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Beware of “Financial Plaque”… It Can Kill All Your Best Laid Plans

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This illustration of plaque buildup in the arteries makes me sick.  Millions of people have plaque that has the potential to cause huge health problems.  The same can be said about the “financial plaque” that so many people carry around with them. They have allowed their spending to overcome their income and use credit almost exclusively to live on. When you consider the interest expense that accompanies this widespread use of credit, the damage can be just as detrimental as plaque in the arteries.

What kind of damage is debt doing to people?

  • No money set aside for emergencies, which are bound to occur.
  • No money set aside for emotional impulse spending, which is also bound to occur.
  • No hope of retiring, ever.
  • Lost opportunities to create wealth that puts money to work rather than working for money.
  • Lost opportunities to help those in need, to create jobs for others, to form philanthropic organizations.
  • Almost certainly guaranteeing problems paying for healthcare in old age.

The remedy for plaque and heart disease is to eat properly, exercise, and get plenty of rest. Financially, the remedy is to build a Spending Plan and track expenses according to that plan in order to create a cash surplus.  Saving that surplus is the same as getting plenty of rest for the body. 

Learn to put work clothes on your savings and send it out the door to work instead of working your entire life to pay off debt. This will bring not only financial health, but physical health and happiness as well. 

To find out what’s building up in your “financial arteries” visit www.moneymastery.com. today.

There Must Be Fun to Make the Hard Parts of Life Worth Living…

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The Money Mastery system of personal financial management teaches that savings is actually just “delayed spending.” What this means is that all money is to be spent — some will be spent now, and the so-called “savings” we create will be spent later for future events.

So what kind of “delayed spending” accounts should we create? There are three:

  1. Long-term
  2. Emergency
  3. Emotional

The Long-term account is obvious — we need the most money here for the end of our life, when we stop working and hope to retire so we can do so comfortably.  I have written extensively about how to create this delayed spending account and I urge you to check out some of those posts here.

The Four C’s of Retirement Planning

How to Determine Retirement Needs Accurately

How You Define Retirement May Mean You Actually Get to Retire

The Emergency account is also obvious — problems crop up all the time and as I have tracked the emergencies my family has encountered it adds up to an average of $383 every month.  Because I have a historical picture of what life  has been like for our family through tracking, I just go ahead and set the $383 aside each month so I have this money to spend later when these emergencies arise BECAUSE THEY WILL HAPPEN JUST LIKE CLOCK WORK.  What about your family? Do you know what you need to set aside each month to plan for the inevitable?

The last account, Emotional, gets overlooked or in most cases has not even been considered as a needed delayed spending account.  But just like emergencies, the need for impulse spending for the sheer fun of it is bound to happen TO ALL OF US and if you’re not prepared for these events, you will spend money you do not have simply to fulfill an emotional need. And let’s face it, there’s absolutely nothing wrong with spending money impulsively, for no other reason than because you want to have fun and enjoy life — that is unless you have not prepared for it. Then spending money this way is what gets people into debt and keeps them that way for a long time.

My advice? If you don’t think you have much to set aside for emotional spending, start with a small amount like $25 for example. Put this away every month and then work your way up a little. That way, in a few months you have money that has been set aside only to be used when you want to do something fun on the spur of the moment. You can still pay your monthly bills while not depriving yourself or family members of the fun and enjoyment in life. Or let’s say you get a tax refund (which is something I suggest you not be getting every year but that’s a post for another time), but if you’ve gotten a recent tax return, I suggest you take a portion of that return, at least $500 of it and put it aside into a savings account to only be used when you want to do something fun on the spur of the moment. 

Now let’s spend this $500.  Let’s suppose that your spouse comes to you and tells of friends who went to a resort with natural hot water swimming pools.  He or she is sad and wishes your family could do something like this.  You spring into action and say, “Honey, let’s check our emotional account and see how much money we have.”  WOW, you have $500 and it would only cost $235 to do this same trip to the hot water pools.  All of a sudden your family gets to put some excitement back in life and together you have a wonderful family-bonding experience that provides happy memories for your children.

Not having money saved for emotional spending needs is like going on a diet and expecting to never eat another cookie or indulge in another ice cream cone again. Those kinds of diets do not work because they are too strict to give you the motivation you need to stay on them. Eating right is fine so long as you can splurge occasionally. The same goes for proper financial management. Fun times are needed every once in a while if you expect to stay on track. But, those fun times need to be properly funded, in advance.  Plan for emergencies, plan for retirement, but don’t forget to plan for emotional activities either.  Learn how by going to www.moneymastery.com.

Baby Boomers Are Silently Looking to Their Children to Bail Them Out Financially…

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Fact: It is a fact that our children were not around when Baby Boomers instituted Social Security benefits for all.  Baby Boomers made this promise to themselves.  Sadly and very soon, our children are going to start waking up to this fact.  Why should they pay for this mistake?  Baby Boomers have failed to save for retirement, thus they are working into their 70’s and beyond and are putting a tax and financial strain on the younger generation.

Fact: The cost of higher education has grown twice as fast as inflation.  When the average college student graduates they owe, on the average, $35,000. Really ponder this statistic:  94 percent of those graduating with a bachelor’s degree are in debt.

Fact; Consider when Baby Boomers die, they sell their homes and securities.  This is putting downward pressure on values both in real estate and the stock markets.  Our children have not fully seen how this is going to negatively affect them just yet, especially since the first wave of Baby Boomers are just now starting to die. When more pass on, the impact of Baby Boomer deaths on the economy is going to become very clear as our children’s health care costs soar and housing prices plummet. 

What does all this mean? It means that silently the Baby Boomers have been asking the younger generation to bail them out for their financial irresponsibility for years now, and they’ve been doing it in a way that isn’t quite yet clear to those who are coming up behind them. Our children really don’t realize yet what it means for our government to keep over spending and for taxes to continue rising higher and higher to pay for socialized medicine, but they soon will…

Ten thousand people turn age 65 each and every day.  Consider this post as a warning to those people younger than 60 who are coming up behind these retiring 65-year-olds. In the next 10 years things are going to get nasty financially speaking in this country and the only way to survive the mess the Boomers and the government have created is to get personally prepared so you won’t be swept away by all of it. Think about the following as a means to do this:

  • Remove yourself from the herd right now. That means stop thinking 401(k) for retirement. It means stop spending with abandon as perhaps your parents have done for the last 25 years. It means stop getting in over your head with credit and get out of debt now.
  • Start thinking like your grandparents and great grandparents in terms of frugal living. Get away from the idea that you can always having everything your little heart desires, and start embracing the fact that money and resources may not always be at your fingertips — think more self reliance and Great Depression and less consumerism and “gotta have it now.”
  • Get emergency savings in place now. Don’t wait any longer to put away at least 3 month’s salary and as much as 6 if you can possibly manage it. On top of that, put a few stores away in the form of food and basic necessities, in case you lose your job and can’t find another one for a while.
  • In the new year, begin to manage your money in a new way.  Think Spending Plan, Debt Plan, and Savings/Retirement Plan and discover how all these must work together  at the same time.  Go here to discover why.

I am optimistic about freedom and the American Dream, but problems and pressures will come along we have not experienced in our lifetimes, problems only our grandparents and great grandparents understand.  When economic disaster hits cash is KING and the only way to get that cash is to start managing your finances differently today than you EVER have before. Learn how to create a cash surplus now by contacting me: peter@moneymastery.com.

Learn How to Save First, Invest Later

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Most often people are told to maximize their 401(k) first before doing anything else.  But I want to make a point that a person needs to be saving money into a simple interest-bearing savings account BEFORE they try to max-out their 401(k) investment account.

Why?

What usually happens when an emergency comes along and there is no savings is that credit cards are used. Sometimes people even cash out their  401(k)’s at a horrible cost with early withdrawal penalties and loss of principal. There is no point in dumping all your money in a 401(k) if you don’t have a liquid emergency savings fund you can tap into when you need it.

Savings means putting money where there is no risk.  If you place this savings into a mutual fund, such as those many people invest in through a 401(k), it is at risk of loss.  And if you place your savings into an IRA or 401(k), it is trapped with no liquidity. You cannot have immediate use of this money and therefore you have no control.  A 401(k) is an “investment” vehicle that includes a certain element of speculation and risk. Before you get into all that, at least learn how to put money away in a savings account for emergency purposes. You will build confidence as you do so. If a person cannot save money on a regular basis, they have no right to dump money into a non-liquid investment vehicle like a 401(k), in my experience.

 

Don’t Just Tread Water Financially

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It seems people are just trying to get by financially today and for today only.  In my financial experience, most people are just treading water.  It is like they just fell out of the boat and they don’t know how to swim, so they are just surviving hoping someone, a lifeguard perhaps, is looking for them and will come along and save them.  When you are treading water up to your nose, it is hard to breath and even harder to get out of the water high enough to see which way to swim to shore.  And then, how much financial reserve do you have to tread long enough to be rescued?

There is hope, however.  First sit in the middle of the boat, not by the edge.  Financially speaking, this means spending less than you make.  In other words, live on 90% of your income.  Save 10% for life, yes for life, even though you may be retired, save 10% during retirement too.

Second, if you do happen to fall out of the boat, make sure you have a life jacket on, or financially speaking, an emergency fund.  This way you can float high enough in the water to see which way the shore is and swim that direction.

Third, a lifeguard or financial coach can spot and assist you to safety, so it’s Pay yourself firstimportant to consider getting coaching if you’re struggling. EXAMPLE:  As a youth I trained to be a lifeguard at the YMCA. We all competed to see how long we could tread water.  If we could not tread water in the deepest part of the pool for 5 minutes, we could not continue.  After we all got in condition and knew how to swim with as little energy as possible, many of us could tread for 30 minutes or more. This made it possible for us to assist swimmers who got in trouble and get them safely to shore. A financial coach can act as your lifeguard in this same way. They are trained to handle difficult situations perhaps better than you and can help you reach shore then help you, when you are tired and exhausted, set in motion a new spending plan and begin to create surplus to replenish what you have lost.

In summary, there are three suggestions for you to prepare financially.  

  • First don’t sit close to the edge of your financial boat by over spending all the time.
  • Second, if you do happen to have big waves and get tossed out of the boat, then always wear your financial life jacket, or have an emergency fund.
  • Third, get a financial coach, who much like a lifeguard can spot you and assist you to safety.

There is No Such Thing as “Savings”

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The Money Mastery system teaches in Principle 3 that there is no such thing as savings. But you may be thinking, “What!? No savings?”  Before you get too up in arms, let me explain.  All money is to be spent, it just depends on where and how you spend it, so this principle teaches there is no such thing as savings, just “delayed spending.” Doing away with the savings mentality and instead looking at savings as a spending category in your Spending Plan helps you have a system for controlling this money. You no longer look at it as “extra” cash that you can have access to as you wish. It becomes “spent” money that is no longer available to you — it is spent into three very distinct and important categories that you track. This way, once it is accounted for in the Spending Plan, it is basically “gone.” If you do away with the idea that you must put away money and instead think of spending all of your money in the right places, all of the time, then once the money is all spent into these places you won’t be tempted to dip into it, robbing yourself of your future.

What Are the 3 Vital Savings Categories?

Emotional Savings. This is a spending category that perhaps you have never even heard of. But isn’t it important to have an emotional fund, money that can be used anytime, anywhere andshutterstock_44998930 (800x600)anyhow and not affect other saved money?  Of course the answer is yes! This fun money spending category takes into consideration that you will sometimes spend money on impulse, or just because you want to indulge in something. There is nothing wrong with this as long as you have prepared for it, because just like an emergency that you must save for, an emotional spending event will also happen at some point. Why  not be ready for it? If you are, then it will not affect your ability to pay down debt, or stay on track with your other spending categories. Think of it as if you are on a diet. No diet works if you must adhere to it strictly all of the time. For a diet to be successful, you must be allowed a little chocolate cake or an ice cream cone occasionally. That way you can stay on track and still lose weight. The same goes for emotional spending. If you have to stick to a severe budget all the time and are never allowed to have fun and splurge once in a while, you won’t stick to a spending plan. Emotional savings is an absolutely essential spending category.

Emergency Savings. It goes without saying that you must also have an emergency fund, when the unexpected happens so that you have reserve money to handle these kinds of emergencies. Creating a category for this kind of “spending” in your Spending Plan is critical. Be sure to work towards building up at least three months of income and work up to six month’s worth.

Long-term (Retirement) Savings. Now, lastly, isn’t it most important to have money for retirement?  Perhaps it is the most important. There are many ways you can assure yourself that you 18284are spending enough money into this category (through long-term investing options, real estate, making use of available resources, etc.) but if you need more help with this, contact me directly.

If you agreed with me that these three categories are essential why not spend today’s money into these three “deferred” accounts? By doing so, the money is emotionally gone and no longer available. That makes it very  hard to dip into when you may be tempted to use it for something other than what it is allocated for.

What is savings then?  It is nothing more than delayed spending.  It is nothing more than money you pay yourself every month and is just as important to pay as the money you give to the credit card company, the grocer, or the utility company.

U.S. statistics show that less than 25 percent of all workers who have access to “invest” into a 401(k) have the surplus to participate.  Therefore they have a spending problem.  If they cannot control their spending, they will never be able to have surplus to “spend” into an emergency, emotional or long-term savings account.  I contend, stand firm, completely confident that controlling spending is everything!  It is important for everyone who wants a secure future to learn how to spend today’s money into a “delayed” account for spending with a purpose for their emotional needs right now, emergencies that can happen at any time, and for retirement needs that are sure to come in the near future.