Year-End Thoughts: Don’t Lose Out On Free Money Next Year!

Investors come in every shape and size, as well as risk tolerance. That last quality can really vary depending on whom you’re discussing the subject of investing. So let’s approach today’s rant in a way that should appeal to you whether you’re ultra-conservative or a daredevil risk taker.

One of the things to do during this holiday season after you’ve completed your shopping, should be to plan out your finances for next year. Most people I know put more thought and time into planning for their vacation than they do for their retirement. I’m guessing the majority of IG readers hold down a job somewhere so the first place to look at planning are your company’s offering of retirement plans. And I’m also guessing that most of us will not be able to say we spent a larger portion of our life taking vacations vs. being in retirement.

Retirement Plans Are Not Built Equally!
Complaints about one’s own retirement plan from disgruntled friends and family are common. My reaction is to ask them how much time they spent studying the features of their company’s offering? Too many people have the misconception that all plans are built equally. Throw that out right now! Ask for your company’s retirement plan prospectus and scrutinize it. Don’t say it’s boring, because you’re just giving yourself an excuse to fail. And if you can’t accomplish such a simple task, you really have no one but YOURSELF to blame for your future.


What are some differences? For starters, most retirement plans vary in their funds / investments offering. You need to familiarize yourself about any type of company match / profit-sharing matches that may come your way. Some companies may have weird limits on how much can be deducted per paycheck. If you’re the type that is looking for flexibility beyond the normal mutual funds offered, you might be lucky enough to have an employer that offers a self-directed brokerage option in your plans; giving you the reigns on your investment selections.

 
Where’s The Free Money?
Most employers offer some sort of a match based on your participating contributions. What are you doing to maximize that match? This is essentially free money for you and it’s not uncommon to see companies match 50% or even 100% of you contribution up to a certain limit. Let’s say you maximize a 50% match. Even if all you’re doing is nothing but putting into a money-market fund (for the ultra-conservative), you’re still getting a 50% return on your money. I say 50% because that’s money you would not have gotten had you not participated. If you are a risk-taker, you now have more money to play with, so I hope you do have a good investment selection in your plan. At the very least, you should be able to fall back on some index funds. Start making a budget now, to ensure you’re able to pick up those matches through payroll deductions next year.

I’m not gonna ask you to jump into the pool without knowing how deep it might be. A major concern for not maximizing your contributions to the company match have to do with any vesting restrictions. I hope that you have a generous employer who believes in 100% vesting right from the start, but more likely you’ll be put on a graded / cliff vesting schedule. This is a valid concern for young professionals entering the work force. You might be considering jumping ship a few years down the road. In fact, down the road you might decide whether to jump ship based on how well your current and your potential new employer’s retirement plans are. Ask questions about vesting restrictions and find out those answers!

A New Ally – The Pension Protection Act of 2006 (PPA)
But a big reason why maximizing company match should be a major consideration for 2007 is because of a less publicized feature of the PPA. Under old rules, it did not make sense if your company matches were forced to be put into a investment such as company stock. The PPA has compelled retirement plans to quickly comply with changes, so that employees can immediately diversify their company matches out of employer stock. Regarding vesting, the PPA has also sped up the schedule as matches must now become vested 100% after three years of service or over a six-year vesting schedule at 20% each year, beginning in the second year. There is more consistency now that rules are put in place so that employers can no longer enjoy their own interpretation of those features.

To Roth Or Not To Roth?
Many retirement plans have started to allow Roth 401k contributions. Roth contributions are after-tax contributions that use up your contribution limits like normal pre-tax deferrals. The advantage is that qualified withdrawals are tax-free for both your invested principal and any investment gains. I have a rule of thumb when it comes to whether Roth contributions should be used. Over the long run, the taxation differences between Roth / Non-Roth contribution work out to be very minimal provided your tax-brackets remain stable. The advantages can be more significant if your tax brackets will be different from the time you’re contributing to the time you’re withdrawing the monies.

Generally, if you are going to potentially withdraw at a higher tax bracket than your contributions (such as a young professional withdrawing money for home purchase or kids’ college tution), you’re better off with Roth contributions. If you are in your mid-40s where arguably your tax brackets are near their peak, normal contributions make more sense because they help you current tax situation; provided that you are withdrawing the money for retirement purposes at a lower tax-bracket.

Saving For A Rainy Day
It’s never advisable to dip into your retirement cookie jar but the fact of the matter is sometimes you do need to invoke some usage of your retirement plan. BE VERY FAMILIAR with the rules and restrictions surrounding retirement plan loans or withdrawals. You might not need it but you should know it. For those reader who are interested in maximizing their retirement plan limits beyond just getting the company match. Do realize that contribution limits are increasing in 2007; though not by as much as the last 3 years.

2006 Normal deferral limit – $15,000
2006 Catch-up deferral limit – $5,000 (for participants over 50 years of age)

2007 Normal Deferral Limit – $15,500
2006 Catch-up deferral limit – $5,000 (unchanged)

For my fellow Canadians, some of the points covered here are still relevant. You can check out this page for Retirement Savings Plans (RSPs) contribution restrictions.

One Last Motivation
If you have not considered contributing or even maximizing your company match in the past, want know what will get those juices flowing? Calculate how much match you have missed out on from previous years, and calculate how much you will be missing out in the future. But don’t dwell too much on the past, action gets results, and it’s time to take action!

Some Thoughts On Steve’s Article and Personal Finance

I was reading Steve’s article and thought “Steve you are a smart guy.” Steve is being smart because I think he is reading the market correctly and getting ready. I read the comments associated with Steve’s article and thought many are missing the message within the article. One comment that caught my eye.

Of course anyone who is on the outside will be scared, like you Steve- quoting horror stories- however the real money is made now. You have to educate yourself instead of claim that all use of leverage (blanket term) is bad or dangerous. It’s simply a tool that when used properly can help you get ahead faster than if you had to save the same amount.

I would ask the person who made this statement, how do you know now is the time to make money? Because the trends are going this way? Because some people like Cramer said, “Now is the time to make money?” Making money is not about following trends. Making real money is about managing risk. Remember that in the market you can make real money regardless of what the market is doing. One book I read said it best. The market is like the waves in the ocean. There are always highs, and lows and you can always catch a wave. You want to avoid the wipe-outs.

Regarding that now might be a bull market to make real money, I want to make a comparison of the current situation to the Swiss housing and market in general. The reason why I want to use the Swiss market is because Switzerland has gone through what I think the other markets will go through in the future. Consider the following graph of the Swiss housing market since 82.

Look at the price growth, and you notice a very interesting behavior. The years 82 to 90 were fantastic years. These were the years when Swiss housing became expensive. Then prices stabilized, and took a slight dip in 95, before going up slightly in 96. Then the “big drop” happened at the end of 96. If you had invested in a house at the peak, then only in 05 would you have seen any profit in absolute terms. If you calculate in terms of investing, and had invested your monies in 96 your housing investment would still not match your money investment. For reference purposes I am calculating using the Swiss deposit rates of 1.5% annually and not calculating inflation because until recently Switzerland had next to no inflation.

When the housing market crashed did the market crash? No, something far worse than the market crash happened. People saved money and stopped spending. I will admit that Swiss always tended to be fiscally conservative, but Swiss stopped buying things for many years. The Swiss changed their habits and stopped using credit and stopped going into debt. It was hard for the retailers. Recently in Cash there was an article on how the credit companies want the Swiss to spend.

Look closely at the graph which talks about how much consumer credit (not including mortgages, but including car loans, etc) each person has. In Switzerland each person only has 920 CHF (736USD) debt per month per person. Whereas the Brits have nearly 5944 USD of debt, and from what I remember the US consumer debt load is about 12,000 USD where 6,000 USD is credit card. Swiss have cash. The Brits, and the Americans are going have to stop spending. The more it is delayed the longer the slow down will be. I am not saying that there will be a hard crash. I am saying the market will be like Swiss housing market and there will be a long protracted slow down.

In Steve’s article there was a comment to the effect:

This is not the way you want to retire!!! I lived this way for 2 years. That’s why I don’t believe that lowering your expenses is the way to retire early. You should be increasing your income. Then when you retire, you can go on vacations, cruises, Vegas or whatever you want… not just sit at home.

If I equate the lifestyle proposed by Steve as being the Swiss, then the comment does not make sense. If you live frugal for two years you are not going to feel any difference. It’s only over the long haul where you feel the difference. And in the case of the Swiss they tend to be big ticket item buyers. The reason why the Swiss can do this is because the Swiss have created for themselves a positive feedback loop that has been confirmed in today’s Cash daily magazine. Cash says that not including real estate the average Swiss has 225,000 dollars in bonds, cash, equities. In my positive feedback loop article I say the reason why the rich keep getting richer is because the rich keep investing thus making more money. And the poor keep getting poorer because they keep going into debt buying things that they cannot afford.

What people forget is that debt allows you to buy more things in the short term at the expense of buying something in the long term. Debt requires interest servicing taking earned money out of your pocket with no return value. On the other hand interest or investment returns is free money that can be used to generate more free money or buy things without taking money from your pocket.

When I read Steve’s article what I read was not early retirement. What I read is that you need to be fiscally responsible and in control of your destiny. I interpreted how stress free life can be. What Steve has right is that he is battening down his ship for that storm. And when that storm comes Steve will be singing, “singing in the rain…”

The Latte Factor: Not For Coffee Lovers

A good investor knows that most of investing is simple psyche 101, understanding people and what motivates them. That’s why the common advice, made popular by David Bach of the Finish Rich book series, of saving money on “little purchases such as lattes, fancy coffees, bottled water, fast food, cigarettes, magazines” makes me a tad bit crazy.

Little purchases? Find me a smoker that thinks cigarettes are a “little purchase.” Find me a coffee addict that thinks coffee is a “little purchase.”

Sure, the numbers make sense. On Bach’s website, he shows how a dedicated investor can take $5 of coffee savings a day and turn it into $948,611 in 40 years (at 10% beating most mutual funds but again, that’s a whole other post).

Wow. Impressive, right?

Except that in order to do this, the investor must kick a habit like drinking coffee or smoking. Not an easy thing to accomplish.

I know. Once upon a time, I was addicted to Diet Coke. Addicted, as in I had to have my hit every single day. I loved investing then (and still do) and I knew that I was wasting money on my cola a day habit so I tried quitting numerous times. I went through withdrawal (I was one grumpy bear…with the shakes, not a good combo) but I just couldn’t do it.

Forget a million dollars in 40 years, you could have promised me a million dollars a week from then and I still couldn’t do it. The motivation was not enough (I finally quit after developing a caffeine intolerance).

Any investing program requiring the participant to kick an addiction first is doomed to failure (only 2% of unaided attempts to stop smoking succeed even with 70% of all smokers wanting to quit). Actually any program requiring deprivation has a high chance of failure (negative motivation is substantially weaker than positive motivation).

That’s not saying that Bach’s advice is garbage. Far from it. Applied to expenses with no emotional connection to the investor, this advice rocks. It’s a great source of seed money.

I don’t mind shopping around for a few minutes to pay $500 less on insurance (for the same coverage). That $500 is the equivalent of 100 lattes but a lot less painful to the coffee lover.

Not a car fan (I only care that I can get from point A to point B safely), I don’t even mind paying $10,000 less by buying a good quality used car over a shiny new one. Heck, make it $9,998. I’ll spring for a new car scented air freshener. That’s the equivalent of over 5 years worth of lattes. Again, a less painful switch.

Just don’t ask me to give up my addictions (now Diet Ginger Ale and travel and steamy romance novels and…).

Mutual Funds ARE for Losers!

Kimber made a post about why Mutual Funds Aren’t for Losers, which was a good article and I see her point of view, however, in this case, I thought I would show the other side of Mutual Funds, which, in my opinion, suck to the point where vacuums should be named after them, or maybe they could rename the Chicago Cubs the Chicago Mutual Funds.

First problem is, they are overly diversified, bringing your risk down, but also bringing down your profits. Hugely bringing down your profits. Bringing down your profits to the point where you have to wonder why you bought it in the first place. You’re essentially saying, “I don’t care what I get, as long as I get something. Sometime. Maybe.” According to the Christian Science Monitor:

The average US diversified equity fund grew 6.7 percent in 2005, the third upside year in a row, according to fund-tracker Lipper Inc. “

I’m sorry, but 6.7% returns, on average, just isn’t good, no matter what the freaks on CNBC say and if you consider beating a risk-free CD by a measly 2.2% an ‘upside’, that’s pretty sad.

Secondly, you can’t trade them when the market is open. I know this goes against my strategy of only trading on weekends, however, if the world is ending, I want to know I can get out. You can’t get out with Mutual Funds.

Thirdly, the mutual funds are stuck at a limited percentage each stock can be within their portfolio. Let’s say Amgen finds a cure for cancer tomorrow. Can the mutual fund capitalize on this? Barely. You’ll be screwed watching everyone buy Amgen and seeing it go through the roof while the mutual fund sits with approximately 20% of their assets in the rocket ship and the rest in sinking stocks and you can’t even sell your mutual fund shares until the market closes to get the cash to jump on the bandwagon.

Fourthly, you pay taxes on trades you don’t make. You’re still invested in the fund, yet you pay taxes on the trades! Heck, in a mutual fund you can lose money for the year and still pay taxes because the fund could have had positive trades for some stocks and losses for others. It depends what year they sell the stock. (IE: if they buy a stock in 2000 for $10, it goes to $30 in 2001 when you buy the mutual fund, and then drops to $25 in 2002 and they sell that stock, you pay capital gains on $15, even though your fund lost $5 since you bought into it.) Not a good plan and not a good unexpected bill you have to pay at the end of the year. I’d rather take profits from my stock trades, set aside 25% of the profit for capital gains and know it’s there, or just hold my stock and not pay taxes until I feel like it or, better still, sell my stocks in January and invest my tax money for 16 months before I have to pay the capital gains on the sale. In any of the scenarios, if I’m trading stocks or Exchange Traded Funds, my taxes come out of the profits I’ve made, not out of my cash at hand.

The fifth reason they suck are the fees. Fees here, fees there, tons of hidden fees, added fees and for what? To pay a guy a million dollars a year to not beat the market? A big waste of money.

The sixth reason why they suck is they rarely beat the market. To quote our good friends over at Motley Fool:

“On the whole, the average mutual fund returns approximately 2% less per year to its shareholders than does the stock market in general. ”

and on the Smith Business website, in an article saying how great Mutual Funds are, they quote Motley Fool too:

About three-fourths of all managed mutual funds underperform the stock market’s average return, according to investor-run Web site “The Motley Fool.”

That essentially means, you’re better off buying Diamonds (DIA) or Spyder (SPY) (disclosure, I have SPY and MDY, which is the mid-cap index, as my ‘safe money’ investments), than to buy a mutual fund.

92 Million people currently own mutual funds, but how many people do you know who are invested in mutual funds say anything overly positive about them? Sure, when the market booms, things look swell, but realistically, over time, mutual funds don’t make people extremely wealthy, if they did, we’d have about 92 million millionaires saying how great mutual funds are and that’s simply not the case, not to mention all of the top traders trade stocks, not mutual funds, and I can show you dozens of people I know who have watched their mutual funds sit and do nothing or next to nothing while active traders killed the market consistently. Way back in 2003 I wrote an article over at my Undertrader.com site about dollar cost saving and buying ETF’s instead of mutual funds. If you had purchased Spyder (SPY) on the day of that article you’d be up $28.22 a share or 25.7% in 3 years and if you had bought the Mid-Cap (MDY) that day you’d be up $38.94 or 37.2% in 3 years and that’s without anyone managing anything, just a straight index.

Sure, it’s pretty swell that you can get percentages of shares in Mutual Funds and sure it’s cool that you’re instantly diversified, (which I don’t think is necessarily a good thing), however, an ETF is so much better than Mutual Funds that it’s not even a competition. It’s like Carl Lewis racing Emmanuel Lewis and individual stocks are like Carl Lewis racing Jerry Lewis.

If you only have $25 a month to invest, which is great and I applaud the effort and it’s a great start, I would rather you buy individual stocks from Sharebuilder and pay the $4 fee than to buy a mutual fund. In the long run you’ll learn more, you’ll come to grow and understand at least one specific company and it’s stock, and you’ll be investing on your own instead of letting some millionaire schmuck in a suit do it for you.

Invest in peace…

Mutual Funds Aren’t For Losers

A buddy quoted Robert Kiyosaki of Rich Dad fame to me a few days back, saying “Mutual Funds Are For Losers.”

(This same buddy invests in index funds which are technically mutual funds but that is an entire other post.)

Well, chock me up as a loser because I do hold mutual funds, both now and in the past.

Now, my emergency fund (or opportunity fund depending on whether you’re a half empty, half full type of person) is in a no load money market fund held via my bank. I can transfer in and out on the same day, have instant access to my cash, and I count it in the bond part of my portfolio make up. It isn’t going to make me rich but then, that is not the purpose.

But in the past, most of my holdings (meager though they were) were in mutual funds. You see I started investing $25 a month. Not much could be purchased with that (except maybe a few Starbucks coffees) and definitely nothing remotely diversified.

Add to that, I was completely ignorant in the ways of investing. I was an investment virgin. My only experience with investing was through safe and stable term deposits (or the equivalent). Yeah, I was a saver, not an investor.

I could have waited, saving my $25 in a high interest savings account until I could actually purchase something worthwhile (like a complete lot) but would this have pushed me to learn about the market? Would I have had the experience of comparing my mutual funds to other mutual funds? Looking at the investment make up, figuring out why the fund manager was making the changes in the fund, watching the market’s ups and downs?

Nope. With time pressures being what they are (tight, always tight), I would have said “I’ll learn that later” and never have. Without my own money in the market, there was no reason to do the work, no urgency.

I made my share of mistakes with my small, piddley dollars. I invested in sector funds that were “hot” (like technology, ouch) and got burned. I invested in bond funds when interest rates were rising. I lost hundreds, not thousands of dollars (the price of tuition). These were junior jammer mistakes and I was happy (okay, I wasn’t happy but…) to make them while still a junior jammer.

So do I think mutual funds are evil and only “losers” invest in them? Of course not. A mutual fund is just one tool in the investment toolbox. It will not always fit the job (unlike another buddy who thinks a hammer is good for all fixes) but its still available.

The Financial Guru

Back when I was a financial young’un, I went to one of those free seminars hosted by a mutual fund company. Speaking there was a financial “guru” that I had admired for some time. I had read his books, watched his weekly tv show, and scanned his newspapers columns. I really thought he knew anything and everything about finances.

He was selling a can’t lose investment that supposedly not only provided a good return but saved the investor on taxes too.

What a great deal, right?

Well, he wanted us to sign up immediately. Being the cautious sort, I preferred to take the info home, do my own research, and run it by some mentors (including my financial advisor).

All I bought at that seminar was a monthly subscription to his insiders newsletter priced at $120 for the year (a lot of money for an investor who was at that time only investing $25 a month).

The first month went by. Didn’t receive my newsletter. The second month went by. Still nothing. The third month came and I called the 1-800 number. No longer in service. I e-mailed the address given. Bounce back. Hit the website. No longer there.

In the meanwhile, I had looked into the investment. Hhhmmm…looked feasible but not something the tax people would be too happy with (are they ever happy?). Brought it to my mentors. One by one, they told me what was wrong with it. No use having mentors if they’re shy about giving their opinions. My mentors sure weren’t shy.

By the end of the year, I read in the newspaper that the “guru” was fighting charges, security fraud or something like that. Needless to say, the investors were being audited by the tax people (I get audited every year ‘cause I’m aggressive not ‘cause I try to scam the system). Note that the investors were audited. It didn’t matter that they took someone else’s advice. They were held responsible.

That $120 taught me a valuable lesson. I always, always, always do my own homework when looking into investments, no matter where the information is coming from.

I’ve worked with my financial advisor for well over a decade (we won’t say how well over…). I trust the guy. I know he’s about as anal and buttoned down as a man can get (yep, lots of fun at parties). I STILL do my own research on his suggestions. He is my advisor and that’s what I use him for…advice. I have the final say. I make the decisions.

Why am I sharing all this? Well, I’m no financial guru by any stretch of the imagination (goodness no), but I’m going to be talking about what has worked and has not worked (yep, I’m messed up, I’ve lost money, I challenge you to find an investor that hasn’t) for me. Key part of that sentence is “for me.” Personal finance is called that ‘cause its personal. That means what works for me might not work for you. No getting around it (and I’ve tried, believe me, I’ve tried), ya gotta do your own research.

How Much is Enough?

After reading Erin’s great post a few days ago and talking about it with one of my good friends, and after a conversation I had with my fiancee, the question came up, “When is enough, enough?”

Erin and Ken both quoted Trump and Rich Dad, Full of Shit Dad as saying you need to invest to win, how much do you really need? Do you need billions? Not really. Do you need Buffett or Gates money? No. If you got rich through frugality, like most people do I think, you aren’t really interested in those shiny new cars or mansions because you realize they are just a huge waste of money for show and aren’t really necessary.

(I’d just like to drop in a note that Rich Dad, Full of Shit Dad’s point that he and Trump have ‘good debt’ is a bunch of bullshit. No debt is good debt. I don’t care if it’s a student loan, a mortgage, a lease, a car payment or owing your Uncle Ned the $20 that you borrowed to get a haircut. We need to stop categorizing debt as good or bad, it all sucks and the sooner you get out of debt, the sooner all of this money making stuff becomes a hell of a lot easier. Now, back to our story.)

The thing most people don’t understand is that being rich isn’t the goal for most people with money. Buying things isn’t the goal. I think most people with money realize that money gives you the most important thing in life, which to me is opportunity. When you have enough money that you can do anything you could dream of and be okay, you are ‘rich.’ For some people, that could be $100,000, for some it’s $2,000,000.

I have had some great opportunities this year. I’ve gone on three, month-long trips to Canada, a trip to Yosemite, a trip to Catalina Island, two trips to Disneyland, a handful of NHL hockey games and I took an 8 day bicycle ride from San Francisco to Los Angeles. Having money allowed me the opportunity to do these things because I didn’t have to worry about paying bills or losing my job while I did them.

That’s all great for now, but long-term, thinking of retirement, how much should you have banked before you can retire and not worry? $1,000,000 debt free would pull you in about $100,000 a year at 10% ($70k after taxes or so.) Will that be enough 20-30 years from now? 30 years ago you could get a house for about $40,000 that is now worth $750,000 in my area. Cars were about $4,000 vs the $20,000 they are now. Will these huge increases continue? How far could you go with $70,000 a year in 20-30 years? Probably not too far. It seems to me that the lowest goal you could really bank on might be $2,000,000 in the bank before you are completely secure.

Which brings us all the way back to the original point, which is, how much is enough? Is there a point where you stop ‘investing to win’ because you just don’t need anymore money? Or, is there a place where you start investing to give to charities like Bill Gates does? Or, do you just keep going for more and more and more because that’s the ‘game’ and the person with the most money wins?

Personally, I’d rather risk while I’m young, get enough to where I never have to worry again and then put a majority of it in no-risk CD’s and go play golf all day and not worry about my money, not worry about renters or repairs, and not worry about stocks going crazy. What’s your long-term plan?

– Invest in peace….

Why the Poor Will Always Be With Us: Part 2

Great conversation about Why the Poor Will Always Be With Us. I wanted to continue that by addressing some of the issues raised from the ‘soap box’ I’ve been given. (wink)

I raised the issue that more money does not solve the problems of people who do not know how to manage it. JDawg and Lisa asked me what my solution would be. Financial education is my solution. There is a lack of people who are financially educated, not that there is lack of resources. Money cannot solve poverty. Allow me this fabulous quote:

The one problem money cannot solve is poverty. While there are many underlying causes of poverty, one of the causes is lack of financial education. The problem with throwing money at the issue of poverty is that money only creates more poor people and keeps people poorer longer…

As your financial education increases, you will start to see opportunities everywhere.”

Why We Want You To Be Rich

One commenter, Steve , nailed it on the head when he stated that it is people that are the problem. Steve also mentioned that it’s difficult to create a broad finance program solution. As my partner in crime (over at NLL) Kimber likes to say, “Personal finance is just that- personal.”

In this country, in this day and age, anyone can make it. Opportunity is all around. People who have achieved a remarkable level of financial success all know that they started somewhere, and for many of them, it was with nothing. But they wanted it more and hustled harder. They figured out how to make it happen.

You will not find a lot of sympathy from people who have been successful. They know it can be done. They know you can do it too if you want to. Sympathy, according to the Dalai Lama implies pity for someone, making you better than them.

If you want to better your financial situation, there are resources everywhere. First you have to accept personal responsibility for your own life, your actions and your consequences. We are all exactly where we have chosen to be.

Just as it is not Mc Donald’s fault you’re a little extra cuddly, it is not the credit card company’s fault that you are in debt.

Phil John suggested that some people might just be dealt a bad hand in life. A friend of mine who is a professional poker player told me once that the cards you are dealt mean very little. It’s everything else that matters, such as how other people play their cards, and being able to anticpate what they are going to do. I believe the same is true in life.

If you find yourself poor and uncomfortable, you may not be as uncomfortable as you think you are. When the pain becomes too great, you will do something about it. As another good friend of mine says, “When you are ready to make money, you will.” In order to be rich, you have to be afraid of being poor. I believe anyone and everyone is capable (with very few exceptions) of educating themselves about how to make money, manage money, and keep that money. It comes down to the person taking the steps to do something about it. Everyone can. Not everyone will.

Two Men - One Message

Why the Poor Will Always Be With Us

The Naked Economist (and no ladies, he is not actually naked in the picture, disappointing I know) in his most recent Yahoo Finance Article made this comment:

The living wage: Wouldn’t it be great if everyone in America earned at least $12 to $15 an hour? I think it would be. The fact that America’s poverty rate still hovers in double-digits is a national disgrace. But requiring employers to pay double or triple the hourly wage they’re currently paying wouldn’t necessarily do any great favor to many of America’s working poor.

The context is about quick fixes. But I think there is a bigger problem that cannot be solved with higher wages or more a more bankable skill set.

The problem is lack of financial education. It doesn’t matter how much money you make if you do not know how to manage it well. I am financially free through investments as a stay at home single mom; conversely, there are extremely high paid people who live pay check to pay check or are drowning in debt.

The divide is getting greater between the haves and have-nots. And if you divided up all the money evenly among the masses, it would end up the same way. Some people know how to make and manage money, but most don’t.

Managing money is a life skill. Until people are more educated about how to make, manage and grow money, the poor will always be with us. The question is, will you be one of them?

Twist on Orman’s Parent Trap

Crazy Parents. A Drain?Suze Orman’s latest Yahoo article titled The Parent Trap addresses the issues Boomers are facing with grown kids moving back in, as well as aging parents. I see another problem here, my own personal parent trap. Let me esplain…

My parents were crazy youngsters when hey had me, divorced when I was two, and then those crazy fools married again when I was in my late teens. Each had more children, and one parent even gained a whole other family. I have been on my own ever since.

My dilemma looks like this:
Aging parents, although they are in denial of that (my dad didn’t want to be called grandpa at first- probably had something to do with the fact he had a 3 and 8 year old himself!); they may not be quite ready for retirement themselves (dad much better than mom); they are still raising kids; if something happens to either of them, as their only child and the only one over 18, I will be the one to step in and care for them, make the tough decisions, and raise their kids (god forbid it come to that!). All this in addition to making my own way with two little guys.

I have my parents and siblings built into my long term plan, but for now, I have to focus on getting myself financially set. The proverbial oxygen mask has to go on me and my kids before I can attend to anyone else’s financial needs. (Ya heard?) Have you thought about how your family fits into your financial plan?