Nov 11

I am the 99%

Its true, I am not in the richest 1% of Americans so I am officially part of the 99%! No shit right? In fact, I highly doubt that I have ever been in the presence of a member of the illusive 1%. So theoretically the Occupy Wall Street groups are speaking for me. The are making demands on my behalf – which is nice because I need to be at work.

What are the Occupiers demanding for me anyway? Are they going to negotiate a cash payment from the 1% to the 99%? I would like some cash. Are they going to force the government to give me a full retirement at 50? I would like to retire early. Maybe they will actually manage to forgive my mortal sin of amassing school loans to pay for my education. Get in line for free stuff!

(David Shankbone, Creative Commons)

The actual list of demands is very difficult to come by and even more difficult to discern. It seems that most demands center around the usual suspects: stop foreclosures, pay off everyone’s student loans, throw bankers in jail and reform campaign contribution rules. The demands seem to vary from city to city and read more like a wish list than a well thought out strategic campaign with a specific and attainable end game.

It seems to me that these Occupiers are nothing more than pissed off citizens that are fed up with the direction the country has been moving and wishes to express their right to free speech to voice those sentiments. I am pissed off too.  I have school loans that I decided to take out and agreed to pay. I have a job, but know many friends and family members that cannot find one. We are fighting multiple wars that we cannot afford for reasons we can’t even imagine. We are an out of control bus and just want someone to stand up and take the wheel.

The hard truth is – no one is going to save us except ourselves. We have to take the wheel ourselves. We need to overcome whatever the particular hardships we are facing as individuals and elect only responsible people to represent us.  These Occupy Wall Street demonstrations are nothing more but excrcises in futility, but if these protests make these 99% feel like they are taking the wheel then good for them. I would rather work as much as possible to pay off my own school loans and move on. I may be officially in the 99% according to the definition, but please don’t speak for me Occupiers. I have my own voice.


Jul 11

The Debt Ceiling and Gridlock in DC

The gridlock in Washington, DC right now is not just on the beltway. It seems so simple right? Just set a new debt ceiling and the country will get back to stagnating between disaster and mediocrity. The reason for the drama being played is the exact same reason why DC can’t seem to get anything done and the exact same reason that we live in the best country in the world.

Capitol Hill. Photo by Wally Gobetz via flickr.com. Creative Commons License.

The forefathers that designed our system of government created so no one group could take control and lead the country in a direction that the citizens did not approve of. These complex checks and balances are currently being exposed for what they are; a way to force critical examination and debate of important issues. The system also can slow the decision-making process to a glacial pace.

A problem arises in times like these. When time is of the essense and the entire globe waits with baited breath to see if the economic sun will rise the next day. The government, doing exactly what it was designed to do, can actually bring an ecomonic apocolypse through inaction instead of action.  A scary thought to say the least.

I often wonder what the Founding Fathers would think of their creation after 200+ years. I hope they are proud. The United States is the best country with the most just goverment in the universe. I wrote an article about how great our country is called Is America Down and Out? Their creation is little changed in its core. I wonder if they would be shocked to see how large their little Federal Government has grown almost exclusively through loop holes and add-ons to legislation which created the vast assembly of agencies and departments.

I wonder if they would be embarrassed by the amount of debt their little Federal Government has borrowed. I would assume that they could not even comprehend the complexities of our financial system. These were people that took great pride in paying off their debts. In fact, I would assume that they never owed too much to anyone. They only bought what they could afford to buy. I think the Founding Fathers would spend hours scratching their heads as they attempted to figure out what the little Federal Government need to buy. In their time, the States were the most important governments and the Federal Government was set up to unify the States, to enforce property rights and a few other very specific purposes.

As the world waits to hear its fate, there are few certainties. We are frustrated with the partisan bickering coming out of Washington. Maybe our frustration is even moving towards anger at this point. I can tell you that your anger is not being directed in the right place. Just as you cannot fault a wild animal for attacking a hiker in the forest, you cannot be angry at the current US Government for arguing and banging heads with little or nothing to show for their efforts. This is exactly what Congress was formed to do. Instead, your anger should be directed at the polititians of the past who chose to borrow and chose results NOW, to pad their pockets and their legacies. Default or no default. This should serve as a wake-up call for every American. Borrowing now and leaving the next generation to figure it out isn’t the responsible action and has to stop. We should know because we ARE the next generation.


Jan 11

When School Loans Aren’t The Answer

No parent wants to sit across the dining room table with their son or daughter who is beaming with excitement over their acceptance letter to NYU and have to tell them that they cannot afford to go to school there. It is a parent’s job to guide the child through the trials and tribulations of life, but in the case of going to their number one choice for undergrad, parents seem to be blind to the finances of the decision.

There are many factors that need to be considered and countless fallacies that must be ignored when making this decision. Making the wrong decision could end up with the student starting life out with so much debt that they cannot even afford to live on their own even if they are lucky enough to land a job.

The first factor that needs to be analyzed is the amount of cash and cash equivalents that are currently put aside for the college fund. At the point when your child is a senior in high school, most of these investments should be converted over to cash and ready to be dished out. It is a mistake to keep this money locked up in anything but a certificate of deposit as it will be need within few years. If you are going to need the money in less than five years, it needs to be in cash.

Another important factor to consider is the amount the student will be receiving in scholarships. Scholarships are an amazing gift from generous benefactors that never need to be paid back. A gift of education that will last a lifetime is one of the most powerful gifts someone can receive. Many of the largest universities offer many free-ride scholarships to ensure they yield the best of the best students for their classes. They can then publish these statistics and draw in future classes of highly intelligent and highly sought after students.

A factor not to be ignored is the field the student will be going into. Though many students change their majors many times, a best estimate forecast based on the students’ passions and desires should be taken. I am all for learning poetry and English if that is your passion, but I am skeptical about paying $200,000 for an undergraduate degree in the field especially if the degree needs to be financed. There is no way that the student will be able to make enough to cover the loan payments. A state school is an option here or even majoring in something with a higher paying career and minoring in the passionate discipline.

Is the student planning on going to graduate school? Many times a student will have so much debt from undergrad that they cannot even afford to go on. Having a degree in pre-med is fine and good, but eventually you have to be in position to attend med school to benefit fully.

Some parents think that they should borrow from or cash out their retirement plans to fund the child’s education. Though this is very thoughtful it will end up causing a lot of trouble for you when it comes time for retirement. Another issue here is that your kid could start life with a degree and no debt, but then have to take care of their elderly parents because the parents had nothing in retirement to support themselves with.

A top school does not necessarily translate into a top salary. Entry level is entry level, do not get swept away with the notion that you should send your child to a top school and they will automatically graduate with some great job making six figures. This is a dangerous fallacy. A top school will open a few more doors in the work place and graduate school than a run-of-the-mill state school, but there are no guarantees and no promises. Sometimes luck is the most fascinating aspect of a successful person’s biography!

Education is an asset that a person will carry with them for the rest of their life. A bachelor’s degree is a qualifier and will open doors in life, but it will not determine a life.  It is likely that a student will be doing something entirely different with their life in ten or twenty years than they expected they would be doing as a teenager.

Deciding where to attend and what to study are very important decisions, but not the most important determinate of success. There is no substitute for hard work, a creative mind and financial discipline. Financial discipline, when taught at a young age and exemplified through the reasonableness of college decision-making, will be the greatest education a child can receive.


Jan 11

The Three Pillars of Wealth Creation

If you would like to be wealthy and have not yet been able to acquire wealth, you need to develop habits that support your objective to build it. Once developed, you then need to commit to those habits and to that objective.

People throw around the term “commitment” haphazardly these days. If you look-up the definition of “commit” on Dictionary.com, you will get an assortment of definitions all dancing around giving some sort of obligation or the act of “being committed.” While these meanings are all accurate and some people may think you will need to “be committed” to an institution once you commit to wealth-building, these terms seemed watered-down to me.

There is a huge difference in saying someone committed suicide and someone committed to a marital obligation, for example. When someone commits suicide by leaping from a roof, they cannot revisit and amend the decision on the way down – they are indeed committed to the decision in which they made. Marriage is different. Sure there is an obligation and an expectation that the union will last forever, but marriage can hardly be viewed as a commitment the same way the leap off a building can (but some may argue the outcome is the similar). The difference is the “out clause” which is implicitly or explicitly available to us in most decisions we make in life. With the divorce rate in the United States dancing around 50%, many people have revisited their decision to “take the leap!”

Committing to wealth-building is committing to a way of life and not trying out a new idea or fad that you can easily cease if the wind happens to blow from a different direction on a particular day. Similar successful commitments can be seen in the realm of weight loss. You know the before and after pictures where the individual holds up the big pants? If you read enough of these stories a common theme will emerge. These successful examples made a positive and life-changing commitment to dieting and exercising and have experienced the amazing result you see in the photo of them holding up their big pants.

These men and women developed habits that changed everything they did throughout their day. The way they shopped, the way they slept, the way they went to happy hour, they way they celebrated holidays – there is no realm of their life unaffected.  Committing to building wealth is exactly the same. You will have to develop new habits in the way you shop, where you live, how you eat and every other aspect of your life. The objective is becoming wealthy and living a life of abundance and the before-and-after photo is you holding up a picture of where you dream of being.

Wealth is abundance, but wealth is not necessarily money. Having money and investments throwing off passive income can just be the instrument in which you are able to live abundantly. If you have no debt and some strategic investments paying you an acceptable return, you don’t even need high income to live abundantly and consider yourself wealthy. You can decide how to spend your time! Committing to building wealth is committing to live your life with careful management of what I call the three pillars of wealth creation – debt, income and investments.

Pillars photo by Mandy Dawn via Flickr Creative Commons

Pillar One – Debt

Debt, or leverage, is a normal part of most people’s lives and essential in managing the operations of most corporations. Getting something today and paying for it later is appealing to most people as they gain some pleasure from the purchase and want to experience that pleasure now. The acceleration of their personal enjoyment is a habit people come by innately and it is a negative spending habit that people must drop to be wealthy. Instead of making the decision to buy an item based on the pleasure derived and the time-table in which that pleasure is derived, the decision should be based on the future consequences of the decision to finance the good.

Not all debt is bad. Debt can be used to elevate one’s income (Pillar Two) through the financing of an education. Debt or leverage can also be used to provide the necessary capital for an investment (Pillar Three). Each pillar is inter-dependent on the other two pillars and strategies to increase wealth can be formed by manipulating one, two or three of the pillars. There are many scenarios one can put in play to achieve the objective of building wealth.

Pillar Two – Income

Income is often confused with wealth. If a doctor or a lawyer brings home a few hundred thousand dollars per year, they are often mistakenly labeled as “wealthy” and this is not necessarily true. The most striking example of this large paycheck phenomenon is through the observance of professional athletes. We are all inundated with the headlines every time an athlete signs a new contract for tens of millions of dollars. Then we are all shocked when we read about an athlete’s bankruptcy filing just a few years into retirement. The athlete hit pillar two out of the park (pun intended), but failed to manage the other of the other pillars.

For many Americans, income is a way to keep a roof over their heads and food on the table. They simply do not have the ability to invest as they have nothing left over. Occasionally, they even need to use credit cards to cover these basic human needs – which trigger a downward spiral of hopelessness and despair. Income and debt need to be mastered before one can begin to learn about investing. Often times, a highly-paid professional with a large house and a nice car also works just to pay the $5,000 mortgage and the lease on the Bentley. A plumber with a savings account that lives under his means will have a higher net worth that the highly-paid professional.

Pillar Three – Investments

Investment is the management of accumulated wealth. How many lottery winners go bankrupt because they are so unbelievably ignorant on investing they blow two-hundred million dollars on solid gold telephones and diamond-crusted golf balls? I am being a tad facetious – but only a tad. The hard part is getting the nest-egg built up enough to have to consider the investment pillar. On the other hand, I cannot really blame someone who is the third generation in his/her family just working on not going too far into credit card debt and trying to increase income. These negative habits are learned and passed from generation to generation. Most people are completely unaware of investing and in their realm. To them, there are only two pillars.

Saving is not investing. Saving is setting aside cash for some future purchase and attempting to earn as much interest while you wait. Savings will eventually be spent.  Ideally, investments have no timeline. You should plan on never spending the principal used to make your investment. Occasionally, you may sell an investment for strategic reasons and invest the capital in a more optimal investment, but you should not shift that money to anything that is not an investment of acceptable return. You should plan on spending only the interest or dividends spun off of the investment to make your money last.

For even diligent savers and investors, reaching this investment utopia will not happen. Even in retirement, a portion of the principal invested may have to be spent to support the retiree’s lifestyle. The reasons for not reaching this pinnacle are many and depend on an individual’s age and a myriad of other contributing factors, but the concept is sound and to be committed to building wealth means being committed to this objective and being committed to this objective you need to develop habits that support this commitment in every aspect of your life.