morphed into hybrid debt in the past few years.

But I digress! It used to be that unsecured loans were very hard to come by and only the wealthy enjoyed the convenience of credit cards. The American Express card, back in the sixties, was the very symbol of financial achievement!

Why? Because credit cards are unsecured debt! When the credit card industry was young people defaulted at an alarming rate. Before the financial services industry could become the juggernaut it has become it had to find a way to address that rather sticky wicket.

Can you guess the invention that propelled the industry to the point where it had the power to bring the entire nation to her knees?

The credit score! With the invention of the credit score, something tangible and of real value to the individual consumer was created out of whole cloth! You could not walk away from your credit card debt, or any debt for that matter, without serious consequences.

These days many employers will consider the credit score of prospective employees! Your credit score could literally cost you a job.

I am ambivalent about credit scores. I have a good one but the only time I unfreeze my credit report is when I apply for a mortgage. I have not applied for a new credit card or any other kind of debt in at least a decade. But I know it’s there and I do keep my eye on it.

And I know it is an invention that is wrecking a lot of lives, as we speak!

How to Turn an Expense Into a Dumb Debt

2011-02-27T16:17:00.000-08:00

Read the reference post HERE.

There are two kinds of expenditures—expenses and debt. Do you know the difference? A debt can be paid off but an expense is a recurring cost of living that cannot be paid off—utility bills and property taxes on your house are two examples of expenses.

But it is sometimes prudent to turn a debt into an expense and vice versa. For example, instead of financing an auto purchase (debt), you can choose to rent a car whenever you need one (an irregular—i.e., non-monthly—expense).

Expenses will usually be affected by inflation. For example, over time, your rent is likely to go up.

On the other hand, if you finance the purchase of a house with a fixed-rate mortgage, inflation will work in your favor—over time you will be paying your mortgage payment with less valuable dollars.

If, to make my point, we assume that we all need to live somewhere and we do not have the option of free housing, then we must choose between renting our housing (expense) or financing the purchase of our housing with a mortgage (debt).

And if you go from renting to buying, you have turned an expense (renting) into a debt (mortgage). In other words, when your mortgage is paid off, a part of your cost of housing is eliminated. As long as you are renting, however, that will never be the case.

Turning an expense like housing into a debt like that can be smart. But turning an expense into a debt can also be really, really dumb and a lot more of us do that than you might think.

For example, most of the charges made to a credit card are for expenses such as groceries, gasoline, and dining out. However, unless you pay off that card every month, what you have done is to turn expenses into debt. Some of our expenses can be thought of as non-discretionary; housing (if you rent) is one example and others are certain utilities.

But many or our expenses are totally discretionary and even some portion of those expenses we consider non-discretionary are actually totally discretionary. We all need to eat, for example, so some spending on groceries is non-discretionary. But sodas, chips, and candy?

But the real problem with turning expenses into debt is that debts represent committed spending and committed spending is money that is no longer in your control. Bad, dumb debt! It’s like you are working for someone else.

Bankers will tell you that your debt-to-income ratio should be less than 36%—that is, 36% of your monthly income OR LESS should be committed to payments on your debts. But the ideal figure in that regard is zero! Never forget that. The less committed spending you are obligated to every month, the more control you will have over your money.

Mortgage-Free Retirement Planning

2011-02-24T09:01:00.000-08:00

From the website HERE comes this interesting piece of information:

Q. What represents the most effective way lower-income families have built assets over the past several decades?

A. Through buying a home and paying off the mortgage in full. Over four-fifths of the assets of lower-income homeowners represent home equity.

Four-fifths! Wow!

But many housing nay-sayers and dooms-dayers will readily chime in with all sorts of reasons why equity is a bad idea…and most will be thinly veiled stock market touts.

The facts are not on their side—they are just not! A mortgage-free home is like a lifetime annuity and the return is readily quantifiable: It is simply the market value for which the house would rent less expenses. But it is guaranteed—no stock market risk necessary!

In my article HERE, I make the case that for many of us and particularly those who earn less than the national average in income perhaps the one and only savings plan you need is a plan to retire your mortgage as soon as possible—and the sooner you retire your mortgage in advance of your planned retirement date the better!

I understand the allure of the stock market—it is the possibility of easy money. But whoever said saving for retirement would be easy? And, the fact is, human nature is what it is and because most of us in the middle-class or lower are only human, I can’t be sure about the rich, the actual realized return in the stock market is only 1.3% according to MSN Money.

Want more proof? You can find it HERE.

Think the stock market is a sure-fire answer to your retirement dreams? Think, again! There have been THREE 20-year periods when the average stock market return was just 0.7%—seven-tenths of one percent in other words!

The 401k is a failed experiment in stocks for the masses. So, after all, there is no such thing as a free lunch. But you knew that all along, didn't you? And, in fact, even the early bird special ain’t all that!

Is the I-Pod Even Necessary?

2011-02-21T08:46:00.000-08:00

Five Lost Decades:

In the sixties the phone sat on the end table with a cord connecting to the wall and the wires beyond—and there it sat and once in a while, rarely, really, it would ring.

In the sixties there were no computers, no internet, no cell phones, houses were smaller, and families were larger although obesity was not nearly the problem it is today. And there were only four or five TV channels! Can you imagine?

I read a lot of financial blogs and those with a personal slant are almost all about cutting back; cell phone—gone; satellite TV—yer’ outta here; cars? Smaller, at least, and some are even trying to do without.

Bloggers of that stripe raise a question in my mind: Would we as a society be better off without the so-called tech “advances” of the last fifty years. Was a world with less contact and less information not only more simple but just plain better?

Is the defined-contribution pension plan really better than the defined-benefit plan?

I have read some making the case that the tech advances, among others, have extended the average lifespan and, so, by their logic that is one extremely positive “advance” of the last half-century. Oh, really? Is the human species actually superior to Mother Nature? Is there a reason that humans, in the web of life, were only supposed to live somewhere between 35 and 50 years? Did nature have a plan that we have screwed up by playing God?

I don’t have an answer to that question or the others either but I do wonder about it. I have heard it said that we—meaning the human species—is putting the planet at risk. That is just another example of us collectively fooling ourselves about our place in the grand scheme of things.

We can’t kill the planet; we can’t even influence the future of our planet in any way that will be measurable a billion years from now. All our claims of our “advances” are us whistling past the graveyard. We are tiny, miniscule life forms surrounded by even tinier more miniscule life forms clinging precariously to a rock hurtling through space.

And even in our galaxy alone, our rock is only one of billions—nothing special.

So clip your coupons, bike to work, compost and grow tomatoes in your backyard—but understand that you are doing it for you not the planet. The planet could care less. If you really want to do something for the animals stop eating them.

I am no troglodyte but it seems to me that we could live just as well if not better without a single tech advance of the last half-century. Many of us are already scaling back to the future, the sixties. And although many of us in this same community would be loath to give up our internet connection and the computer it is connected to, we could. And if it did go away, 100 years from now, it would not be missed.

The recent events in Egypt have people all agog again at the power of the internet. “It fostered a revolution,” they all say. Oh, really? In fact, if I recall my high school history correctly, we have had revolution forever. Did it add some efficiency to the basic model? I guess.

But that same efficiency is being used by those who would and might well bring this latest release of civilization down—be they “terrorists” or “governments.” Frankly, I am of the opinion that the future is not what it used to be…that as resources decline and the competition for what remains get fierce—and I do mean fierce—we will all be forced back to a time less-connected. And, me, personally, I don't think it will mean the end of the world—I mean, is an I-Pod even necessary?

Species come and go and so will we. We can pump all the carbon we want into the sky, make holes in the ozone or destroy it completely, kill every other animal on earth until we are alone, and the earth could care less. The universe will not notice and we will not be missed when we are gone. The planet was here for a billion years before us and will be here billions and billions of years after there is no trace that we ever darkened her portal.

The Great 401k Hoax

2011-02-20T12:20:00.000-08:00

A Fool and His Money:

The employment company CareerBuilder, in partnership with Harris Interactive, conducts an annual survey to determine the percentage of Americans currently living paycheck to paycheck.

In 2007, forty-three percent of those surveyed fell into this category. In 2008, that number increased to forty-nine percent. And, in 2009, the number fairly skyrocketed up to sixty-one percent. Are you seeing a pattern here?

In their most recent survey, conducted in 2010, the number of people who reported living paycheck to paycheck jumped to an unprecedented seventy-seven percent—77%!

Those results do not speak highly of the ability of the over-whelming majority of Americans to manage their money.

Living paycheck to paycheck is only a symptom of the underlying issue—over-spending—but, unfortunately, it is not the most pernicious. The two most dangerous symptoms of over-spending are insufficient savings and growing debt.

But the real problem with the fact that 77% of us are over-spending is what it says about the state of personal financial management in our country today! And what it does say is that either we are a bunch of financial illiterates or we lack the self-discipline to do the right thing. I think most of us are living paycheck to paycheck due to a mix of both.

But still that is not the real problem. The real problem is the demise of defined-benefit pension plans. You see the majority of that same 77% are depending on some sort of 401k to provide for their retirement. But wherever you go there you are! And how do you think that 77% is doing at managing the investments in those plans?

Do you really think that, in one part of their life they spend more than they earn, fail to save, are in debt up to their ears, and walk around broke but, when it comes to investing the funds in their 401k plans, they suddenly put on their Einstein caps? I don’t think so either!

Who is going to take care of these people when they are too old or infirm to work?

The general public has been hoodwinked! Who do you think is really getting rich off of the 401k hoax? According to MSN Money, the actual return for the average stock market investor is a paltry 1.3%! OK: You do the math—

If the long-term average return of the market is about 6.5%, where did the missing 5% go? Hint: A big chunk of it is lost to transaction costs based on the irrational behavior of the average investor. And to whom do the benefits of transaction costs accrue? The brokerage houses, of course.

And, although I can’t prove it, it is my gut belief that the Federal government was complicit in lining the pockets of the rich that way and the effort to do so is on-going.

After all, where does the name for the 401k come from? It comes from the government law that created them!

And how is this hoax still being perpetuated? In several ways, actually, the principal among them being the great Social Security scare. You hear marionette politicians repeat the words of their stock market puppet-masters all the time -- Social Security is going broke; it won’t be there when you need it; you need to save more because you can’t count on Social Security…

Sound familiar?

And what do those sowing these seeds for the financial-industrial complex reap? That 77% believe what they hear and they also know they are not savings enough for retirement, and, so, they conclude that the only way to save themselves is to put their 401k savings into the hands of the stock market!

Stupid is as stupid does!

Two problems: There have already been three times in U.S. history when stocks have provided an average 20-year return of just 0.7 percent and that figure INCLUDES dividends!

And, as badly as that figure reflects on the stock market as a device by which you can fund retirement, the real problem lies in the abilities of that 77% -- they no more know how to invest in the stock market than they do how to create a monthly budget; and a monthly budget is much easier than investing your retirement money will ever be!

And they are being led like sheep to financial slaughterhouse!

Dave Ramsey (et al) is Wrong!

2011-02-14T08:08:00.000-08:00

Diets and Debt Reduction:

Successful debt reduction strategies have a lot in common with successful weight reduction strategies and the first among those is that what is required for long-term success towards both goals is a lifestyle change.

Diets are short-term solutions that seldom achieve the desired result over the long-term because they do not address the problem that is at the root of the issue. And it is not that diets don't have their place -- when your goal is simply to shed a few pounds, they do -- but no one can stay on a diet forever!

Instead, what works best is to change your lifestyle—work on the inner you not the outer you, in other words!

Debt, like being over-weight, is only a symptom of the real problem and working on only the debt (the symptom) is not a genuine solution. The real problem is over-spending which I define as spending more than you earn, of course, but you are also over-spending if you are not saving sufficiently to meet your retirement goal.

Motivation, over the long-term, comes and goes and doing the right thing, whether it's watching what you eat or controlling how you spend, requires a large amount of self-discipline—which is, of course, why people fall off the wagon.

And one reason why it is hard to stay motivated in a debt reduction program is because most people understand at some level that it's not the "real" problem and that reducing debt -- alone -- won't fix the real issue.

When people first start a diet, many of them make a common mistake -- they cut back too much, often more than is healthy, and almost always more than is sustainable. Moderation is the secret to long-term success in dieting -- gradually changing one's lifestyle as opposed to trying to make all the necessary changes one day to the next!

But when many of us get on a debt diet, we often make those same mistakes and one more, as well -- we spend more on reducing our debts than we can actually afford!

Too many, so-called, financial gurus push the debt-reduction at all costs plan which is easy to do, makes sense on the surface, but is actually counter-productive when it comes to fixing the real issue—over-spending!

And, even though over-spending is the actual issue, the symptom that you should be most concerned with is not your debt—it is your lack of savings!

If you over-spend then there will not be, obviously, any money left to save; makes sense, right? And it is a lack of savings, living without a financial safety net, which is the reason why many of us careen from one financial “emergency” to the next!

The lifestyle changes actually required to lose weight and keep it off are no secret—eat right and exercise. And, likewise, the techniques of sound money management are just as obvious—don’t spend more than you earn and pay yourself first—that is, make saving your first financial priority.

If you follow any of those plans that are intended to pay off your debt as soon as possible, all you have accomplished, usually, is to switch the focus of your tendency to over-spend from whatever it used to be to debt repayment—not smart, does not address the real issue (why do you over-eat/why do you over-spend), and not conducive to your own financial viability.

What is the smart way to reduce debt? Well, first you need to know how you are presently spending. To accomplish that end you need to have some basic and fundamental financial documentation in place. It will be those documents that will tell you exactly where your money is going and give you the information you need to change how and where you spend for the better.

Then you need to establish a plan to SAVE! A plan to save is much more important to your long-term financial viability than some unaffordable debt-reduction-at-any-cost strategy!

Almost five years ago now, I wrote a book that details my strategy for getting out of debt in a way that is in your own best interest. The principal message in that book, The Debt Whisperer, is that it is more important to build your savings than it is to reduce your debt.

Five years later, some of those same gurus have come around to my way of thinking; Suze Orman, for one, has now accepted the way of The Debt Whisperer as you can read at this article HERE.

I want to point out here that, in my book, I do not make the false argument that choosing between the two is an either/or proposition -- you can do both at once and, in fact, it is not prudent to do either at the expense of the other.

To concentrate on debt reduction at the expense of savings, however, is really dumb -- and it is childish! Why do I say it is childish? Because it is a reflection of the instant gratification impulse that is the root cause of your debt in the first place -- the lack of self-discipline!

Kids are always giving in to that inherent impulse for instant gratification. In fact, that is to be expected because doing so is a defining characteristic of immaturity. As adults some of us learn to curb that impulse but some us never do.

And some of us will never lose that weight!

The Early Retirement Hoax

2011-02-08T10:08:00.000-08:00

Came upon this article through a link on PF Blogs. The author writes about the misconception that is often the drive to achieve "early" retirement.

He also mentions just how costly it will prove to finance total financial independence with income from savings and investments; too costly, really, and not a good bargain in most cases.

In my own article HERE, I go into my own issues with the whole "early" retirement blogger cottage industry.

Do not let yourself get bamboozled! Start chasing the early retirement red herring and you could waste a lot of invaluable time -- if what you really want is a different work/life balance than you can achieve within the artificial construct of the 9 to 5 rat race, then figure out how to make that happen -- early retirement, though, is probably not what you're really after!

Your House Is Not an Investment?

2011-02-07T10:32:00.000-08:00

Your House Is Not an Investment? What the BLEEP!

Lately it has become fashionable among financial writers in the blogosphere to make the claim that your home is not an investment. That is wrong: The purchase of your primary residence, if managed and executed correctly, will almost certainly prove to be a great investment and could well be the best investment you ever make EVEN if you NEVER sell it -- in fact, especially if you never sell it!

Is it also an investment that can go south on you? Sure, it can, any investment can; but an investment in your primary residence is almost fool-proof unless you screw it up! Use the right mortgage to finance the purchase and manage your mortgage prudently and it will be hard for your other investments to beat the return your home, the house you live in, can provide you.

As an example of the kind of “your house is not an investment” malarkey that has become popular in the personal finance blogosphere, click HERE.

There is some good advice on that blog and in that particular post, but when the author writes, “Don’t treat it […your house] as your best investment,” he is simply wrong. It might or might not prove to be your “best” financial investment, that will take a retrospective analysis you will only be able to make years from now, but from that perspective it almost certainly will be -- if you managed it as an investment!

And what the author of that statement is actually implying in that post is that your home is not an investment as all!

That is also incorrect. You should not, however, ever look to your home as a short-term "financial" investment. The more correct perspective is that of a long-term investment. But even in the short-term, your home is an investment in your standard of living: Your choice of home will determine the neighborhood you live in, the neighbors that surround you, the quality of the schools your kids attend, and the stress associated with your daily commute.

And the quality of your investment will also determine, to a large extent, whether or not you stay in the house for a long time or not. If you choose wisely, the first house you buy could well be the only house you ever own. And the fewer houses you buy, as your primary residence, the better for a number of reasons.

For one thing, both selling and buying are fairly costly propositions. You will incur costs on both ends when you buy or sell and there are also other associated costs, some of which, like the stress of moving, are not financial but emotional. And just like you should not jump into and out of the stock market, you should avoid jumping into and out of the real estate market for a home to live in.

But, again, your house is an investment and the investment it most closely resembles is that of a purchase of an annuity that is financed over an extended term. Your home, once the mortgage is paid off, will provide you a cash return equal to what you were formally paying in principal and interest PLUS the imputed value of free rent.

For example, a $200,000, 6%, 30 year fixed-rate mortgage will have monthly principle and interest payment of almost exactly $1,200. Once you pay off the mortgage, you can pocket that money instead. Over the life of the loan, you will have paid a total of just over $430,000. At the point you begin to pocket the payment, your CASH return will be just about 3.35%. Not bad but not great, right?

But if, instead of paying off the loan over thirty years, you invest in your mortgage by paying down the principal, you can increase the cash value of the annuity payout at what is actually a lower price and at no additional cost.

How so? Well, if you simply make one extra payment every year your ROI will increase to 3.75%. And those extra payments are deducted from your principal balance so they go directly to buying you equity and that is why I write that they cost you nothing and, in fact, save you money by reducing the total amount of interest you will pay over the life of the loan!

But pay off that same $200,000 mortgage in 20 years and your ROI will leap to almost 4.5%. Suddenly the investment product (your home) that is being so casually dismissed in the blogosphere is becoming a very profitable investment indeed!

And, really, it is even more valuable to you than that because for the entire time you are living in your house, both while paying off your mortgage and after, you were receiving imputed income in the form of the value of the housing you receive day after day, month after month, and year after year!

Imputed income is value you receive in some form other than cash.

For example, if your boss pays for your health insurance, the value of that insurance is imputed income to you. In some cases it will prove difficult to assign a cash value to a stream of imputed income but in the case of the value of housing that value can be readily determined—it is the amount for which your house would rent.

So, if your $200,000 house would rent for $2,000 a month (1% per month, an amount commonly used in this sort of calculation within the real estate industry) then your actual annual return would be (14,000 + 24,000) $38,400 and an ROI (assuming a 20 year mortgage) of almost 12%!

How is that not an investment?

Prosperity on Minimum Wage

2011-02-05T07:02:00.000-08:00

The McDonald’s fast food chain is a great organization and even the food it serves, while not everyone’s cup of tea, obviously fills a large market niche. But McDonald’s also serves an important role in our society and it is a role also played by many other companies that provide entry-level jobs at entry level pay—it trains America’s workers.

At McDonalds, employees, especially those in their first job, learn to manage their personal lives so that they can show up at the start of their shift, they learn customer service skills including what makes a customer “good” or “bad,” and they learn to measure their co-workers and see what skills and attitudes get rewarded by employers.

But the lower level jobs at the McDonald’s, Burger Kings, and, even Wal-Mart’s were never intended to be careers by the Human Resource (HR) planners of those organizations. A certain amount of turnover, a high amount, actually, is built into those positions because the HR office knows the workers are intended to grow out of them in fairly short order—the jobs are designed that way, to function like that—as training positions and a way to test the motivation and interpersonal skills of the workers, themselves.

A worker who does not quickly master the skills of an entry-level position or lacks the motivation or temperament for the next level position will usually either leave voluntarily or be terminated. These companies all know that the will to succeed is, perhaps, the single greatest asset an employee can bring to the table; and it is that will to succeed that manifests itself as the motivation to want to do their job well.

We all bring a certain motivation level to any particular task, but it will be the most motivated with the right skill-set that will be most likely to succeed in any particular setting. And given the same or comparable skill-set, it will be the motivation of one employee as compared to another that will make the difference.

And, sometimes, often in fact, motivation will trump skill-set. Motivation on the job is most often manifested as the willingness to work hard and a willingness to learn new skills and accept additional responsibilities.

People want to move up and those that don’t lack not just the motivation to succeed but the motivation to accomplish the tasks that go with doing a good job such as delivering outstanding customer service day after day.

But the minimum wage jobs provided by the businesses of America are important as training grounds where employees learn the basic skill set that, when added to increased education, training, and personal development prepare a person to move up the job ladder and onto a career path—usually out of McDonald’s or Wal-Mart or wherever they land their first minimum wage position.

If you were to go into any of these businesses where the entry-level jobs are obvious, whether it’s flipping burgers or taking your order at the drive through window, and the person performing that job is much past college-age, you would sense something as being out of whack. And your sense would be right.

Any person beyond a certain age and of normal intellect and physical ability in a low-pay, low-skill (LPLS) type position is there because he or she has been derailed from the usual track of climbing the career ladder to progressively higher-paid, higher-skilled (HPHS) positions. And there are any number of reasons why this derailing can and does occur. Sometimes it is simply that the individual involved had delayed entry into the workplace.

But not always; sometimes the job market constricts and upward mobility is stifled. But the most common cause that leads to someone getting “stuck” in a LPLS job is a lack of personal development, education, in particular, which, in turn, leads to a smaller window of opportunity for advancement to HPHS positions.

And, at a more macro level, there have been significant changes in the job market that have further limited the ability of those with less education to climb the job ladder. The number of HPHS positions available in the traditional industries, manufacturing in particular, is much less than they once were as those jobs have been moved out of the country. There are simply fewer auto worker and steel mill jobs to be had.

Also impacting mobility on the job ladder is the fact that the level of skills and education required by many HPHS jobs is significantly higher than ever; consider jobs in the high tech industry, for example.

If fifty is the new forty, then a college degree is the new high school diploma. The new divide in America is the gulf between those with a college degree and those without a college degree and, more and more, being one of the have-nots will cost you. Over a lifetime, the difference in earnings is estimated to be about one million dollars. And that delta is only growing.

But earning a college degree requires a high level of motivation and self-discipline. And guess what? Those are the same two fundamentals skills required for success in the workplace! Employers know that—that is why an employer will have certain preconceived notions about someone who has earned a college degree and someone who has not—even if the degree is not directly applicable to the job!

The difference between wealth and poverty in America, at a very basic level, is coming down to education. And the difference between wealth and poverty at the level of the individual is choice. The more education a person has the more job choices a person will have, in general.

Let’s examine this macro reality at a micro level. An electrician owns a very particular skill-set, a plumber another. But an individual who can do both is twice as likely to have a job. And, when, electrical work is scarce, that individual can look for work as a plumber. Education is not only acquired in a classroom, technical skills comprise a distinct form of education and personal development.

I eat too much fast food but one excuse I use when I do is that I am conducting research. And I always go to the same two or three fast food joints; doing so for a very specific reason—I go to see the new hires and how long they stick around.

Usually, when I go to one of these places or the other, and I am greeted by someone new, I pay close attention to their customer service skills; whether or not they are pleasant, attentive, smile, and make eye contact…things like that. If the employee lacks the fundamental skills of positive human interactions, it is a bad sign and does not bode well for their immediate future.

Those sorts of skills, the skills upon which someone else’s first impression of you are based, come naturally to some people and those people often enjoy an advantage in social settings such as on-the-job and dealing with customers.

The good news is that those skills are easy to learn. When an employee lacks those skills, a good manager will guide them in the right direction. But the employee must be willing to put those skills to work—if an employee is unwilling to do so, they will never excel at customer service. Eventually, such an employee will be terminated or moved to a position where customer service with the public is not required or the demand light.

But that will only be the case, that is, an employee will only be accommodated like that, if the other skills that he or she possesses are valuable and refined enough to warrant that accommodation.

When I am first served by an employee I have not seen before, and the opportunity presents itself, I will ask if they are new. Sometimes it is the case that they are simply new to the shift. Then, once I get my order, I take a seat where I can watch the interactions between the counter employees and customers. And, then, I ask myself this question: If I were a business owner, would I hire this person based solely on the job-behavior I have just witnessed?

Every day on the job, you are preparing to either move up or move out. A job is like a suit of clothes and it won’t always be a perfect fit. Some fit fine at first but then you grow out of them. And we will each tend to prosper best in work environments that are the right fit. But one skill you can learn whenever you have a job is to save a part of every dollar you earn.

And because it is earned income that enables us to be able to save money in the first place, and because it is saving money that will empower us to grow our net worth and prosper, every job, at any level is a powerful step on the ladder to success.

Dreams, Passion, and Prosperity

2011-02-02T06:31:00.000-08:00

—Part One: Making Sense of Making Money

Why do we work? Why do we strive to get ahead? And what does that mean, anyway—get ahead? How do you measure something like that?

Why save? Why not spend all you earn? Is money the meaning of life? And if it isn’t, then what is?

Money was always real to me but abstract at the same time, as well. I mean, I knew I had to work to pay my way through life but I was never really crazy about any job I ever had. And most of the jobs I had were actually pretty great! Many of them paid really well and I had lots of benefits including a very generous defined-benefit pension plan and health insurance.

But, still, I always felt a little…I don’t know—uneasy? Dissatisfied? Queasy on Sunday night at the prospect of returning to work Monday morning? The answer is all of the above!

I read a lot in the fields of psychology, goal-setting, and personal finances in an effort to understand the role of money in the psyche. I even earned degrees and advanced degrees in Psychology and Organizational Studies. But what I read and what I learned never really came together until I started to think a sort of simple, nagging thought that maybe it wasn't me...maybe the root of the problem was the five-day, forty-hour workweek, what some call the “rat race.”

Maybe, I thought, the typical workweek was just not the right construct for everyone or for every phase of someone’s life.

What if my ladder to success is leaning on the wrong wall, I wondered?

Don’t get me wrong here—I didn’t mind the work! In fact, once I came to understand that no one would benefit more from my own hard work than me I became a real nose-to-the grindstone guy!

But my thinking about the typical workweek got me thinking and I decided I wanted to work less and live more. In other words, I wanted to escape the rat race. That is when I learned a secret about goal-setting: When you are really passionate about a goal, it can change your life.

Once I was clear on the goal, I next needed to devise a plan. But you need to understand that the goal became a motivation almost like an obsession and that is an important aspect to all that transpired next:

Motivation like that is actually passion!

As I began to search for an escape plan, it happened that I came upon a recently published book, Cashing In on the American Dream, written by Paul Terhorst. The Buddhist say: When the student is ready, the teacher will appear. Then a year or so later, another teacher appeared in the form of the book, Your Money or Your Life, written by Joe Dominguez and Vicki Robin.

My escape plan was derived largely from those two texts, the foundational texts of the financial independence, early retirement (FIRE) movement.

So, now, I had an goal I was passionate about, an obsessive desire to achieve that goal, and a plan to make it happen. And it was that combination planning and desire that gave my life direction and a dream. And that is when it all came together for me; that is, that is when the answers to all the questions posed at the beginning of this article presented themselves.

We proceed through our lives like we drive at night. Our headlights illuminate only a short portion of the road before us but, in that way, we are able to reach our destination.

The only reason to work and strive is to achieve our dreams.

And you are only successful at managing your money when, in fact, you are able to deploy your income to make your dreams come true. I mean, after all, if you are not able to make your dreams come true, what’s the point?

Working, earning, spending, and striving for anything less than achieving your dreams, especially those dreams about which you are passionate, and you are only going through the motions—like a hamster on an exercise wheel—exerting a lot of effort but going nowhere fast!

The Only Three Roads to Wealth

2011-01-28T07:46:00.000-08:00

There are only three ways to grow rich in America. Can you name them?

The three ways to grow rich are unearned wealth, entrepreneurial wealth, and savings wealth. Unearned wealth is money that drops in your lap. Examples of unearned wealth include winning a large lottery jackpot or receiving a million-dollar inheritance.

Entrepreneurial Wealth is Bill Gates kinda’ wealth; you know, start a business that is fabulously successful and buy yourself an NBA franchise.

The third way to grow rich in

America

is the old fashioned way, slowly but surely, over time, socking away a part of every dollar you earn and invest it. Then to the mix you add twenty or thirty years or more and let it pile up. One day, you wake up and your bottom line adds up to more than a million dollars.

So, was your answer correct? Or, more importantly, do you want to be rich? If so, then you will need to pick one or more of those three options.

Your chances, however, of hitting the lottery are about the same as mine and I don’t even play the lottery! And, only you know if you’re in line to inherit a million bucks. But, for most of us, our chance at unearned wealth is slim to none so, really, your only real choices are entrepreneurial or savings wealth or a combination, thereof.

I consider the savings route as Plan A and the entreprenuer way Plan B. Working a nine-to-five job while saving a big part of what you earn and building a business on the side I would call Plan C. For most of us, Plan C is the way to go—the question is: What side-business will you pursue?

The answer, for most people, is rental real estate. More posts coming on this subject later. In the meantime, you can read HERE.

Why I Never Saved for Retirement

2011-01-24T09:18:00.000-08:00

I never saved for retirement because, instead, I saved to achieve financial independence.

If you think about it, though, you will realize that in order to retire, and I mean truly retire, you will first need to be financially independent.

Here let me define the word retirement and the term financial independence so you understand exactly what I mean when I use them:

Retirement is when you have a source of passive income sufficient to live on and you have voluntarily taken yourself out of the labor market; that is, you do not engage in any paid labor and you are not seeking paid labor. If, for example, you are drawing a pension and working a part-time job, you are not “retired.” In that case, what you are is employed part-time.

Passive income is any income not earned in a present day exchange of your time and labor for money. Income from that sort of transaction (your labor-time for money) is earned income; for most of us still working for a living and not retired, the primary source of our earned income will be a job. And whether you are an employee or self-employed, it’s still your job.

The Is No Such Thing As A Financial Emergency

2011-01-20T14:32:00.000-08:00

Interesting discussion on the need for an "emergency" fund HERE at the blog: Sweating the Big Stuff.

If you scroll down you can read my comment to the original post (comment #11 including replies).

My comments on these forums tend to get longer than I planned because I am so passionate about financial literacy, as you can see. The subject of whether or not you need an emergency fund, is one of particular interest to me because I see it as being a teachable moment when the topic does come up.

However, my position on this issue cannot be explained in this format. To do it justice, I am expanding this post into an article at my website. To continue reading, click HERE.

Are You Addcited to Spending?

2011-01-17T08:47:00.000-08:00

This post HERE over at One Money Design got me thinking about the reasons that people over-spend and made me realize that I have arrived at this conclusion: Spending is an addiction.

It's like crack, you can get hooked on the rush you get when you shop. My wife went into a local WalMart while I was waited outside in our car for her. It gave me a chance to watch people coming and going. The look in their eyes and the way their steps quickened was quite revealing. These were people anticipating their next fix!

Anyway...here is my reply to that post:

Danny, good analogy. Like you, I am also a blogger and writer and book author. My wife is a substitute teacher who continues to work because she loves her job although, as we are financially independent, she has no financial need to do so.

I have thought long and hard about this issue: Why do people save so little when the reasons to save are obvious (i.e., retirement, a reserve fund, finance other long and short terms goals, etc.)

First, let me go a bit off topic and say that I do not believe there is such a thing as a financial "emergency" and, therefore, no such thing as an "emergency" fund.

What there is is bad planning that turns an "unexpected" expense into an "emergency." But there are methods to readily account for most unexpected expenses in one's budget.

Back to topic: The failure to save is a problem with many symptoms such as living paycheck to paycheck, carrying a balance on one or more credit cards, an insufficient or non-existent reserve fund, and under-saving for retirement.

I do some coaching on budgeting issues and what I see in the trenches is that people are addicted to spending. They are not unaware that they spend too much and save to little but simply lack the self-discipline to stop spending so much (and, to a considerable extent, do not know how to go about changing).

This is an issue that needs to be addressed just like other addictions: intervention to get the addict into a program. Sometimes the addict will enter rehab of their own volition but often the self-realization to do so only comes after some catastrophic event. That is what it took in my case.

Over-spending is a real problem and, I think, the single most silent but pervasive addiction in America today. And resolving the problem is made even tougher when you realize that there are so many societal forces at work to enable our over-spending; that and the fact that over-spending is not considered a symptom of an illness.

Simply telling a spending addict to "save more" or to "quit spending so much" is like telling a crack addict to, "cut back...just a little, you'll feel better..." It's nonsense and nonsensical to expect that your words will have any effect!

If you over-spend, and the symptoms of your over-spending are becoming more and more problematic, get help. You should not expect that you can go it alone.

The problem is that there are no free clinics or federally-funded programs to help you. But just like a good private rehab clinic costs money, so will a good financial advisor. And therein lies the rub...

Very Superstitous

2011-01-12T09:49:00.000-08:00

Back in a previous life I was on a federal government management team implementing a management philosophy known as continuous process improvement--CPI, for short.

CPI was all about everyone involved in a process continually measuring that process to look for improvement that could be made to make the process better as measured by the process achieving more desirable results.

It worked, actually. And, often, just looking at the process would reveal some obvious low-hanging fruit that would produce immediate, big results. Once that fruit was picked, however, CPI would become more tedious, more about the metrics, and a process of small steps that garnered only small improvements.

Eventually, a new hot management technique emerged and the organization moved on to the next next "thing." But CPI is still valid if not as popular as it once was. The concept was popularized in books written by an American management consultant by the name of Edward Deming. Deming developed his theories while working in Japan where he came to be regarded as something of a Deity.

This was back when Japan was kicking our butt in various and many enterprises and it was during this time that they took over the lead in autos and electronics from us. So, Deming came home viewed as the conquering hero and he was the flavor of the month for a couple of good years.

Then came TQM or whatever it was but, still, CPI as a concept is as relevant today as it ever was and simply because it is a sound concept: Looking at a process, measuring the end result, and making changes to the process intended to make the result better.

Sometimes, in our life, drastic changes are required.

Most of the time, however, we go about making changes without understanding how the process affects our result. A management paradigm states: You can't manage what you can't measure. Random changes to a process will result in random outcomes and sometimes the correlation between the change and the outcome will not be completely understood.

In fact, sometimes, the outcome will be accidental and not related to the process changes at all and we wind up managing by the use of superstitious behavior. It is like when your team scores when you have your legs crossed so you see a correlation between your legs being crossed and the team scoring. One has nothing to do with the other except in your mind.

One aspect of managing your finances that make it possible to manage them effectively is that they are all about numbers and so easy to measure. You know exactly how much is in your savings account this month and then exactly how much is there the following month.

Saving money is a process. If you examine the process, you can see exactly where your money is going and, often, the process changes that will lead to more savings are obvious. Those obvious changes represent the low-hanging fruit in the process--the quick fixes.

If the goal is to save more, and once we make the obvious changes, thereafter, any process changes we make are likely to have smaller consequences. For example, on first examination we might decide to sell a car and by doing so save the five-hundred bucks that were going to make the car payment. Then we get rid of cable, and then start taking our lunch to work.

The changes and the effect of those changes get smaller and smaller but they all add up!

What is important is that you examine the process and measure it and that you seek to continually improve the process, even in small increments. The basic tools required to develop the metrics to manage your finances by the numbers are a net worth statement, cash-flow statement, spending diary, and monthly budget. Without this documentation to measure the result of any changes you might make, you are, basically, managing your money like a witch-doctor and basing your financial decisions on superstition.

More Bad Housing Math

2011-01-11T08:19:00.000-08:00

Reference Article Here.

In a breath-taking display of bad math, Investopedia drinks the trendy kool-aid of "a house is not an investment."

Investopedia? They should know better, right? But this is simply one more example of a country who cannot even do basic math. That, or, the writer is simply being disingenuous to bolster his or her case. But don't they have editors at that site? How could this make it onto their site? I feel embarrassed for them!

The article does make one very good point about house prices and the average size of houses but it's like, "other than that Mrs. Lincoln, how did you enjoy the play?"

It is impossible to give this article any credit or credence at all when the underlying premise is so fatally flawed. Investopedia? Really?

The article makes the following claim:

"Another important point to consider when looking at real estate as an investment is that your "investment" won't ever pay off unless you sell it."

Really? The free housing you get every month is not a return? Let me answer that for you: Yes, it is, knucklehead!

Someone once wrote that half of the taxes we pay are wasted, the problem is figuring out which half. Well, in that same vein, half (at least) of what is posted on the internet is total BS! And the problem, here again, is figuring out which half.

The internet is being greatly devalued by the sort of writing on display in the reference article...and by trolls who make it almost impossible to have a serious discussion...and by bad math.

Mortgage-Free the Mexican Way

2011-01-10T07:28:00.000-08:00

In Mexico, it is common practice to build a home, a little at a time, as you can afford to do so. The way the process is begins is that the young man, still living at home to both save money and help the family, goes to work and saves a part of what he earns to buy a lot on which the house will be built.

Eventually, when enough is saved, you buy a lot, usually on the outskirts of town where lots tend to cost the least. From this point forward, the costs of construction are mitigated through barter for labor since the builder will usually have more time and manpower to invest than money.

The next part of the construction will be the concrete foundation. This will happen when enough barter points have been earned or enough money has been saved or some combination of the two is equal to the price of getting the task accomplished. And, almost always, friends with the specific skills necessary will help get the job done knowing that they will be repaid in kind when the need arises.

In the Mexican state of Sonora, with which I am personally familiar, the common building material for the outside walls of the structure is fire-dried bricks made from local clay that cost about ten cents each. When savings suffice, the home-builder will place an order and, one truck-load at a time, the bricks will start arriving.

Home exteriors built like this are generally rectangles and small. Homes of six to eight-hundred square feet and even less are the norm. As soon as the plumbing is functional, the young man will start living in the home as much to protect the property as anything else. As finances allow, the interior walls go up. These walls might also be brick or sometimes they will be stick-built like is common in house construction in the USA.

When the house is finally livable, the young man owns it free and clear. The cost of housing, as an on-going cost of living, has been accounted for without the common device used in the USA, the mortgage and debt.

In the USA, it is often said that a house will represent the largest “investment” a person will ever make. For many, it will be the only investment they ever make. But in fact, the biggest investment one will ever make in the USA is represented by the cost of the debt they take on to buy their house.

For example, if you were to buy a house and finance $100,000 of that purchase for thirty years at an interest rate of six percent. The total of payments over that time would be $216,000. In other words, you would pay more in interest on the loan than the original price of the house, itself! And how many people do you know that are buying $100,000 houses? Not many, right?

Well, the bad news is that the larger the mortgage, the more you will pay in interest. A $200,000 mortgage will cost you about twice in interest what a $100,000 will cost you. In other words, it will cost you $233,000 to finance that $200,000 in purchase money. That means that you will pay $433,000 in principle and interest alone to buy that $200,000 in purchase money. Our principle residence is, usually, the largest purchase most of us will ever make and we end up paying more than double what it was worth when we bought it. That is not a formula for building financial security.

So, what method of home-acquisition seems more financially prudent to you—the pay-for-it-as-you-build-it method or the finance-it-for-thirty-years-and-pay-double American way?

My Free House

2011-01-08T10:00:00.000-08:00

I love free money. I love free rent. Let me tell you how I came to receive both and how you can, too!

In January of 2008, I bought a new house. Actually, it was an old house built in 1930. The purchase price was $95,000 and I financed $75,000 of it using a thirty-year mortgage that is fixed for five years and adjustable thereafter. The interest rate for the first five years is under four percent. The total down payment was $20,000 and closing costs totaled just about $2,000.

I do not generally recommend adjustable rate mortgages but in my case I saved over one-point on the mortgage interest rate and I have the cash to pay off the loan completely at any time. In other words, the risk that is usually inherent in a variable-rate mortgage, in my case, does not exist.

The house is located in a community with less than 10,000 residents. I am within six blocks of two grocery stores, two convenience stores, and numerous restaurants. When the price of gasoline hits five dollars a gallon, being so close to those facilities will be more than a convenience. One reason I bought this house was for the strategic location as part of my planning for the security of my family should the societal degradtion envisioned by the threats (real or imagined) of peak oil, dirty bombs, and global warming (et al) actually come to pass.

The lot on which the house sits is just over one-quarter of an acre and affords access from the front and the rear of the house. The house is situated close to the front of the lot so we have a very large and open backyard. This was yet another consideration in my post-worst-case-scenario thinking. The backyard is more than large enough to raise chickens and rabbits and support a garden large enough to feed us and provide for barter.

Right now, we buy our food but, with the land, we do have options.

Principal and interest on the mortgage is just about $350 a month and property taxes and insurance add another $150 for a monthly total of $500.

But the house actually costs me nothing. To rent a place of the same size (1,600 square feet with a detached garage/studio) would cost at least $750. But, really, the comparison is not valid: A mortgage payment and a rent payment are not the same thing.

CLICK HERE TO READ REST OF ARTICLE

Your House Is Not an Investment? What the BLEEP!

2011-01-03T06:38:00.000-08:00

Lately it has become fashionable among financial writers in the blogosphere to make the claim that your home is not an investment. That is wrong: Your house will almost certainly prove to be one of the top three investments you will make in your life.

As an example of the kind of “your house is not an investment” malarkey that has become popular in the personal finance blogosphere, click HERE.

There is some good advice on that blog and in that particular post, but when the author writes, “Don’t treat it […your house] as your best investment,” he is simply wrong. It might not be your “best” investment but it is, as I have already written, almost certain to be among the top three investments in your life. And what the author of that statement is actually implying in that post is that your home is not an investment at all!

That is also incorrect. But your home should not be viewed as a short-term financial investment but, rather, as a long-term investment. But even in the short-term, your home is an investment in your standard of living. Your choice of home will determine the neighborhood you live in, the neighbors that surround you, the quality of the schools your kids attend, and the stress associated with your daily commute.

And who says that financial investments are more imprtant than lifestyle investments? Or that the only investments that matter are those that return cash as opposed to those that return the imputed income measured in the comforts of home?

And the quality of your home-investment will also determine, to a large extent, whether or not you stay in the house for a long time or not. If you choose wisely, the first house you buy could well be the only house you ever own. And the fewer houses you buy, as your primary residence, the better for a number of reasons.

For one thing, both selling and buying are fairly costly propositions. You will incur costs on both ends when you buy or sell and there are also other associated costs, some of which, like the stress of moving, are not financial but emotional. And just like you should not jump into and out of the stock market, you should avoid jumping into and out of the real estate market.

But, again, your house is an investment and the investment it most closely resembles is that of a long-term purchase of an annuity. Your home, once the mortgage is paid off, will provide you a cash return equal to the former payment.

For example, a $200,000, 6%, 30 year fixed-rate mortgage will have monthly principle and interest payment of almost exactly $1,200. Once you pay off the mortgage, you can pocket that money instead. Over the life of the loan, you will have paid a total of just over $430,000. At the point you begin to pocket the payment, your return will be just about 3.35%. Not bad but not great, right?

But if instead of paying off the loan over thirty years you invest in your mortgage by paying down the principal, you can increase the annuity-value of the annuity at no cost. For example, if you make one extra payment every year your ROI will increase to 3.75%. And those extra payments are deducted from your principal balance so they go directly to buying you equity and that is why I write that they cost you nothing.

But pay off that same $200,000 mortgage in 20 years and your ROI will leap to almost 4.5%. Suddenly the investment product (your home) that is being so casually dismissed is becoming a very profitable investment indeed!

Imputed income is value you receive in some form other than cash. For example, if your boss pays for your health insurance, the value of that insurance is imputed income to you. In some cases it will prove difficult to assign a cash value to a stream of imputed income but in the case of the value of housing, that value can be readily determined—it is the amount for which your house would rent.

So, if your $200,000 house would rent for $2,000 a month (1% of the market value of the home per month, a common amount) then your actual annual return would be (14,000 + 24,000) $38,400 and an ROI (assuming a 20 year mortgage) of almost 12%! How is that not an investment?

How to Save More From Now On

2010-12-30T08:24:00.000-08:00

In my book, Money Well Saved, I wrote that self-discipline is not something we grow like hair on a Chia Pet. This applies to self-discipline in general and to financial self-discipline, in particular.

I wrestled with this reality for a long time trying to help clients impose order to the chaos of their financial lives. Telling them they needed to cut back so that they could save more (or any) was easy but the process, itself, was seldom easy for the individual who was the one who actually had to do the cutting!

It takes a considerable amount of self-discipline to deny yourself something you really want and even more to deny your loved ones something they really want; the good provider syndrome comes with a lot of baggage attached.

And some of us come equipped with the self-discipline gene but most of us? Well, not so much!

Then I found a way to increase your savings and reduce your spending without the need for self-discipline entirely: Save More From Now On.

Most of our incomes will rise over time; we get an annual cost of living increase or a raise based on a promotion—whatever—our earnings will rise over time. Instead of looking backwards and experiencing the regret of how we used to spend our money, focus, instead, on the future: Save more from now on! And all it takes to implement this strategy is to commit to saving one-half of every raise in pay you receive from now on for the rest of your working life.

Even if today you are living paycheck to paycheck and cannot manage to save any money at all, this strategy will change your life immediately and forever and put your life on a trajectory towards prosperity.

How so?

Well, even before your next raise comes along you now have a plan to save. Why is that a big deal? Well, in fact, it is a very big deal, indeed!

“Planning and wealth accumulation are significant correlates even among investors with modest incomes”

—from The Millionaire Next Door by Danko and Thomas

The Millionaire Next Door is one of my favorite books on the subject of wealth accumulation and the authors are experts. Their findings are based on scores of interviews with people who had achieved wealth themselves as opposed to having been born to wealth (not that there is anything wrong with that!).

So, once you have a plan to save you share something in common with those who have actually saved themselves rich! And, then, there is this startling fact:

“…the overwhelming determinant of the accumulation of wealth…is simply

the choice to save.”

—from Choice, Chance, and Wealth Dispersion at Retirement by Venti and Wise, for the National Bureau of Economic Resource.

Once you decide to implement the simple strategy to save one-half of all future increases in income, you have made the “choice to save” that the authors of that study concluded is the overwhelming determinant of the accumulation of wealth!

As I said, decide to implement the strategy and, according to experts in the field of wealth accumulation, you are on your way to wealth!

So, even if today you are spending all you earn, you will soon begin to change the dynamic that now has you living paycheck to paycheck. For example, let’s assume that today you are spending 100% of all you earn (it helps to begin thinking of your spending as a percentage of your income). Now let’s say that you receive a raise of 5%.

Applying these percentages to an assumed income of $40,000, a 5% raise is equal to $2,000. Now, in implementing the Save More strategy you would save $1,000 a year—not much, I know, but we can all only grow where we are planted!

But whereas before you were spending 100% of your income, you are now only spending about 98%. If these figures leave you a bit underwhelmed, I understand. But let’s look at what happens when you get another 5% raise next year:

Your annual salary is now $44,100; the raise was equal to $2,100; and you will add one-half of that amount to your savings ($1,050) for a total annual savings of $2,050—you are now saving almost 5%!

And here is the financial alchemy inherent in the plan--you didn’t need to cut back or deny yourself a thing you were previously enjoying!

As brilliant and painless as this plan is, however, the truth is that, in absolute terms, $2,050 is not a lot of money. And, in fact, you need to be saving much, much more. How much more? Well, the fact is that there is no cap to that number: You should be saving MORE…from now on!

But, there are yet additional strategies, likewise as simple as the Save More plan, that you can also implement to give your savings a boost. And, no, you don’t need to get a second job or take in laundry, that is, if you don’t want to:

Extra income directed specifically to grow your savings is never a bad idea but there are other ways to accomplish that same goal….more on this topic in future posts.

Visit my website HERE for more in-depth articles.

How Drug Dealers Get Rich

2010-12-28T07:51:00.000-08:00

Have you ever wondered about the finances of drug dealers? I never gave it much thought myself until I read a news story about a guy in a small town in Mexico whose house was raided by the Mexican National Police. As it turns out, the cops found over ten million US dollars stacked in one of the spare bedrooms!

What! That definitely got me thinking…

First of all, it helps to have a product that people will kill for; although, usually, that is not in the literal sense and more like the I-Pad or something like it. But, still, the demand for their product requires little in the way of marketing which is good because I doubt the major television networks would sell them air time...I think...

I used to think that a product, regardless of the quality, would sell in direct proportion to the effectiveness of the marketing behind it. Drugs forced me to rethink my thinking in this regard but drugs are unique and a large part of the success of the I-Pad and other Apple products is the brilliant marketing behind all of them.

So I had to give it some real thought—why are drugs about the only product that does not need marketing? Take someone who doesn’t use drugs one day and, one year later is a stone cold addict who has lost his job, his family, and his self-respect to...oh, I don’t know…let's just pick some drug to use as an example, alcohol, let's say.

Wait a minute, I thought, alcohol is heavily marketed as is the single most favorite drug of choice in the world—sugar! I quickly realized that sugar and alcohol would sell even if there was not a dollar spent on marketing; the marketing that is directed to selling those two products is largely to establish differentiation in the mind of the consumer: Coors versus Bud, Coke versus Pepsi.

Drug dealers who sell illegal drugs are forced to work differently than those who are selling legal drugs. That is why drug dealers often resort to murder to eliminate the competition. Murder is actually quite bad for business and drug dealers could afford to outspend either Coke or Pepsi in marketing dollars if only they were allowed to do so; but they are not and so take the other options that are available to them to gain market share.

Another way that a business or person with a product to sell will gain market share is by selling for less than the competition. Drug dealers obviate the need to do this by controlling the distribution in a larger area and they gain that control, largely, by imposing drastic price control measures—again, their basic business model is to kill competitors.

But, ultimately, drug profits are based on the Coke Machine Model. The CMM is simply lots of distribution points—to make the drug readily available. The cops bust a large number of street level pushers—the jails are filled to clogging the system with them—but as a percentage of the total amount of street level distributors out there, I would have to think the number is small. And, besides, drug dealers have little problem replacing those distributors that do get apprehended.

Buyers and sellers are both easy to come by in the drug world—legal or illegal.

If you have a product to sell, the fundamental lesson to learn from the drug gangs is this: the more distributors you have, the better. That is why product manufacturers want so badly to get their product into Wal-Mart—lots of distribution points.

But if you are not selling drugs and can’t get into Wal-Mart, what are your alternatives? Get a large number of distributors and make them your best customers: Almost every knucklehead selling drugs on the street is an addict.

Rent-Free-Redux

2010-12-09T08:26:00.000-08:00

Click Below:

Rent-Free-Redux

What Matters Most

2010-12-08T10:59:00.000-08:00

Those things in your life that are most important to you should never be given less consideration by you than those things that matter less. Another way to say that: “Things which matter most should never be at the mercy of things that matter least.” That quote is attributed to the German writer, Goethe (1740 – 1832).

But how many of us actually live our lives like that? Instead, we let things that hardly matter at all get in the way of our doing the things that really need to get done. We procrastinate, we bury our head in the sand, we watch TV (probably the thing that matters least); in other words we will do anything to avoid the hard work of doing what’s right when it needs to get done!

That is, most of us do. Those of us who achieve our dreams most often accomplish that feat simply by unwavering progress in their direction. And, just as often, the progress is small and incremental. Small, incremental steps are the most certain path to financial independence. And, in this world, where money equals security to a very real extent, what is more important than growing your financial security?

Financial independence is one thing (CLICK HERE FOR THE DEFINITION) and financial security is another. Financial independence is a destination that is reached when your investment income is equal to or exceeds your cost of living. Financial security is what grows as you approach financial independence—every dollar of savings increases your financial security.

An easy way to measure your financial security is to answer the following question: How long could I survive without a paycheck? The answer to that question is found in the balance of your savings as that balance relates to your expenses.

As you begin your journey towards financial independence, you might well have zero savings and be living paycheck to paycheck. At that point, the “thing” that matters most will be to build a margin between what you earn every month and what you spend: All other discretionary spending matters less. And, remember where we started this discussion: Thinks that matter most should never be at the mercy of things that matter least.

Groundhog Day

2010-12-03T07:13:00.000-08:00

If you are presently living paycheck to paycheck then, perhaps, the first step towards greater financial peace of mind is to build some breathing room between what you earn every month and what you spend. And the first step to that end is to know exactly and in writing where, in fact, your money is going.

And, unless you take that first step, you might never be able to stop living paycheck to paycheck. Why not? Simply because the failure or refusal to document your finances is reflective of one type of thinking and it is that type of thinking that has gotten you into the position you are in, that is, living paycheck to paycheck.

Albert Einstein, the famous scientist and great thinkers in human history once said: A problem cannot be solved with the same level of thinking that created it.

In other words, to achieve a different result, you need to change the way you think. Documenting your finances is the beginning of a new way of thinking about money.

One of my favorite movies is Groundhog Day. In that movie, the main character wakes up every morning to the same day, over and over, and over again. And it is not until he learns from his mistakes and changes the way he reacts to the various situations he encounters during that day that he is, at last, able to wake up to a new day.

That is the way life is: Life will keep giving you the chance to learn what you need to learn until you learn it. The trick is to pay attention to your life so that you will understand what it is trying to tell you. If you ignore the life lessons that come your way, you will be “stuck” in your life reliving the same day and the same problems.

We all face challenges in our lives; but your problems speak volumes. And it is the voice of your life speaking to you. Or trying to, at least! Too many of us never listen and, so, we never learn. If your problems are the same, year after year after year, that is a strong indication that you have turned a deaf ear to your life.

New challenges are, on the other hand, you moving on. If you want to stop living paycheck to paycheck, the first step is to move on from the thinking that keeps you trapped in that cycle.

Whistling Past the Stock Market

2010-11-24T15:53:00.000-08:00

The only money you can count for income is money that is federally-insured and that provides a guaranteed return. The longer the term of an investment like that is, the better you are able to plan your finances.

Investments in the stock market meet neither criterion. In the book, Your Money or Your Life, which is one of the seminal texts of the FIRE movement, the authors advise the reader to invest their savings only in long-term bonds issued by the Federal government.

Ideally, one would achieve financial independence based solely on the guaranteed returns of those long-term bonds. And, in fact, if you declare financial independence based on returns that are not guaranteed, like in the stock market, then you are simply gambling.

Annuities are the only other asset class that can match the returns of bonds in the sense that they are guaranteed and federally-insured but 100% of the capital is not preserved. And, like bonds, annuity income allows for precise financial planning.

Real estate returns are, like stock market investments, a gamble. But I prefer to chase higher returns (higher than bonds) in the real estate market for a number of reasons. In particular, I invest in residential rental real estate because it can provide multiple streams of income; more streams of income than a stock investment and the more streams the better, I think.

But for those of you who are, in fact, planning to invest a significant portion of the nest egg underlying your financial independence in the stock market, your independence is an illusion. And any planning you might accomplish based on the “historical” returns of the stock market is something like whistling past the graveyard. For more on this subject see HERE.

Your Lifestyle, Your Wealth—Smoking

2010-11-19T12:14:00.000-08:00

According to this study:

J.L. Zagorsky (2004): The Wealth Effects of Smoking Tobacco Control, 13 (4), 370-374.

The net worth of nonsmokers is, on average, about 50 percent higher than that of light smokers and more than twice as much as that of heavy smokers.

Each year of adulthood during which an individual remains a smoker represents a 4 percent decrease in his or her net worth.

According to the author of that study: "Smokers spend an incredible amount of money on smoking and…[the total money spent on those] packs really do add up."

If you smoke, stop, if you don’t smoke don’t ever start if, that is, you have the goal to maximize your lifetime wealth accumulation.

In addition, smokers will, on average, have higher lifetime medical expenses associated with smoking and health care expenditures are another driver behind wealth accumulation or the lack thereof.

Some determinants of wealth accumulation are beyond your control but as many, if not more, are completely within your control. The decision to smoke or not or quit if you do once you know the facts, is an example of a determinant that is totally within your control.

Some more statistics in this regard:

According to the Campaign for Tobacco-Free Kids, almost 32% of adults living below the poverty line smoke while less than 20% of those above that line do so.

And recent studies out of Spain put the real cost of smoking at $150 a pack in costs attributable to premature death due to smoking. Another study from the Journal of Health Economics put the cost of a pack of cigarettes as high as $222 in 2006. In 2010, the cost could be approaching $300 a pack!

Smoking is definitely dangerous to your wealth.

Financial Independence is Entirely in Your Own Hands

2010-11-12T07:28:00.000-08:00

Many of us, maybe most of us, give away our financial power. We think that, whatever we earn, it is not enough and, so, we always want more and we are never “happy” with what we have.

This constant wanting and discontent is hard on the psyche and drains us of our personal power—and it is just plain wrong!

To understand how living in a constant state of wanting and discontent can stymie your personal growth, it will help to understand the concepts of Abraham Maslow, a psychologist who in 1943 published a paper outlining his theory that their is a hierarchy to human needs.

In that paper, Maslow proposed that all humans have certain needs and some are lower level and some are higher level. He first identified those basic human needs and the individual needs he then ranked and stacked the higher level needs on top of the lower level needs. This stacking of needs is typically pictured in the form of a pyramid.

At the bottom of the hierarchy pyramid are our basic physiological needs that must be met to simply survive: food, water, and sleep are all examples of needs at this level. But, perhaps, the single most important aspect of his theory is that, before we, each of us, personally, can develop towards our full potential as a human being and move up into the next level of personal development, we must first meet the needs of the level in which we are at present.

The needs above the first level needs are all about personal security; that is, once we feel certain that are basic physiological needs are met, we then can move on (up the pyramid) to considering our personal safety and the safety of what is important to us. Makes sense, right?

And this is the process to move up the pyramid until, at the apex of it, is a state of self-actualization. But it is possible to get stuck in our development and if we do get stuck, our development towards self-actualization will be stymied—we will fail to develop.

Think of the character played by Bill Murray in the movie, Groundhog Day: That character keeps waking up to the same day, day after day after day. And each day, he encounters the same situations. But as the movie progresses, he changes how he deals with each situation until, at last, his reaction to each situation provides a successful outcome. At that point, he finally wakes up to a new day!

You, too, can get stuck in the same day and you will be stuck if you live with the constant wanting and discontent that you will experience if you give up your financial power. Consumerism is a symptom of being stuck: The thinking that happiness is only one more purchase away. If you are not happy with a TV in every room, maybe a TV in your car is what will finally make you happy.

In fact, the only real happiness is the progress towards self-actualization: the experience of becoming a better person. In the equation of personal development, “better” is defined by our goals. But if our goals do not lead to personal development, then they are probably the wrong goals. For example, the goal of a TV in your car works against personal development.

In our finances, consumerism works against our own best interests. It is consumerism that creates feelings of wanting and discontent. The goal of financial independence, on the other, will create a sense of empowerment and self-reliance.

And the good news is that moving towards the personal liberation of financial independence begins with a simple step: Blow up your TV.

How Much Money Will You Need to Achieve Financial Independence?

2010-11-04T20:42:00.000-07:00

The article HERE got me thinking about how there is more to achieving financial independence than saving money—you must also plan to reduce and eliminate those expenses and debt that can, in fact, be eliminated or reduced.

Check out this link HERE. As you can see, the information at the two links go hand-in-hand because the author of the first article linked is using the data from the government data portrayed graphically in the second article linked.

At this link HERE, the author asks the question: How much money will you need to retire?

The same question can be asked of you if you are planning to achieve financial independence: How much money will you need?

Ultimately, the answer is that it will depend on how much you spend every month. The answer to that question, however, is not as simple as it might seem on first consideration. Still, you need a number in order to be able to plan, right? And, that number will be based on spending.

So, lets say you manage your finances using a monthly budget and that you have an income and expenses statement that is relatively stable on both sides of the equation; that is, your spending and your income are about the same from month to month and that non-monthly bills and planned spending are accommodated by being prorated over the year.

Your bottom-line, then, is your target: For example, if you are spending $3,000 a month, then, to arrive at the size of the nest egg required to achieve FI, the next step is to assume a return. And here is where we encounter the first sticky wicket!

Are you going to take risks with your capital or will you put you nest egg in secure investments that offer a guaranteed and known return?

The only reason to put your money at risk is if you do not want to take the time required to save the amount required to achieve FI in secure investments. I doubt many people planning for FI these days are thinking like that, however, because the stock market is simply too unstable to enable prudent planning.

These days the only prudent strategy is to plan for FI (or retirement) using the returns on secure investments only. What are those secure investments? Federal government bonds, long-term, laddered CDs, or fixed annuities—those are it. Anything else is wishful thinking and you really don’t want to take that to the bank, do you?

In the seminal text on achieving financial independence, Your Money or Your Life, the authors propose the long-term bond strategy, so this is nothing new. But many still plan for FI using the "alleged" average long-term returm of the stock market for part of their portfolio at least...good luck with that!

Your Lifestyle, Your Wealth – Your Weight

2010-10-29T07:37:00.000-07:00

According to the following study:

Jay L. Zagorsky (2005): "Health and Wealth: The Late-20th-century Obesity Epidemic in the U.S." Economics & Human Biology, 3 (2), 296-313.

Each one-unit increase in your body mass index is associated with an 8 percent reduction in wealth.

White females suffer the greatest wealth drop, as each one unit increase will result in a 12% reduction in wealth. For white men the decline is only 2% per one-unit and for African-American women the drop is 7%.

One reason for why these statistics might apply is presented by the author of that study: Obese people "tend to have higher medical costs than others, which cuts into their savings, and some employers are willing to pay more for employees who fit stereotypical beauty models."

In any case, the author continues, "losing a large amount of weight dramatically improves your wealth over time. But it has to be an extreme weight change. Losing five pounds doesn't do anything."

There is an obesity epidemic in America. And according to this study, at least, obesity cannot not only ruin one’s health, it can be tough on your finances, as well.

The moral of this story? If you are obese it is costing you money; if you are not, staying fit could have the same affect on your long-term wealth as a second part-time income.