Social Insecurity

Good News / Bad News
The Houston Chronicle reported that social security checks will be going up by 3.3 percent in 2007. The cost of living adjustment is good news for many people that are depending on Social Security as part of or all of their monthly income. The increase will provide more money for health care, energy costs, food, and other living expenses.

The bad news is that the trustees of the Social Security trust fund predict the system will be broke within the next 40 years. To all of those that have been paying into Social Security, this means they will never see the promised benefits of the money they contribute.

An article entitled, “Misleading the Public: How the Social Security Trust Fund Really Works” does a good job of explaining how the Social Security trust fund is really just an accounting game being played by the government. The politicians have been borrowing from the trust fund and using payroll taxes to fund the money that is being paid out. As baby boomers retire, the dollar amount going out of the system will exceed the amount coming in. At that point the government will have to start to pay back over $1 trillion it has borrowed from the trust fund.

Social Insecurity
For the generations following the baby boomers, the problems of Social Security have both immediate and long term effects. For the immediate future, we will be paying more taxes. According to a recent announcement by the government:

11 million taxpayers will pay higher taxes next year because the maximum amount of Social Security earnings subject to the payroll tax will rise from $94,200 to $97,500. In all, an estimated 163 million workers will pay Social Security taxes in 2007.

The long term effects are even more drastic. By the time we reach our late 60’s we will have paid thousands or hundreds thousands of dollars into the system and will receive none of it back. We will not have a social security net to catch us as we age and slow down. There will be no one to look out for us but ourselves.

The Solution
The politicians making “reforms” now won’t be the ones holding the bag when the time comes. Now we must take matters into our own hands. Armed with the knowledge of what’s to come, our only option is to prepare. What can we do? We have to increase the amount we save/invest for the future and reduce the amount of taxes we pay.

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Achieve Financial Independence Week

Financial Awareness
Stowers Innovations and American Century Investments have teamed up for the 2nd straight year to promote “Achieve Financial Independence Week” during the 3rd week of October. According to the website, www.afiweek.com, the goal is to “help raise Americans’ awareness of their own spending and saving habits, and provide people of all ages with the strategies and information they need to achieve financial independence.”

What a wonderful idea! Of course, ideally, people would focus on their financial independence every week but raising awareness of it every year is a good idea.

Contract for Success
The site provides a personal contract they call a “Declaration of personal finance independence”. People can print it out and sign it, committing themselves to follow its principles. The first step of achieving a goal is to put it in writing. Well, they’ve already done that for us, all we have to do is sign it, AND mean it!

The contract addresses issues such as financial priorities, credit usage, budgeting, emergency planning, saving, and investing. If we can just follow these basic principles, we’re on the road to a money smart life!

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Financial Checkup – Behavior

Principle 1 – Behavior
Managing our behavior is the first step to good financial and physical health. My dad is a family practice doctor. He can offer preventative counseling, diagnose his patient’s problems, give them tools and steps to improve their health, and monitor them with regular checkups.

Despite all of the help he provides, many of his patients still struggle with their health issues. Why, because they don’t change their behavior. He lays it out for them, all they have to do is follow his counsel, but unfortunately many of them don’t follow through.

Many of us have similar problems with our finances. The basics of personal finances are all around us in books & magazines, on television, on the radio, and on the Internet. We can choose to take advantage of this information or not. As I see it, there are two behaviors that prevent us from being financially healthy:

• We don’t go to the “financial doctor” for our initial checkup. We’re overwhelmed or uninterested in the topic of our finances. We have a mindset that we can’t or don’t want to learn more and we don’t seek the knowledge or the help of professionals.
• We don’t build and maintain healthy financial habits. You could say that we don’t visit our “financial doctor” for regular checkups. We may get started but are distracted or discouraged and don’t continue.

Stay tuned for the next principle in Financial Checkup – Motivation

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Why We Want You to be Rich

Financial Mindset
Donald Trump and Robert Kiyosaki teamed up to create a book (Why We Want You to be Rich: Two Men – One Message) that looks at people’s different perceptions and approaches to wealth. This book was just released so I haven’t had a chance to read it yet. From what I gather it covers how the lack of financial literacy in our country combined with the way people think about money prevent many of us from becoming wealthy.

Book Launch
I caught an interview of these two on Larry King Live last night talking about the launch of their new book. As I expected, they re-iterated the problem of how schools don’t educate our youth about money, how to make or manage it. Another thing they mentioned that caught my attention is that most finance books are about living below your means. They took a different approach with their book and talk instead about expanding your means. I like this concept; it leads to an abundance mentality. Rather than focusing on making your life fit into the resources you have, concentrate on expanding your resources to fit your life.

Define Rich
When Larry King asked them to define being rich, Trump responded that being rich is a state of mind. I agree with this definition, if we can appreciate the blessings we already have we’ll feel rich. Add to that having the confidence that we’ll be successful and a vision of success and we’re on the way to being rich.

Kiyosaki responded to the same question with, “Forbes defines being rich as having 1 million dollars a year in passive income”. This definition is definitely more specific, if you can hit that number then you’re rich. I think a key point is the fact that it’s passive income. This is where financial independence comes into play. You can spend your time pursuing your passions in life without having to work for someone else to pay the bills.

Pearls of Wisdom
When asked what advice they would give to the average person, Kiyosaki emphasized the importance of getting started. Everyone has to start somewhere; he talked about starting small and building on your success.

A piece of advice that Trump gave was to do what you know and love. If you create an enterprise based on something you’re passionate about you will put in the time and effort required to make it a success. Another point he made about wealth was emphasizing not only what you earn but preserving those resources. He talked about people he knew that made a lot of money but didn’t consider what happens if that income stopped or dropped dramatically. I think this is a problem many of us have that has gotten us further into the rat race.

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Middle Class Finances

The American Dream?
The Center for American Progress recently released a report entitled “Middle Class in Turmoil” that covers the financial troubles faced by the middle class in America. I was reading this report and others on their site and came across some depressing information that many of us are well aware of.

While health care, health insurance, college, housing, and energy costs are rising; Americans are experiencing flat wages and an economy with slow job growth. With more going out and less coming in, many of us have used a mixture of two strategies just to keep up. We’ve increased the amount of money we’re borrowing and have been working longer hours or multiple jobs.

Quality of Life
These strategies of working harder and taking on debt have dramatically decreased our quality of life. They have lead to less time with our families and record levels of household debt as a percentage of our disposable income. With any job or business, to be successful you have to put in the time. The same thing applies to relationships. It’s hard to enjoy time with your family when you’re always at work. It’s also hard to enjoy time with your family when you’re arguing over finances or stressed over bills.

The report discusses one thing that is a definite cause for this stress, the decreasing financial security of the American middle class. Many of us aren’t prepared for the financial drain of a medical emergency or the sudden loss of a job. Even if we’re getting by now, without an emergency fund and financial alternatives, families can have the troublesome fears of “what if” in the back of their mind.

Feast & Famine
One of the sad things is that these families are experiencing this during a time of economic success in our country. The Center for American Progress discusses this in the
“Upside-Down Economy”. The article discusses the feast of the corporations vs. the famine of their employees.

“While business profits are soaring to record levels, income growth is extremely slow and wage and employment gains have lagged significantly. Despite the rise in corporate profitability, these earnings are not being reinvested in the creation of good paying jobs and productive capital. Workers, therefore, have not reaped their fair share of the productivity gains in the past few years.”

What Can We Do?
At a macro level, we can get involved in politics and vote to help change policies. Unfortunately for our families this is a long term solution that will have an eventual trickle down effect. What can we do NOW?

I’ve decided the best way to change my family’s future is to take matters into my own hands. I’ve decided to work for myself. With a family to support, I can’t just quit my job. So mine will be a gradual journey earning money for myself, instead of for other people. I want to work all day on something I’m passionate about. My vision is to help others learn how to live a money smart life and I’m glad I’ve started on the journey.

Get Started Today!
I encourage you to find something you are passionate about and that helps meet your life goals. There is a saying something along the lines of “If you don’t like where you’re headed, change directions.” If you’re worried about the financial state of families in our country today and think you’re one of them, change where you’re headed. Get started today, making the decision to change really is half the battle!

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Making Yourself Rich

What is Rich?
To some people, being rich is a dollar amount in a bank. To others being rich is about having security, not having to worry. Accumulating possessions and property equates to being rich for some. Others feel being rich is all about the lifestyle you lead. In my opinion, how you live your life is what defines being rich. The amount of security, money, or possessions a person has doesn’t seem to matter much if they are not enjoying life and following their passions.

That being said, money is a key component of being rich. Money can’t buy happiness, but it can buy freedom. If a person can learn to make and manage money they will be empowered to follow their dreams and live they lifestyle they believe in.

Why Become Rich?
Defining the answer to this question is the first step to being rich. Once you have your reasons to be rich you have the motivation to succeed and your guidelines for getting there. My reasons are simple:

Family. Support my family and allow my wife wants to stay home and raise our kids.
Education. Education on how to make and manage money is lacking in our school system. There are many people in search of these skills and I want to share with them the things I’ve learned from my mentors and through my experience.

What Are You Doing To Make Yourself Rich?
The basic concepts to becoming rich are simple:

1. Save more than you spend

Increase your savings by paying yourself first. Automate the process of putting income into savings or investments before it even hits your checking account. Reduce your spending by buying what you want or need, not what others are selling.

2. Make the money you earn work for you

Make sure the money you accumulate is growing at the optimal rate for your risk tolerance level. A financial professional can help you devise a plan to meet this goal.

3. The more you earn and keep, the faster you become rich

The best way to earn and keep the most money you can is by working for yourself.

Success is Contagious
Although everyone has their own reasons for wanting to be rich, one commonality among most people is they know they WANT to be rich. If you want to achieve something, find someone who has already achieved it and do what they did. Read the post, Making Others Rich – A Different Perspective, to find out how we can become rich by making others rich.

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Making Others Rich

We spend most of our time making other people rich. Below are four simple examples that illustrate how we make other people we’ll never even know rich in our daily lives:

1) We roll out of bed when the alarm goes off at dark o clock.
While we’re sleeping we’ve been paying for the roof over our head. If we pay $1000 a month for a home loan or rental fee we pay almost $1.40 an hour over the course of the month. Even if our monthly housing costs are only $400 a month we still about 55 cents an hour. We just spent the night making a landlord, home builder, or bank somewhere a little richer.

2) Off to work, we jump in our car and head onto the highway.
Most of us are still making payments on the car we drive, one that depreciates an average of over 35% during the first year of ownership. Monthly payments cost us from $1.10 an hour ($800 monthly) to 42 cents an hour ($300 monthly). The car that spends most of the time sitting in a garage or parking lot is making an auto maker, car dealer, or bank somewhere a little richer.

3) Gassing up, we swipe our credit card and fill the tank.
Credit card rates are ridiculously high for those of us who maintain a balance. For those who use a cash back card, one slip up in payments will cost us an entire year’s cash back. A fat cat in the upper office of the credit card company is now a little richer. Gasoline prices are soaring but we grit our teeth and pay the price. The world’s largest oil companies are turning in record profits; thanks to our continued business their executives are now much richer.

4) We roll into work, dreading the day, and begin the daily grind.
The total cash compensation of your company’s CEO last year including salary, bonus, and stock options was $2,574,717. Did you get a bonus last year? How much was it for? Does, “Thanks for the hard work”, sound familiar to you? We spend at least 8 hours a day working our butts off, making the people at the top very rich.

As I put these everyday examples into words, I realized how screwed up it is. If I stay on my current path I’ll spend most of my life making people I don’t know rich and will probably never be rich myself. Depressing thought, however, there is hope. Read Making Yourself Rich to hear the good news.

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Debt Diet

Eliminating Debt
We can’t be financially independent if we spend a large portion of our income paying off loans. So the first step to a money smart life is to get rid of debt, stop making other people rich off of our interest payments!

Financial Independence Roadmap
Debt can be overwhelming. Many people don’t even know where to start. While getting started today is a key component, keeping momentum is also very important. For most people, it took a while to build up our debt, and will take a while to pay it off. How do we know where to begin and how do we keep motivated once we’re on the way? The answer is to build a roadmap to success. The plan should explain what changes to make and allow you to track your progress as you go.

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Financial Education

What You Don’t Learn in School
One of the things I find most troubling about our society is the lack of financial education in schools. While math, science, and English are required learning, personal finance courses are either not available or not required.

Blueprint for Trouble
The travesty is we prepare our youth to be competitive in the job market, but we don’t teach them how to handle money once they earn it. We’re setting them up for lives of debt and a difficult financial future.

Entrepreneurial Gap
What’s even worse is the lack of instruction on how to make money for themselves. We teach them skills that employers are looking for. Guidance counselors talk to kids about going to college and finding a career. They help them write resumes and learn how to interview. Youth learn the skills necessary to work for someone else but aren’t introduced to the basics of earning money for themselves.

Making a Difference
The failure to educate America’s youth on finance matters has created a country full of people needing financial guidance. I’ve often wanted to share the concepts of smart personal finance with others but have lacked a method to get the message across without sounding as if I was bragging or nagging. Self-publishing on the Internet is definitely a way for one person to make a difference. My goal is to help others take another look at the way they think about money and they way they use it.

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Welcome to a Money Smart Life

This site will document a journey that many of us are on, a search for a Money Smart Life. You can read my story and the motivation behind this site on the My Story page. Hopefully, this will serve as a guide to others on a journey similar to mine. Thanks for reading!

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