Friday, November 28, 2014

Self Examination (Part III)

I shouldn’t have to write a third part to this series, but I live in 21st Century America. Spirituality and money are deeply and inseparably intertwined; how you earn money; how you give money; and one more, how you store money.

The Money Equation:

Money Earned = Money Stored + Money Spent

Money Stored can be a negative quantity, debt. What is your relationship with debt? Do you believe what God has to say on the subject? God says debt is part of the curse. God says the ability to lend money to others is part of the blessing.

God tells us that, “The borrower is slave to the lender.” Everything in this world (including your own flesh) is telling you a different story. The world wants you to be a debt slave. Our national debt is approaching $18.0 Trillion, guaranteeing that all of us, our children, and our grandchildren will be debt slaves. Personal debt carried by individuals is closing in on $16.7 Trillion. $1.3 Trillion of that number is student debt. Our young people are beginning their adult lives carrying a serious debt load. The Government, corporations, and our own lusts encourage us to buy houses, cars, techno-toys, and clothing we can not afford.

“Mastercard, I’m bored.”

The Keynesian theory of economics espoused by the Federal Reserve Bank is printing money overtime.

As you can see there is no shortage of money in the economy. That money was created, at taxpayer expense, then given to the banks at artificially low interest rates. The purpose of this action was to encourage you borrow the money and spend it on something, like a new house or car.

Financial institutions of all sorts, Government programs that encourage or guarantee mortgage loans and student loans, and every commercial you see or hear is encouraging you to become a debt slave.

God tells us that debt is a curse. When the very wealthy are asked what financial advice they would give to ordinary Americans. They always seem to start by admonishing the listener to stay out of debt. The power of compound interest can work for you or it can work against you.

Why do we beg banks and credit card companies for the opportunity to be cursed?

Let me ask you a trick question. Do you want to be sick? Of course not; no one wants to be sick. Sickness is not a blessing. It is part of the same list that includes debt as part of the curse. Do you want to visit wherever the Government stores samples of infectious diseases so that you can be smitten by the botch of Egypt? Then why in the name of God do you go out of your way to enmeshed in unnecessary debt?

Signing a loan is a spiritual act. You are swearing an oath before God and man. God, as well as the repo-man is serious about your oath. If you are a Christian, it is your duty to fulfill your vows to the best of your ability.

Ecclesiastes 5:5
It is better that you should not vow than that you should vow and not pay.

Psalm 37:21
The wicked borrow and do not repay, but the righteous give generously;

Fortunately I live in America. Most loans (with the notable exception of student loans) can be discharged in bankruptcy court. In biblical times you and your children could be sold as a slave to repay your loans.

God also has advice for those who are fortunate enough to be in a position to loan money to others. This subject is covered in the Old and New Testament.

Exodus 22:25
If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him.

Luke 6:34-35
And if you lend to those from whom you expect to receive, what credit is that to you? Even sinners lend to sinners, to get back the same amount. But love your enemies, and do good, and lend, expecting nothing in return, and your reward will be great, and you will be sons of the Most High, for he is kind to the ungrateful and the evil.

I find it interesting that both sides of the money equation are covered in exhaustive detail in the pages of Scripture. Money is spiritual. How we handle it is a measure of our faith. How we relate to money is reflection of what is in our hearts.

Thursday, November 27, 2014

Self Examination (Part II)

In the beginning God created the heavens and the earth. Some time later, the Lord got around to making man in his own image. He gave us dominion over his Earth. As we know, that didn’t work out so well. Although, we also know that situation will ultimately be rectified.

The first problem we face in managing our money is understanding that it isn’t our money. Our planet, the cattle on a thousand hills, the gold and the silver also; all of it belongs to the Lord. Whether God has given you one cow or ten thousand, they don’t belong to you. You are just managing them on the behalf of their creator. You are just passing through. All too soon someone else will take possession of your wealth; perhaps through misfortune; perhaps through bad decisions; perhaps through death, but it is a certainty you won’t take it with you. So keep these words in your mind as you walk through this valley of tears:

1 Timothy 6:17-19
Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share. In this way they will lay up treasure for themselves as a firm foundation for the coming age, so that they may take hold of the life that is truly life.

Under the old covenant things were pretty straight forward. God commanded the people of Israel to bring 10%, a tithe, of all their increase to his temple. This money was to be managed by his servants, the Levites, according to His law. If you complied you would prosper. If not…well, not so good.

Malachi 3:10
Bring the full tithe into the storehouse, that there may be food in my house. And thereby put me to the test, says the Lord of hosts, if I will not open the windows of heaven for you and pour down for you a blessing until there is no more need.

In the new covenant what was primarily a question of behavior was transformed into an issue of the heart. As always, controlling my heart is even harder than controlling my behavior (which is hard enough when it comes to giving).

Christianity is a religion of freedom and grace. How much you give and to whom you choose to give is a private matter between you and God.

However Scripture does provide some general guidance on these questions.

Just as ancient Israel supported the temple and the Levites, I think your giving should begin where you are receiving your spiritual food. For most of us that would be our local church. Some ministry or church or combination of churches are providing you with spiritual nourishment. These are the people who are watching out for you, praying for you, and bringing covered dishes to your family when you are in the hospital. Your pastor has a family. He needs a salary and health insurance; just like you and your family. Purchasing and maintaining an appropriate building that facilitates worship and fellowship events ain’t cheap.

If you don’t feel like you should give to your local church, you are in the wrong church.

If you listen, God will give you a heart burden for certain other ministries beyond your local church. Heed the guidance of the Spirit. The believers in local churches fueled Paul’s missionary journeys. We know because he thanked them for their generosity. We also know of godly men and women who took care of Paul as he spread the Word of God across the Roman Empire.

Finally, there are an abundance of Scripture in both the Old and the New Testaments about giving to the poor. Here is a sample.

Deuteronomy 15:7
If there is a poor man with you, one of your brothers, in any of your towns in your land which the LORD your God is giving you, you shall not harden your heart, nor close your hand from your poor brother;

Acts 4: 34-35
Neither was there any among them that lacked: for as many as were possessors of lands or houses sold them, and brought the prices of the things that were sold, And laid them down at the apostles' feet: and distribution was made unto every man according as he had need.

Take account of how much of your increase is going to where God is directing your heart to send it. Ask the Lord if you can do more. For me the answer to that prayer has always been, “Yes.”

Many years ago, I listened to Larry Burkett, the Godfather of Christian personal finance gurus, on the car radio on my drive home from work. He received phone calls from women (always women) who wanted their family to give more to their church or some ministry than their husband. His advice was always the same. Tell your husband to pick a number a little higher than your current level of giving. Tell him agree to give at this level for a year then let’s look at our financial situation in comparison to our current state. If it has improved, we can talk about giving more. If it is worse, I promise never to bother you about giving again. Burkett claimed that while he received many phone calls from families who improved their situation by taking this challenge, he never received any from people who did worse.

In spite of my fears and lack of faith, so far I have not been able to out give God.

Wednesday, November 26, 2014

Self Examination

I believe that how we earn and manage money are spiritual practices. From time to time it is good to stop to take an inventory of how your beliefs about money and, more importantly, how your practices are working. That is pretty easy. Just calculate your net worth every month. If you understand and are comfortable with why the numbers are going up or down, most likely you are doing OK.

There is a harder test that involves an examination of the heart. Unfortunately for people (like me) who are at war with our sinful nature, examining the condition of my heart is much more difficult than measuring the increase or decrease of my investments.

Are you a good employee? If you were the boss would you hire yourself or would you hope for something better? When I was the night superintendent at a saw chain factory, it was my observation that one out five employees met the spiritual standard found in scripture.

Colossians Chapter 3
“Slaves, in all things obey those who are your masters on earth, not with external service, as those who merely please men, but with sincerity of heart, fearing the Lord. Whatever you do, do your work heartily, as for the Lord rather than for men, knowing that from the Lord you will receive the reward of the inheritance. It is the Lord Christ whom you serve.”

About three out of five employees were about as good as their employer. If they were provided with a decent wage, tolerable working conditions, and respectful supervision they were good employees. If they were treated badly, they behaved badly.

I observed about one out of five new hires were just bad employees. When I was a new supervisor, I wasted a lot of time trying to encourage these people to do better. Finally I realized that the best thing that can be done with a bad apple is to just throw it away. My job was winning the hearts and minds of the three. I could measure my performance by measuring their performance. The one employee who met God’s standard of excellence was just a blessing, one that I didn’t earn.

Who is your boss? Is it that micro-managing, manipulative creep who is making your life miserable or is the Lord of the Universe? Too often in my career I was working for man, not for my God.

I have written about the “Confucian Work Ethic” that is replacing the Protestant Work Ethic in my country. Do you think it accidental that Asians have the highest median average household income in the United States, over 34% higher than the average of all races? Some of these people have been my neighbors and coworkers. Some of them came to this country with nothing but the clothes on their backs. Unable to speak English, with nothing, some of them risked death or imprisonment to escape their homelands. In less than a generation some of them were living in my neighborhood. They were sending their children to some of the best colleges in our country. They were achieving the American dream.

It wasn’t because they were good Christians. Many of them are Buddhists or have no particular faith. However, God’s laws apply equally to all. I know that very unfair bad things happen to good people, but remember that if you are walking in God’s ways, even if you don’t know you are walking in God’s ways, you don’t need an even playing field to become a person of excellence.

Proverbs 13:4
The soul of the sluggard craves and gets nothing, while the soul of the diligent is richly supplied.

Proverbs 14:23
In all toil there is profit, but mere talk tends only to poverty.

Proverbs 12:24
The hand of the diligent will rule, while the slothful will be put to forced labor.

Monday, November 24, 2014

Their Future Your Hands

Once when I was much younger, I was out doing something in the yard. I could hear our next door neighbors, a young couple, having a violent argument. Since the windows were closed, I couldn’t make out the individual words but I could make out the wife shouting in hundred word outbursts which were periodically answered by a few angry grunts from her husband. I saw their little girl, age five or six, standing in their backyard. She looked very solemn, very unhappy. She told me, “Mommy and Daddy are being mean to each other.” Then after a pause she added, “It’s about the bills.”

I tried to comfort her to the best of my ability, explaining in simple terms that sometimes paying the bills was a very difficult problem that could upset mommies and daddies. I would guess that little girl is now in her early thirties. I know she is a single mom, trying to care for a little girl of her own. She may not remember that incident, but it is there. It is a part of her relationship with money. I hope she has had better experiences with money. I hope she finds her way to financial freedom.

If you have children or if you are a child, consider the effects that the actions of parents have on their children. Consider what you are modeling for your children. They are watching you. Are you teaching them the basics of good money management by word and deed? Are they learning what it means to live on a budget? Are you teaching them that debt is a curse and that the ability to lend is a blessing? Are you teaching them it is more blessed to give than to receive?

You can change the stories you believe about money. Your life can be the beginning of a tale of multi-generational wealth. It is easier if you already have money, but even if you don’t have any money you can start. My grandfather was a poor dust bowl farmer during the Great Depression. He was so poor he literally had trouble keeping shoes on his children’s feet. Because his wife was terrified of debt, they managed to hold on to their farm through the depression. They were one of only two families in that part of their county to accomplish that feat. Even when this man was poor, he was planning for his children’s future. Before he died he bought farms for each of his four children.

Even in the midst a pretty desperate situation, his mind was in the future finding a way to be a blessing to his progeny. Work hard, spend less than you earn, give your money, your time, and your emotional energy to God and to your neighbors. You may not reap the harvest in your lifetime, but if you transmit a healthy relationship with money to your children, perhaps the day will come when your grandchild graduates, debt free, from medical school. Then you and your child can take pleasure in the accomplishments of a grandchild who will live on to carry the blessings that you sowed so many years ago into an unimaginable future.

You can do it. Really. You can change your family and your world.

Friday, November 21, 2014

My Favorite Candy (In Courage Mints)

Over 25 years ago, I set out to explore the C&O Canal Path, located near my home in Maryland. This marvel of the pre-railroad age follows the Potomac River from the Watergate in Washington DC until after 184 miles it ends in Cumberland Maryland. The canal path passes peacefully through some amazingly beautiful countryside, important historical locations such as Harpers Ferry, as well as interesting sites best described as industrial archaeology. Over the course of a couple of years I managed to walk the entire length of the canal, at least twice. Typically, I would start at a convenient access point, then walk down to the point where my last walk ended. Then I would turn around and walk as far as seemed reasonable. Finally, I would turn around one last time, returning to my parked car, thus covering the entire length of the canal at least twice. There were some sections that were particularly pleasant and/or close to my home that I walked many times.

These hikes averaged around 14 miles in length. During those walks I averaged around 3 miles per hour. That is about 20 minutes from mile post to mile post.

Two years ago, I started walking again, while in what is called “terminal leave,” my last, two month vacation prior to my official retirement. Initially, I could walk 1.1 miles, twice around my block. Over time the lengths of my walks increased to 5 miles. Then during and after my recent problems, the length has settled down around 4.25 miles. I was averaging around 2.5 miles per hour over most of this time. I really wanted to get back to 3 miles per hour, but that seemed impossible. A couple of months ago, I realized my average speed was increasing. First I found I was averaging around 2.6 miles per hour. When I reached 2.7 miles per hour, I shared the news on facebook. I received some positive feedback. I shared the news again when I reached 2.8 miles per hour. Finally, I reached my goal. After a rest day, I averaged 3 miles per hour over my 4.25 mile course. The day was cold and rainy. I expect I was walking a little faster than normal so that I could sooner return to my warm dry car.

I knew some of the encouragement I was receiving came from friends who are, like me, locked in their own battles with father time. Some of it came from younger folk who found an old man doing a Rocky imitation at least somewhat amusing. Whatever the reason, the encouragement I received felt good.

The experience reminds me that we can achieve our goals, if we really know what we want. Goals need to be well defined. They need to be believable (to you). They need to be important (to you). Usually, we don’t know what we want. Too often, even if we know what we want, we don’t believe in the possibility of our dreams. The truth is you can achieve just about any reasonable goal if you search until you find the right path.

I have a friend who wanted a Corvette for most of his adult life. His wife and children postponed the Corvette again and again for more than thirty years. Finally he found a low mileage used Corvette in immaculate condition for $9,000. He had to fly halfway across the country to take possession of his prize, but now he has achieved his goal. He is the proud owner of what he considers a particularly desirable Corvette convertible. He only drives his car when the weather is nice. He is constantly teased about how he cares for his car. We ask him if he has ever had it over 35 miles per hour. He laughs. After all, he is the guy with the Corvette convertible.

There is something more we need as we define, then work towards our goals with patience and persistence. We need people, two kinds of people. We need to find people who have already achieved what we are looking to achieve. If you want to learn more about investments, find someone who knows a lot about investments. Learn whatever he is willing to teach you. If I was as serious about physical fitness as I was about financial fitness, I would be talking to dieticians, personal trainers, and probably a Yoga instructor. My body is seriously lacking flexibility. We also need people who pick us up when we fall down and push us forward when we are tired and afraid.

The best way to find coaches and cheerleaders when we are in need is to be a coach or a cheerleader for someone else when they are in need. If you know something that can be of assistance to another, don’t be afraid to share it even if it takes a bit of money out of your pocket. For example, if you are an automobile mechanic, don’t be afraid to teach a young man in your church how to change the brake pads on his twelve year old Hyundai. Don’t worry, the God of the universe will see to it you will receive your reward.

Jesus said, “And if anyone gives even a cup of cold water to one of these little ones who is my disciple, truly I tell you, that person will certainly not lose their reward.”

It costs nothing to be a lifter and an encouragement. Don’t tell people what they can’t do. Don’t hold them back to your level. Lift them up when they fall down. Find ways to encourage them to take just one more step when that seems impossible. Do it for someone else. Someday someone will do it for you.

Wednesday, November 19, 2014

Not Always So

And the Zen master says, “Not always so.”
Shunryu Suzuki

Comments on “Do You Have Money Smarts?” an article by Carrie Schwab-Pomerantz exploring five “money myths.”

Let’s play some “Yes, but!” games with your mind.

Myth #1 “A will is the best way to ensure that your estate will be distributed the way you want.”

And the Zen master says, "Nothing ever exists entirely alone. Everything is in relation to everything else."

Every adult needs a will. If you going off to college, a $30 Internet will is enough. If you have children a will is an absolute necessity. If you die you want to determine who will have custody of your minor children. Don’t let the courts make that decision for your family. For everyone the will is the foundation of a good estate plan. The point the author wants to make is that your will is not the last word in every case. If that old life insurance policy names your ex-spouse as sole beneficiary, that is who gets your money. Choosing how to use the selection of beneficiaries wisely can save your family time and money when your will goes to probate. You can even name a family trust the sole beneficiary of CDs, annuities, life insurance policies, or even brokerage accounts. Talk to your lawyer every five years or after a major life event. Your will is a living document until you are dead.

Myth #2 “Every adult should have life insurance.”

And the Zen master says, "It is easy to start a family but difficult to maintain it."
Tibetan Proverb

If you have minor children, you need life insurance, a lot of life insurance, low cost term insurance. How much? Rules of thumb include ten times your gross annual salary or $250,000 for every planned child before you start having them. Stay at home moms need life insurance too. How much? How much would it cost to replace her? Yes, you do have to put a value on the labor you will have to pay to replace in her absence. If you don’t have minor children, you probably don’t need life insurance. In certain cases whole life policies can be used as an estate planning tool, but be careful you are not buying anything just to send the salesman’s daughter to the private college of her choice.

Myth #3 “You should start taking Social Security as soon as you’re eligible.”

And the Zen master says, “In the beginner’s mind there are many possibilities, but in the expert’s there are few”
Shunryu Suzuki

Oh my! There are so many ways to take Social Security it boggles the mind. What is best for you depends on how long you want to work, how much you earn, and how urgently you need the money. Strategies allow one partner (usually the low earner) to take earn Social Security then flip to a higher spousal benefit when the primary earner begins to draw Social Security at a later point in time. As always, more money makes tax considerations more important. Before making this very important decision use one of the Social Security calculators found on the web and/or consult with your CPA.

A final note: When you choose to take Social Security is ultimately a bet on your life expectancy. If you think you will die before you are 78 or79 take your Social Security at age 62. If you think you will live past 78-79, wait until your full retirement age. If you don’t need the money and believe you will live to a good old age, consider postponing your draw until age 70.

Myth #4 “You should purchase long-term care insurance when you’re in your 40s or younger.

And the Zen master says, “If you have less than $500,000 you can’t afford long term care insurance. If you have more than $1,000,000 you don’t need long term care insurance. If you have more than $500,000 and less than $1,000,000 you can’t buy long term care insurance.”

The new conventional wisdom on long term care insurance sounds so much like a Zen koan I just had to use it. We buy insurance to protect us against the financial consequences of events we can not afford to cover with our own money. Using that definition, we can no longer buy long term care insurance. Today, that very expensive product is sold in multiples of $100,000. The days of no limit long term care insurance are over. Some recommend $300,000 as the “sweet spot” giving the most coverage at the most affordable rates. The problem is most people with a net worth of less than $500,000 can not afford to buy this insurance and the people with more than $1,000,000, given the cost of the product, would generally be better off self insuring. If you are somewhere in the middle look into buying long term care insurance sometime around your 60th birthday.

Myth #5 “If you need cash while you’re still working, a 401(k) plan is a good place to turn for a loan or a withdrawal.”

And the Zen master says, "When you try to stay on the surface of the water, you sink; but when you try to sink, you float."
Zen Proverb

When 401 (k) plans came into existence some very bad financial advisors discovered that the owners of these plans could borrow their own money from these plans at a low interest rate that is going back into your plan. Essentially, you are paying the loan back to yourself. Hopefully, that bad idea has been put to rest by the responsible financial press. When you borrow money from a 401 (k), you are losing the 7% to 7.5% return on your investment predicted by Siegel’s Constant plus the added benefit of growth in a tax sheltered environment. Even if you successfully pay yourself back, you are using after tax dollars. When you take that money out in retirement, you will be taxed a second time on those same dollars. How special is that? If you fail to pay your loan off on time, you will get hit with taxes and penalties. If you lose your job you have 60 days to pay off the entire balance or face early withdrawal penalties and taxes. Now think about coming up with say, $50,000 cash on the day you lose your job.

Monday, November 17, 2014

New Car Math

The other day the manufacturer of my newest car sent me a rather complicated questionnaire. This survey was attempting to determine what motivated me to buy a particular car. I was given a long list of factors, some redundant. These included, value, gas mileage, reliability, long life, safety, fun to drive, stylish, and environmental impact. Once the respondent selected and ranked seven items from this list, another list of questions was generate to determine how you ranked your seven factors relative to each other by numerical score.

Surveys of this sort are scientific instruments designed by psychologists and sociologists. The information they provide is factored into what products are produced and how they are then marketed to the public. However this one didn’t capture the process I use to buy a car.

After housing, cars are typically a family’s largest expense over the course of a lifetime. The current average cost of a new vehicle is $32,086. That would be a monthly payment of $641 according to the Motley Fool. The bottom line is the average American can not afford to buy an average new car. suggests the “20/4/10” rule of thumb for determining if a car is affordable.

A down payment of 20%, say $6,400 just for grins.

The four is a maximum loan duration of 4 years

This would generate a monthly payment of $560 at 2.24% (If you could get it 3.9% is more realistic) add $100 a month for insurance for a total monthly cost of $660.

In order to meet the 10% part of the rule of thumb your gross household income would need to be in excess of $6,600 a month. That would be a gross annual income of $79,200.

The only problem with this example is the assumption that the family will only have the one car. Most families have two cars. How many households have a combined annual income of $158,400?

Another common rule of thumb suggests that a family can afford a car that costs 1/3 of their gross annual salary. For a household earning around $50,000 a year, that would be a maximum of around $17,000 for a car.

I have a better suggestion. Buy used. Pay cash. If you graph the average cost of a particular model by age or mileage, you will discover a parabolic curve that decreases significantly over the first four years of an automobile’s life the flattens out into nearly a straight line as it passes the ten year mark. You will see an inflexion point somewhere around three to five years depending on the make and model. That is the point of maximum value.

But you already knew that. Late model used cars are a better buy than new cars.

Let’s look at the down payment in the new car example. If you can come up with $6,400 in cash, what can you buy? A quick look at the Carmax website showed a 2006 Hyundai Elantra GLS four door sedan at $7,000. This car would probably serve a young family of four for at least six or seven years. If the family saved $600 a month for their next car instead of giving the money to the bank, after six years they would have $43,200 in cash at 0% interest.

What kind of car can you buy for $43,200? How about a 2014 Lexus GS 350 at $44,000?

Now we’re talking new car math.

Saturday, November 15, 2014

Lemons and Lemonade

GE was the first major company to consciously make their tax division a profit center. They have hired an army of the finest tax attorneys, lawyers, and former IRS executives money can buy to maximize the use of the existing tax code to their shareholders’ advantage. They are doing a pretty good job. In 2010 GE reported $14.2 billion in profit. They paid nothing in taxes. Instead GE claimed a tax benefit of $3.2 billion. In order to achieve these miracles GE files annual tax returns that run over 57,000 pages! As of April 2014 there were “only” 73,954 pages in the entire U.S. tax code.

I have used these facts to fuel my private rants about the insanity of our existing tax code, but this blog is not about cursing the darkness. It is my desire to encourage my readers and myself to keep on keeping on, trying to find a way to financial freedom in spite of the obstacles, even those shrouded in darkness.

GE is playing the game by the rules and winning. Given the amount of negative press the company gets for paying nothing in corporate income tax on $14 billion in profits, it is safe to assume that their tax return is one of the most carefully audited returns in the country. As an American, I play the game by two sets of rules. The first set of rules is the financial realities of the present moment. I am limited by the laws of our land and our current economic reality. The second set of laws is more stringent. They are found in Holy Scripture and hopefully in my heart.

How can you use the rules and your current situation to find a winning edge? As the old school motivational speakers ask, “How can you turn your lemons into lemonade?” Look around you. Someone is playing your game and winning. How are they doing it? What can you learn from their example? How can you apply what you have learned to your life?

I remember back in the early-mid seventies when I was earning something on the order of $9,000 a year, my wife’s cousin, a professional photographer and artist, managed to get a $10,000 federal grant to photograph tombstones in Southern cemeteries. My first reaction was anger. I was appalled at this waste of my tax dollars. Fortunately it didn’t take me very long to realize that my wife’s cousin was a very smart woman who found a way to game the system to her advantage. Instead of hating on her or the many ways our Government finds to waste taxpayer dollars, I decided I should listen to her more closely. Maybe I could learn something of value from a person who was finding a way to follow her dreams.

From her I learned art is a business. She consciously developed a network of acquaintances and customers that would allow her to connect with the right people in her industry, ultimately landing one woman shows in New York galleries. Of course she had to use her talents to produce a high quality product, but I learned that talent and a quality product is not enough. An artist either needs to be a businesswoman or find a good business manager to achieve success and financial freedom.

What could an individual investor learn from GE? Back when I bought my first home I received contradictory information from calls to the IRS on how to fill out my tax return, so I went to a local CPA. He smiled when he discovered that after buying the house, I rented it back to the people living in the house until their new home was complete. I just converted rental property into real property, earning a $3,000 deduction. At that point I decided it would be foolish for me to attempt to file my own tax return when I could hire a professional to do it for less than $200. My tax returns are more complicated than they were in 1987. It costs considerably more than $200 to complete my tax returns for the Feds and two states. Last year my combined forms ran 82 pages. I am a plain vanilla investor. I buy mostly index funds and conservative dividend paying stocks (including GE). I seldom sell anything. My taxes should not be that complicated, but they are. I consider the money I pay my CPA one of my best investments. Look at how seeking professional advice before paying taxes is working for GE. Benefit from their example.

Wednesday, November 12, 2014


In retirement, I have joined a local writers’ group. Over the last few meetings that I have been able to attend, they have been reviewing the chapter on investment I have written for The Silver Eagle Experiment (Exploring Pathways to Financial Freedom). I was hoping to have the completed draft ready by early November, but I spent most of the last five months dealing with our family emergency. Now that the crisis is over, hopefully, I can return to something approaching normalcy. I now know what I need to do with the chapter. It wasn’t really necessary to submit the last two segments for review but I really wanted to group to read the material because, I believe.

The writers’ group is a perfect test set for my material. The members are intelligent, well educated folks without a whole lot of interest in financial questions or knowledge about investment strategies. That my material is getting a preliminary edit from published authors and a college professor is just a bonus. I really want them to read my chapter on investment. I really want them to, “Get it!” I am absolutely convinced that if they diligently apply themselves using only the material in that chapter they can revolutionize their financial lives. In ten years they could look back at how far they have traveled in complete disbelieve. I realized I really, really believe in the value of this ministry.

I believe if you stay out of debt, you are already on the road to financial freedom. The debtor is slave to the lender. Debt is part of the curse. The ability to lend money is part of the blessing.

I believe if you learn to live on a budget, simplified, detailed, or old school envelopes you can work your way out of just about any mess. The money equation is very simple:

Money In = Money Stored + Money Spent

However there is no way to escape the money equation. Not for individuals. Not for families. Not even for countries that can print their own money.

I believe that once you break even you can learn to save for special purposes, a down payment on a home, college for the kids, and the 800 pound gorilla, RETIREMENT.

I believe you can learn to turn your savings into investments, more than doubling your expected returns over a sufficiently long time period. It can be as simple as a single lifecycle fund. Your investments can become as complicated and sophisticated as you can stand.

I believe that more divorces are caused by money problems than by any other single factor. There are simple effective strategies that can help to avoid divorce like no secrets and strict limits to the (my money, your money, our money) argument.

Finally, I am a Christian. I believe that how you choose to earn, manage, and spend your money are intensely spiritual questions. Ultimately, all the silver and all the gold belong to our Creator. You and I are just passing through. What we hold in our hands today will pass into the hands of another tomorrow or even our most cherished investments can simply disappear – overnight. Consider the demise of Enron.

As you walk your path to financial freedom. Be sure to check in with the Lord of the Universe who gives wisdom to all who ask and don’t forget to give something to God without expectation of return. It is good for your heart.

Tuesday, November 11, 2014

Millennial Problems

The Wall Street Journal reports that adults under the age of 35 have a negative savings rated of -1.8%. That means they are spending more than they earn; either by depleting their savings accounts or going further into debt. In the months following the recession this number peaked at +5.2% for these young adults sometimes called millennials.

This is scary dangerous. At that age there hasn’t been enough time for a young adult to build a significant emergency fund to protect against the loss of a job or some other misfortune. Unfortunately, this is the best time to save for retirement. Thirty years combined with the power of compound interest makes millionaires out of ordinary income earners. Even a few dollars regularly invested in a 401 (k) in the early years of a career can make a huge difference at age 65. Time is not a reversible process. Once those years are lost, it is very hard to recover.

It has always been difficult for people in their twenties to save. There are houses to buy, children to raise, furniture, as well as other traditional household formation expenses associated with young families. It has been more difficult for the millennials because many of them are preloaded with significant student debt. Before they can save for that 20% down payment on their first home, it can take a decade to get the student loans under control. Also they graduated just in time for a nasty recession. The recovery isn’t offering enough good jobs. College graduates are competing for jobs that do not require a college degree.

Anecdotal evidence seems to indicate that many of these young Americans have given up any hope of living what older folks would consider a normal middle class life. This age group seems to be spending a lot of money on their social life and travel. Some of it is understandable. With the average age for marriage and starting a family postponed by student debt and a shortage of good jobs, the millennials are spending more time socializing and more money in restaurants and bars than earlier generations. They also seem to spend a lot more time and money traveling than us older folks did at that time in our lives.

Money can not be spent twice. Money spent on an occasional luxury is gone. It can not be used to retire student loans or mortgage debt. It can not be used to invest for retirement or other long term goals.

From personal experience, I know that way too many of these young people, already dealing with higher unemployment and underemployment rates than older workers along with the added burden of student debt, simply do not understand the basic principles of personal finance. They didn’t understand that they were signing away ten or more years of their life when they took out those student loans. They didn’t understand that the free pizza and tee-shirt that came with the VISA card offered to them at the student center were going to turn out to be the most expensive “free” items they ever acquired. As parents and educators our generation has failed miserably in preparing these folks for life in the real nasty world where actions sometimes produce results that can not easily be remedied.