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Money Is Emotional, at Every Level

I have discussed how emotional money can be many times now.  Emotional issues circling around money have been going on for thousands of years.  Well, here is a huge emotional event that I wrote about a year ago, how in the near future cities, counties and state governments will not be able to afford the pensions they are obligated to pay:  Pensions Are Creating a Huge Financial Risk.  It is easy to agree to pay something in the future to get elected today, but when time passes, the future elected officials are in a hard spot.  They have a mess to clean up they did not create.  This is a very emotional issue that will bring a lot of trouble and heartache to a lot of people.

I ask, how do you think the people living in Stockton, California liked their garbage sitting on the curb and not being picked up for weeks due to government woes over pensions and inability to pay government employees to provide basic services. Some of Stockton’s citizens were so mad they  talked about burningScreen shot 2016-08-31 at 4.13.36 PM down the mayor’s house. The mayor had no choice… he filed bankruptcy and pushed off the debts of the city, plus all the pension payments for previous employees and was able to pay to get the garbage cleaned up and restore other services.

My second question is, how do you think the retired Stockton city employees felt after they worked a lifetime and then their pension got pushed off with a bankruptcy?  Emotionally charged?   YES!  Do you think they will vote for that mayor or county commissioner again?  NO!

Who is to blame?  Who can be held responsible?  Do you hold employees responsible for pushing elected officials to give them raises, give them strong pension plans, to give them 401(k) contributions beyond anything you see in the private sector? Of course these past employees are really the responsible party to their own loss of income!  They pushed and prodded and threatened not to support, or not to vote for this official or that official until they got what they wanted.  Do you think these past employees realize they were the cause of bankrupting the city of Stockton?  Of course not. The current mayor cannot go back in time and see how much pressure was brought to bear to give them strong pensions and pay raises.  This is a perfect illustration of why money is so emotionally charged.

It has always been said throughout my lifetime that if you can get a government job, you are set for life.  This may no longer be the case.  Be aware of what is happening right now in IIlinois, and California and watch how Detroit and other cities filing bankruptcy handle the mess created by former employees. It is sure to get worse.

As elections draw near and healthcare costs soar, watch how everything plays out financially for the nation.  All the big health insurers have pulled out of the Obama exchanges.  One of these providers lost $2 billion this year! 

How will all this affect you… personally? The only way to weather what’s coming is to get in control systematically  using time-proven financial principles. Answer a few questions and test yourself for self-reliance:

  1. Do you save money on a regular basis?  
  2. Do you argue about money with your spouse?  
  3. Do you have a simple will or trust?  
  4. Do you have a pension plan and is it fully funded, or just numbers printed on a paper?  
  5. How much consumer debt do you have?
  6. Do you have any emergency savings?

Your answers to these questions will give you an idea of how healthy you are financially.  For more help go to www.moneymastery.com and learn how to improve your personal situation… before it’s too late.

What Few Pensions that Were Left Are Going Broke…

The Pension Benefit Guaranty Corporation or PBGC was created by the Employee Retirement Income Security Act of 1974 as part of the federal government. The PBGC is the government equivalent to pension plans as FDIC insurance is to banks.  The U.S. government requires all pension plan administrators to pay an insurance premium through the PBGC into a savings account in case a plan goes insolvent.  But surprise, the PBGC is now broke so it can no longer bail out soon-to-go-broke pension plans. And unfortunately there are many pensions that don’t have enough money to pay employees the contractual benefits they promised.

So, many people who worked for city and county governments across the country are getting notices from pension plan administrators that money will run out within 10 years.  More and more people are getting these notices, which is sometimes newsworthy, but many times it is not common knowledge.  If you were retired and got a notice like this, what would you do?

Detroit is a vivid example.  It filed bankruptcy because retirement plans represented 84 percent of their entire debt.  Illinois was just in the news in November of 2015 saying it will have to cut retirement income payments, or file bankruptcy.  California is also in deep trouble. Its pension debt amounts to 74 percent of all debt.  Pension benefits are becoming just too big to be paid for by many state, county, and city governments, so the notices keep going out and the bankruptcy threat keeps climbing higher. Only the federal government has been able to keep paying out employee benefits but we all know that’s only because they can just print more money. Since states and counties can’t just make more money all they can do is file for bankruptcy. A search on the Internet will reveal how many cities that have recently failed due to pension debt. Stockton, San Bernardino and 10 other cities in California have filed bankruptcy and there are many more local governments and companies on the ragged edge of filing as well due to financial mismanagement.

Headlines like this one, which appeared in January of this year on the Internet, will start cropping up more often as this year goes along: 

“This Is Going To Be A National Crisis” – One Of The Largest U.S. Pension Funds Set To Cut Retiree Benefits 

 

So What to Do? You can prepare yourself.  If you have a pension plan, do not take it for granted — don’t assume it will be able to pay you as stated.  Check out your pension’s health and get a copy of the annual report and stay tuned in.  If you find your pension is in trouble, it is better to know now and not continue working for your employer for another 15 years or more, only to lose your benefits.  Take action and learn the rules.

 

An Emotional Story of Rags to Riches and Back to Rags

Luther Ellis was a talented football player from the University of Utah.  He was first-round draft choice in 2000 and player for the Detroit Lions.  He made $11.6 million from 2000 to 2004.  According to his report in the Salt Lake Tribune on January 22, 2010, he said he had filed Chapter 7 bankruptcy.  Luther listed $1,380,000 of assets and $4,400,000 of liabilities – including $37,500 in delinquent state and local taxes.

Luther said that although the Detroit Lions did a good job putting on financial programs, teaching savings, investing, and giving statistics on how many of the football professionals would be dead broke in three years, he didn’t listen. Instead he said to himself, “That won’t be me!”

Sports Illustrated was referred to in the Salt Lake Tribune article on its studies showing 78 percent of all former NFL players either filed bankruptcy or experienced financial stress due to joblessness or divorce.

So what happened to Luther Ellis?  Here is his answer: “I made bad choices… the bankruptcy wasn’t anything to do with drugs, gambling, alcohol, women or anything else.”  Fortunately the NFL 10092organization had set up a pension and qualified deferred compensation plans to retain over $500,000 for Luther that creditors could not touch.

My point in referring to Ellis is that this kind of experience does happen to a lot of people, even people who seemingly make enough money that it shouldn’t happen to them.  I am not saying that financial instability has the possibility of happening to you, I’m saying it does happen to you. In my 35 years of experience, we all go through financial cycles in our lives, the highs and the lows.  When we are making good money, we can’t imagine that it will ever end.  When things are tight, and we have to watch every dollar, we manage and say to ourselves, “when things get better I will never forget how bad it is to be so broke.”  But when things get better, we forget and don’t watch after little things as much and we did when things were tight. It goes in cycles, as I said.

So how can  you level out these financial highs and lows? The best way, as I have said lots of times before, is not to assume that making more money will even things out (look how well that worked for Ellis). The best thing to do, no matter how much money you make, is to create a spending plan. A written plan lets you refer back to it and review it often so you can stay on track. A written plan lets you forecast your income and expenses and helps you make sure you are balanced so that you don’t spend more money than you make.  

In the beginning, when you are just starting out with a spending plan, you will need to create one, live with it and track it for 90 ControlSpending1days and then come back to it and tweak it after you see how well it is, or is not working. Then, when you grow accustomed to spending and saving based on a written plan you can go to an annual review of the plan. But remember, you will track this plan every day of every week of every month of the year. A plan without daily tracking and comparing is no plan at all. Make sure you compare what you had planned to do with your spending each week with what you actually did.  If you have a spouse, then meet together weekly and review the planned income and expenses and make notes on how you will do better the next week, and the next month. Practice instant forgiveness with your spouse if they don’t follow the plan perfectly. Remember, you will be the one who needs the instant forgiveness the next time, so don’t hold on to anger about mistakes. This is a recipe for disaster. A plan lets you make mistakes because you can see how to correct them and this makes it easier for you to give that instant forgiveness.  

To set up a spending plan go to moneymastery.com.

As you track and compare your spending for many months you will see your financial personality show up.  It is like looking into a financial mirror and seeing yourself for what you really are.  If you avoid this process, you will make decisions that will keep you in debt and in trouble for many years.

If Luther Ellis would have formed good personal money managing habits while he had little money in college, he could have avoided filing bankruptcy later when he made more than enough money that he shouldn’t have had to.  Don’t think that just because you only make $50,000 a year that Luther’s example doesn’t apply to you.  Don’t think that if you made $11.6 million this wouldn’t have happened to you.

It matters not how much you make, only how well you handle the emotions surrounding your money that counts.

Postal workers making a modest $35,000 a year have retired as millionaires because they learned how to manage their emotions so they could manage their money. Doctors and professional athletes have died broke because they thought that money should solve everything. I am telling you this experience has nothing to do with money — it has everything to do with your emotions.

We are all emotional animals, and this is a good thing.  So to be successful with your money, you must learn the psychology of managing money.  This means emotional training for emotional decision-making.  This is not about math, or accounting, banking or finance.  It is all about emotions.  I promise you, if you will learn to manage your emotions, you will have little, or no financial trouble.

For more information on how to handle emotions, set up a spending plan, and learn how to save money all while eliminating debt, call me: (801) 292-1099, ext. 2.

Are Credit Card Companies Allowed to Garnish My Wages?

If you owe a large amount of money to a credit card company and stop making payments, these companies may try to recover the debt you owe through wage garnishment. Wage garnishment allows creditors to legally take a portion of each of your paychecks until the debt is paid.

Severe debt is a grim leftover from the recession. In the past, wage garnishment typically covered tax payments or child support; today, more garnishment occurs for consumer debt like student loans, medical bills and credit card debt.

According to a study from National Public Radio and ProPublica, one in 10Americans between the ages of 35 and 44 are having their wages garnished by creditors, half of them for consumer debt. About 3 percent of the overall American population had their wages garnished in 2013.

Before seizing any money, the credit card must file a lawsuit against you. Typically this is done in a local court. They are able to do this because when you signed up for the credit card, you signed a contract promising to make monthly payments. This is an expensive process, even for large companies, so they only pursue a relatively small number of these cases.

Once the company receives a judgment in court, they work with your employer to garnish wages. Employers are required by law to comply. The employer needs to understand the garnishment documents and state law, or any errors could make them responsible for all or part of shutterstock_283185716the debt. Generally, employers are not allowed to fire employees having wages garnished under federal law.

If you are in debt, there are a few steps you can take to prevent wage garnishment:

  • Settle the debt. Credit card companies would likely rather settle than spend money on legal fees. If they sent your debt to a collector it would be for a reduced rate anyway.
  • Familiarize yourself with state laws. Wage garnishment is legal for credit card debt in over half of U.S. states, but not all. States have different laws about how much of your wages can be taken; the maximum rate under federal law is 25 percent.
  • Consider filing for bankruptcy as a last resort. Bankruptcy can help you settle credit card debt, thus ending wage garnishment, but it will seriously impact your financial status and should only be considered as a last resort.

Worried about wage garnishment and credit card debt? Work with the Money Mastery team for debt relief solutions. Contact us today for more information.

Why Greece Is on the Brink of Financial Disaster (And What that Means for the U.S.)

We have some lessons to learn…from countries like Greece.

News reports indicate that Greece’s unemployment rate is 25 percent and climbing (a rate that is approaching that of the world’s unemployment rate during the Great Depression of over 35 percent).  Its banks have lost 99 percent of all values as depositors grab their money and flee to Switzerland and other more stable places. Interest rates have soared to 28 percent.  The Greek government has cash available to last but a few months and leaders have had to search all public accounts like hospitals, city governments and the like to find enough money to pay retired people and their public employees salaries that were due on July 1.

Many countries in Europe are arguing that Greece has not cut back spending like it agreed to do.  Greece’s newly elected prime minister is saying the country cannot cut any more.  Members of the European Monetary Union say they are done helping Greece.  Greece is calling attention to the fact that it was the first country to establish a democracy a couple of thousand years ago, so it’s arguing that if it goes from a first-class nation to something less overnight, it will take all of Europe into a huge depression with it.

I will not argue either side of this financial disaster in this blog.  I am asking that we all watch and see what Greece has done to get into this horrible situation and learn what it will take for the United States to avoid doing the same thing to itself.

Observe that the major debt Greece has is in retiree pension plans.  Can you recall the amount of money Detroit filed bankruptcy against?  Nearly 84 percent was for pensions to retired employees.  And did you know that all the huge debt the state of California owes is in pensions — to the tune of 74 percent!?  Go online and check out why Stockton and San Bernardino filed bankruptcy, as I noted in my recent blog Pensions Are Creating a Huge Financial Risks for City, County, and State Governments  and you’ll find that it’s because of retiree pensions.

 

What Could Happen to the U.S.

The “Long-term Budget Outlook” for 2015 by the Congressional Budget Office has recently reported that the Federal Reserve Bank is on the brink of folding. You can read about it here:  http://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/50250-LongTermBudgetOutlook.pdf.    According to the report, if interest rates go up slightly in the coming years, the United States will beshutterstock_123534982 forced into insolvency.  Consider the unfunded liabilities of our own Social Security program.  Much has been said about the current national debt reaching $18,000,000,000,000 ($18 trillion).  But when the Congressional Budget Office calculates the unfunded liabilities of Social Security benefits, it tops out at a whopping $115 trillion!

What are the lessons to be learned from why Greece can’t limit their spending to their national income?  Why have they over-spent their revenues for over 100 years?  And what might this mean for the citizens of the United States?  When can we control our spending and balance our budget?  As Greece goes, so goes the United States.  We should know that country’s fate before the end of 2015.  We need to learn from Greece.  And if it is not too late, we need to determine what we must do on an individual basis to survive a complete currency meltdown.  Greece could become a mirror image of what will happen here in the United States.

 

Principles Will Save People, Families, Corporations, and Governments

The Money Mastery Principles can solve all this financial foolishness. Building a spending plan, as taught by Principle 1, that must make expenses and income balance and then track that plan as taught by Principle 2, is basic to sound personal money management (and works well with corporations and governments as well!). Then, ALL debt must be eliminated as taught by Principle 4.  Debts bind you down and take away all your options.  When a person doesn’t have debt, they are free to decide what to do with their life and build better relationships, give money to the poor, travel to interesting places, help a child through college, relax on a beach somewhere, or just enjoy reading a book and not worrying about paying next month’s bills. For more information about all 10 of the Money Mastery Principles, go here.