Friday, August 25, 2017

The Chain and Whip of the Modern Slave-Driver

Don’t kid yourself. It’ a battle for your mind. The headline (CNBC) reads, “Most Americans live paycheck to paycheck,” The two “grabbers” below the headline certainly got my attention. “Nearly 10% of those making $100,000 or more say they can’t make ends meet.” “Overall, most workers said they are in debt and many believe they always will be.” That last sentence is key. What you believe is possible will lead to your decisions. Decisions lead to actions. Actions lead to habits and your habits, for better or worse, will define your life and your life will continue to echo in the lives of your children and those who look to you for guidance. The forces arrayed against you are formidable. The higher education cartel, the major money center banks, the automobile industry, major retailers, the credit card companies and THE MEDIA that they control through advertising revenue and access to underwriting equity financing, all want you to become a willing debt slave. They do not want to deal with men and women who, through swimming against powerful cultural currents, have found both intellectual and financial freedom. In the Devil’s Dictionary, Ambrose Bierce defines debt as, “An ingenious substitute for the chain and whip of the slave-driver.” The article reports that 78% of Americans live paycheck to paycheck and that 71% of Americans report that they are in debt. I would love to know to what extent those two sets overlap. I do know where these numbers will lead. I saw the 2006-2009 train wreck live and in person while living in the Washington, DC area. Two income families earning more than $250,000 a year, living in $1,000,000 McMansions, driving leased luxury cars, and carrying too much credit card debt lost everything in a matter of months when one of the bread winners lost their job. When those houses were actually selling for less than $600,000 their owners were too far underwater to get out. Even in my own modest neighborhood where house prices topped out at $400,000 there were foreclosures and short sales. Since then, as a nation, we have added nearly a trillion dollars in student loans to this wretched mixture. At some point, there will be another crash. Historically they happen every twelve years or so. Then, as Warren Buffet observed, “Only when the tide goes out do you discover who has been swimming naked.” It doesn’t have to be you. You can change your life, but you have to change how your relationship with money. Start by believing that debt is a curse and that the ability to loan money to others is a blessing. Stay out of debt unless absolutely necessary. If you are in debt, pay off your debts as rapidly as possible. Don’t use a Credit Card unless you can pay it off every month. Start an emergency fund in a bank or a money market fund. The goal here is six months cash reserve (six months take home, both salaries). It will take some time to reach this goal. Don’t beat yourselves up about this but keep putting a little something aside every month. When you have a little extra cash beyond the six months fund or maybe even as a part of the six months fund, begin to experiment on a small basis with stocks, bonds, mutual funds, or even real estate. Start thinking about retirement when you are young. Take advantage of anything offered by your employer. Barring some catastrophe, like an uninsured medical emergency, how much you earn isn’t the problem. The problem is you, the decisions that you have made, the decisions that you are making, how you choose to live your life. When I was first living out on my own, I was earning only slightly more than minimum wage, yet I managed to spend less than I earned. If that practice becomes a habit, you will be amazed at how far you will have travelled by the time you reach retirement. You don’t have to be in debt for the rest of your life, but to be free, you will have to live a different kind of life than the one “THEY” want you to live. The decision is up to you.

Tuesday, August 22, 2017

Step by Step. Inch by Inch

I apologize for writing the same article again and again, but it is so important to take that first step to financial freedom. According to multiple surveys, 69% of Americans have less than $1,000 in total savings. 34% report that they have no savings at all. Let us assume that someone with no savings at all, needs to replace the tires on their car to pass state inspection. What are their options if they can’t tap a family member for a loan? A high interest credit card? A title loan? A payday loan? A lack of an emergency fund is a disaster just waiting to happen.

Pay yourself first. The consensus of experts recommends skimming ten percent right off the top of your take home pay, before you spend a penny. Put that money in savings. That is pretty ambitious for someone overwhelmed with credit card debt and student loans, but don’t tell yourself what you can’t do. That won’t solve your problems. Tell yourself what you can do. Can you throw a dollar or two in a jar every night? $1.50 X 365 = $547.50, more than enough to buy a new set of tires for an average midsized car.

Automation is easier. Set up a savings account or a money market account connected to your checking account. Weekly or monthly, every time you are paid, auto debit a predetermined amount into that emergency fund. Let’s say you take home $600 a week. Chances are you could afford to pay yourself 5% and not miss that money—at least not most weeks. $600 X 0.05 = $30, dinner out for two at a typical mid-priced family restaurant with nonalcoholic beverages. You can afford it. $30 X 52 = $1,560. Add that to the money you threw in the jar in the first example and your emergency fund would be $2,107.50 after a year.

Slowly I turned. Step by step. Inch by inch.

I don’t remember with certainty when I passed the six months’ living expenses in cash mark, but it was sometime after ten years of marriage, but before the fifteen-year mark. Hey! Life happens! My wife went to grad school. I went back to get my engineering degree. Twice, during those early years, we dropped below or close to $1,000. Even back then, when $1,000 would equal $3,700 in today’s money, I considered having less than $1,000 an emergency. When it happened, we cut expenses to the bone until we recovered. Fortunately, I was raised with a third generation terror of debt. Borrowing money to buy a car or go to school simply never occurred to me. I was about 35 years old before we finally got our first credit card. By then, living without a credit card was just too difficult and debit cards didn’t even exist back in those days.

As the savings habit becomes an ingrained part of your life, you will find that your definition of an emergency will change. Recently, I bought a new set of tires for our older car. They cost $300. There was a time when such an expense would have caused me considerable pain, requiring a significant reordering of our priorities, and the probability of an argument with my wife. As time passes, you will find that you have factored such “known unknowns” into the size of your checking account balance. In those days, I would grumble, annoyed that my balance was below the preferred number, even though I knew my checking account would be healed by next month. Finally, the day will come when a new set of tires, barely merits a shrug of the shoulders.

It won’t happen overnight. Don’t beat yourself up. Just put something aside every month. Little by little. Step by step. Inch by inch. You will get there. May it happen sooner than you believe possible.

Saturday, August 19, 2017

God Chance Effort

It’s just a number and a number can be changed. It doesn’t matter how that number came into your life. Whatever it means to you, it’s just a number.

When I look at a weight machine I see the number that belongs to the last user. If it is a low number, I think, “That number belongs to a woman or a feeble old man—like me.” If the number is higher than my number, I think, “That number belongs to someone with superior genetic gifts, or some kind of fitness freak.”

But, it’s just a number. It isn’t even a real weight, as the machines are a compilation of levers, pulleys, and gears. My number on the Torso Arm Machine that works my muscles like a pullup is 320. I only weigh 240 pounds. If I was pulling 320 pounds, I would lift myself up off the seat.

It’s just a number and a number can be changed.

There are a lot of ways to increase any number you find in your life, or decrease it in the case of my weight, but they all involve some sort of effort. I have increased my numbers in the gym over the last six months because I do my little ritual three times a week, even when my 66-year-old body whines in protest. That young Hercules over there lifting real weights has the advantage of youth, but he has also been working harder than me for six or more years rather than a paltry six months. Although I am still hoping that the bite of a radioactive spider will give me the strength to lift an entire weight machine, I am not counting on a comic book miracle to change my life. If I keep going to the gym, I expect my anemic numbers will still continue to crawl in an upward direction.

Calculate your net worth. Just add up all your debts and all your liquid assets. Don’t count the value of your car or furniture until you sell it. You need those depreciating assets for life. I doubt you are going to sell your existing bed in order to sleep on the floor. You got that number? It might be negative, but that too is just a number. Carl Icahn’s number might be $35 billion. Your number might be $3.50. Don’t worry, it’s just a number and a number can be changed. At one point Donald Trump’s number was a negative $800 million.

The outcome of our life is dependent on at least three elements God, chance, and human effort. Your numbers, large or small, are the result of the decisions you have made, the will of God, and the luck of the draw (nature and nurture). While we can’t ultimately control any of these forces, it seems logical to focus on our effort, the only one where we have, at least, some control. We live in what is basically a cause and effect universe that has been corrupted by the fall. Our thoughts lead to our actions. Our actions produce immediate results, long term results, and establish habits that help us to improve our lives or habits that could ultimately lead to death. Whatever free will, we do or do not possess, I believe that the best results will be obtained if we accept 100% responsibility for the decisions we make and the actions that we take. I have found that blaming or problems on others, even when true, ultimately leads to failure.

Thursday, August 3, 2017

Back to Basics--Again!

Every once in a while, it is good to get back to the basics. Finding our way to financial freedom is important. The rules of the game are simple, but nobody other than a late-night infomercial huckster babbling about real estate millions on an obscure cable station is going to tell you it will be easy.

Here is the money equation. This equation and a little bit of grade school arithmetic are all the head knowledge you need to get started.

Money In = Money Stored + Money Spent

There are only two ways to move Money Stored in a positive direction; earn more money or spend less of the money you earn.

There are no silver bullets. Most big lottery winners end up in bankruptcy court and few family fortunes last past the second generation after their creation.

First on your to-do list. Stay out of debt. Starting your adult life with a large negative balance in the Money Stored column is a recipe for a lifetime of debt slavery. Carrying $100,000 in student loans for a degree with a starting salary of $35,000 a year will steal at least two decades out of your life. In essence, you have a mortgage without a house. That first car loan will become a monthly car payment for the rest of a middle-class American’s life. Don’t bite the hook. Pay cash. Drive that clunker until you can afford something better. If you are making that car payment to yourself instead of the bank, you will be amazed at how soon the day will come when you can pay cash for new or at least low mileage, late model cars. Credit cards? That’s easy. Never, ever carry a balance. Never, ever pay a late fee.

If you are unfortunate enough to find yourself in debt, pay off your debts as rapidly as possible. Pay off the debt with the highest interest rate first and the debt with the lowest interest rate last. This is called the Debt Avalanche. It works. Or, pay off the debt starting with the smallest account and then work your way to up to the largest balance, probably your mortgage, last. This is called the Debt Snowball. It works.

Start an emergency fund in a bank or a money market fund. The goal here is six months cash reserve (six months take home, both salaries). It will take some time to reach this goal. Don’t beat yourselves up about this but keep putting a little something aside every month. If you have less than $1,000 in your emergency fund, consider that an emergency.

Live on a budget. We have never had a budget except the one in my head. That worked pretty well for us, because I was born with a third generation fear of debt in a family that boasted that we could squeeze a nickel so hard that the buffalo would bellow. If you are having problems making it to the end of the month, don’t mess around. Sit down with your spouse on the first day of every month and negotiate a zero-based formal budget. Then live on it. Forms and instructions are free on the Internet.

No secrets. If you or your spouse spend more than the cost of a CD or a paperback book on something, decide on that expense together, as a couple. There are exceptions. My wife does not want to know about the power bill, tires on her car, or specialized tools she does not understand. Set your own rules and limits for your own marriage and stick to them. Having a pink and blue account for husband and wife to spend without explanation will help avoid arguments, but what goes into those accounts is a part of the monthly negotiation process.

When you have a little extra cash beyond the six months fund or maybe even as a part of the six months fund, begin to experiment on a small basis with stocks, bonds, mutual funds, or even real estate.

Start thinking about retirement when you are young. Take advantage of anything offered by your employer. 401(k) matching money will give you an instantaneous 100% tax deferred return on your investment. How can you beat that? This was not a problem or an issue 50 years ago. If you are under 40, your retirement picture is positively scary. This is likely to be a very low priority with so many other demands at this time in your life but don’t forget retirement is sitting out there if you are lucky enough to live that long.

Investment isn’t rocket science. The key is to keep doing it; month after month, year after year, here a little and there a little until you are free. If you don’t want to think or learn, all you need to know is four words Vanguard Target-Date Funds. These funds will automatically provide you with an age appropriate mix of stocks and bonds at a minimal cost. As you learn, don’t be afraid to start buying a mix of conservative dividend paying stocks. Look up Dividend Aristocrats on Google for some ideas.

Don’t forget. Give something to God without expectation of return. It is good for your heart.

That’s all folks. No matter where you are in the process, there is something you can do to improve your situation.
Don’t wait. Start today.