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The U.S. Budget vs. a Family Budget

Following are some numbers showing how the U.S. government spends money. These are big numbers, so it’s pretty hard to get any kind of perspective on what they really mean to you personally:  

U.S. Government Spending

  • U.S. Tax revenue: $2,170,000,000,000
  • Federal budget: $3,820,000,000,000
  • New debt: $ 1,650,000,000,000
  • National debt: $14,271,000,000,000
  • Recent [April] budget cut: $ 38,500,000,000

The Gainesville Tea Party has taken these very large numbers and given all of us a very simple way to wrap our heads around these complex figures by simply lopping off 8 zeros (i.e. divide by 100 million) to produce a “pretend” U.S. household budget correlated to the U.S. government’s budget:

Sample U.S. Household Spending (Correlated to Actual U.S. Government Figures):

  • Annual family income: $21,700
  • Money the family spent: $38,200
  • New debt on the credit card: $16,500
  • Outstanding balance on the credit card: $142,710
  • Budget cuts: $385 (You can see once you take off all those zeroes, that in comparison to the U.S. budget cut, this doesn’t amount to much of a cut.)

If you or I tried to pull off the kind of financial insanity you can see the U.S. government is attempting, we would be forced into bankruptcy!  My experience shows 90 percent of all Americans over-spend their income.  This is why so very few people have enough money saved for retirement.  Keeping  our nation’s spending in mind, as shown above, check how you are doing.  Place your numbers alongside the sample U.S. household numbers above and see if you’re acting just as irresponsibly as the federal government. Make changes as needed.

For help in making those change go to www.moneymastery.com or send me an email:  peter@moneymastery.com.

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

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.

Without Fiduciary Responsibility Refinancing Makes No Sense

Remember how many people loaded up their credits cards and then refinanced to pay them off?  Then in 2008, the mortgage lending bubble burst and home values dropped, banks went broke, and refinancing came to an end.  How did this really hurt our nation?

  • It trained consumers to over spend.
  • This over-spending carried over into government practices.
  • Over-spending continues today, eight years later, at a rate that has put us into trillions of dollars of debt.

Can you imagine what might happen if United States were a private corporation and ran its business like the Congress has been doing?  It wouldn’t last two minutes, that’s what! You could never run a corporation without a balanced budget, without a profit, and without firing employees who perform poorly.  Because the government has no balanced budget, never makes a profit, and doesn’t fire poor performers, national debt just continues to grow and grow. 

The bottom line is, as a nation, we have refinanced and refinanced again and again, but the problem is we don’t have a “house” to sell and pay off the obligation.  You and I are the “house” or the asset that is behind all these national debts. 

How to Avoid the Risk of Running Out of Money During Retirement

Running out of money is one of the biggest worries of retirement. Allianz is a huge financial firm, and they did a survey of a broad spectrum of working Americans in 2015 and found that 77 percent of them feared not having enough money in retirement more than death; that number went to 82 percent for those who were married with dependents.  This is a huge worry!  

Obviously, retirement income is on our minds. With the defined benefit pension plans long gone and Social Security cutting benefits by forcing them to be taxed, plus lowering cost of living adjustments, retirement income looks bleak.

So, let’s discuss why this fear is so big for some:

First, no written financial plan. According to a Princeton survey in 2013, 43 percent of Americans have no financial plan, or a very limited one. Another 38 percent have a basic plan, leaving only 19 percent who have done a comprehensive financial plan. Although you would like to think that the 19 percent are only wealthy people, less than half of them report an income of over $100,000.

Think about why the answers to the following questions matter so much. First, do you know how much you need or want to live on in retirement? Have you taken the time to sit down and make a plan of what you need with a financial professional to give you some advice? Second, do you know how much you need to save each month to get there? Third, is your route to get there predictable, or is the route full of surprises and problems that could stop you from getting there?

Suppose we have a map that looks like this:

screen-shot-2016-10-12-at-3-43-37-pm

If your desire was to get to that star, what two things would you need to know to get there? First, you’d need to know where the star is, exactly. Second, you’d need to know where you are located right now in relation to the star to plan your route.

This is just like financial planning.

  1. You need to take a financial inventory to know where you are, financially. You need to list your assets and your liabilities (debts); this will establish your net worth, which is the total of your assets, minus your liabilities.
  2. You need to talk about how many years you have until you want to retire and decide what percentage of your current income you need at retirement, assuming you have no debt.
  3. You need to see how much you must save each month to get there.

Having a written financial plan like this takes the stress and emotion out of retirement, and allows you to get out there and live better, create surplus, and create a real, comfortable retirement.

Second, bad spending habits. According to the debt statistics listed above, we Americans have bad spending habits. We have a difficult time putting off spending now for something we want, which leads to debt, which then leads to not being able to create a surplus each month to save for retirement, or an emergency.

This is one of my favorite quotes from Zig Ziglar:

“The chief cause of failure and unhappiness is trading what you want most, for what you want right now.”

Overspending is the major reason Americans don’t have a secure retirement. We all make enough money in our lifetimes to retire more than comfortably, but we lack the discipline and the foresight to put off immediate luxuries for future financial security. I’ve had the opportunity to sit down and interview wealthy people, some family, some friends, some professionals, and I’ve asked them every time, “how did you acquire your wealth?” Without exception they all answered, “I spend less than I make.” It’s that simple.

Third, market risk.  The year 2008 spooked a lot of people, and the chances of something like that happening again are fairly high. So many have their funds in speculative investments, and have nobody in the financial world helping them with them. Many of us don’t know what our money is in, understand the fees or costs, track the investments, or havethe-richest-man-in-babylon-review the time to do so. So, inevitably market risk comes, and emotional decisions are made. The Richest Man in Babylon is one of the seminal books on finances for our generation. In it there are Seven Cures for a Lean Purse, meaning, seven ways to become wealthy. The one that is pertinent with regards to market risk is this:

“Guard thy treasure from loss by investing only where thy principal is safe, where it may be reclaimed if desirable and where thou wilt not fail to collect a fair rental. Consult with wise men. Secure the advice of those experienced in the profitable handling of gold. Let their wisdom protect thy treasure from unsafe investments.”

Fourth, not having guaranteed income. Referring back to your grandpa’s retirement, we see that the older generation had guaranteed retirement income, called a pension. That meant he was told before and at retirement how much he could expect on a monthly basis for the rest of his life, and most of the time that included an option for your grandma as well to receive lifetime income.

Since we made the switch to 401(k) plans, we don’t have that guaranteed income. What happens when most people retire is that they end up not spending much because they are scared.

Here’s a common scenario: a person works hard, and accumulates $500,000 in their retirement plan. At age 67, they retire on full Social Security and start drawing on their retirement funds. The first year they pull out $50,000, and live comfortably with their Social Security funds as well. However, doing some quick math, that will only let them go 10 years with that kind of income. That scares them, so they stop spending, and also stop enjoying retirement. This has gotten so common, that this is the way most people retire, scared of the fact that if the accounts they have worked so hard to build up ever take dips, AND they have to draw on those funds for income, it exponentially lowers the amount of time before their money will run out.

For specific help with creating a predictable retirement with income that you cannot outlive, contact me:  peter@moneymastery.com.

 

Predictions Surrounding Your Financial Future

As I write this post, I feel it important that I be held accountable for what I advise.  Many authors just pop-off and do not offer solutions, only problems.  I have done this.  I don’t mean to short-change the audience, but often I am limited on space or time so I don’t complete the three-step system to really add value to you, the reader.  So, here is the system by which you can judge any author’s validity in what they say:  

  1. They must clearly spell out the problem and predict what will happen in the near-term and then add how it might evolve over the long-term.  
  2. They must offer role models who can create new strategies and solutions to these problems.
  3. They must provide specific direction, tools, and resources to help anyone who wants to succeed in the face of these problems.

So, following this formula, first, here is the problem with personal finances in America and my predictions about what will happen in the future:

  • Our nation will continue to over-spend.  We will erode our currencyscreen-shot-2016-09-16-at-2-31-17-pm to the point our confidence in our government will be shattered and we will completely distrust elected officials.  Here is why:  Ninety percent of all workers do not track their income and expenses.  The amount of money being placed into savings is negative.  The average retiree is totally dependent upon a welfare system established in 1935 called Social Security.  Unsecured debt has only increased and only 28 percent reconcile their bank statement.  Since most people over-spend, and then some of those get elected and represent us in Congress, how can we expect anything different than this over-spending, both at home and in Washington?
  • We will continue to act spoiled and entitled. As a nation we have become spoiled brats, meaning we want things the minute we want them and we will do whatever it takes to get them, by credit or in any other way possible. Examples are all around us.  For instance, I was standing in line at the grocery store and a mother with two children was in front of me also waiting.  One child reached up and grabbed a candy bar and said, “Mommy can I have this?” She was quick and emphatic that he could not, because dinner was soon and he had already had too many sweets.  I counted the number of times this child asked his mother for the candy bar before she finally agreed, and it was five times.  Unfortunately, this mother has taught her child that he can get anything he wants. This will translate to over-spending in the kid when he becomes an adult.
  • Taxes will become too heavy to bear. Over the last 4,000 years taxes have been with us and will continue to be with us, but what I predict for the future is that they will become too burdensome to handle.  The Taxesamount may increase or not, but because we do not track our income and expenses it will become increasingly hard to pay taxes.
  • Retirement income will not keep up with inflation nor provide enough to quit working.  The length of time we are employed will continue to increase.  Again this is a simple observation, but what I predict is because we do not track our income and expenses, we cannot predict when we will be able to retire, if ever.   

Notice that all of these financial problems stem from how we spend, both as a nation and individually.  We create our debt because of how we choose to spend our income, but the reason we over-spend the way we do is because we cannot see the full impact of that spending. For example, if we could see at the very time we buy a new computer that it will cost us three more weeks of full-time employment to make that purchase, we might not buy the new computer in the first place. The problem is, we are so used to having needs and wants gratified instantaneously that we don’t see how much things really cost us in both time and lost money.  If we could see that when we choose a new car, over a used one, for instance, it will force us to work full-time for an additional year we might make different choices. Because we have been so conditioned to get what we want, when we want it, and have the available credit to do so, we do not give any reasonable thought to the spending decision and how it may affect us over the long-haul.

Now, for some role models and specific direction, tools and resources that can help solve these terrible financial problems plaguing Americans today:

  • www.moneymastery.com. Specifically, get on this siteMoneyMasteryLogo2  to learn 10 time-proven financial principles that if applied will get your spending in immediate control and help you find at least $150 you are wasting each month that could be applied to debt. The easy-to-follow system taught through the Money Mastery programs promises the following:
    • Get spending in immediate control and find extra money you didn’t know you were wasting that can help you establish savings and start paying down debt.
    • Get out of ALL debt, including your mortgage, in under 10 years.
    • Save for emergencies, emotional wants, and retirement using a predictable system for short- and long-term savings.
    • Reduce taxes by at least 50 percent ethically and legally so you can  have more money to build retirement and security.

In addition, here are some other Web sites and resources that can help you in our efforts to solve financial problems and get in control of your money so you can build wealth.

  1. www.EveryDollar.com  by Dave Ramsey.
  2. www.Mint.com
  3. www.Youneedabudget.com

I have listed some predictions to  watch and follow.  Now it’s your turn to be held accountable.  The best program in the world will mean nothing if you don’t do something.  Please hold me accountable for what I have predicted, but in return hold yourself accountable to get a system of control so you can predict monthly spending, debt elimination, and long-term savings. 

Illinois Is on the Brink of Financial Disaster

Last year, about this same time I wrote about Greece’s economic woes in the post entitled, Why Greece Is On the Brink of Financial Disaster.  This year, the new spot the world that’s just about in the same disastrous place economically is Illinois. They have over-spent in much the same way Greece has. I’d like to take a look at what this means for you, even if you do or do not live in Illinois.

Illinois is the fifth most populous state.  Democrats have controlled cities, counties and state governments for three decades.  Because pension income for all employees up and down the state are so high, there is little room for any growth, or investment within the state. Emergency reserves in case of catastrophe are virtually zero.  The state’s revenues for this year are projected to be $33.5 billion, while spending is scheduled for $38 billion.

My article about Greece and how they got in big financial trouble has repeated itself with the state of Illinois.  No checks and balances, no balanced budgets, no opposition to fixing higher pension pay outs. Thus businesses are being forced to leave because of higher taxes and reduced services.  

Unemployment is rampant and to their next door neighbor, Indiana, reveals what irresponsible spending will do to any nation, state, county, city, business or person.  Indiana has surplus, on the other hand. It is expanding businesses and growing in many ways.  Principles of money management make a huge difference.

Here is exactly what I offered as the solution for Greece, and it applies to Illinois, and it applies to you:

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.

Tax Time is Overspending Time

If you are filing your 2015 1040 tax form and receiving a refund, you should reconsider your options for the year 2016.  If you must use the refund to catch up on bills and debt payments, you should really get serious about avoiding that process in the future by making sure your don’t get a refund in 2016.  Skip the refund and use your own money throughout the year to pay down debt!  If you will use your refund on eating out, buying new technology, or any other non-appreciating items, you should really get serious about changing what you are doing.  If you are doing any of the foregoing, you really need to get coaching to help you learn how to manage your money more efficiently! Stop listening to popular money “experts” and get serious about making changes that will totally change your life.

Take Greg and Mary (not their real names), they are in their early forties, making a modest middle 5-figure income, and they get a $3,800 refund.  This means that on average, they have overpaid federal income tax an average of $317 per month.  This has beenLossOfMoney going on for at least three years.  It is therefore reasonable to be very concerned about their financial future while carrying on such inefficiency.

Consider the opportunity cost of Greg and Mary paying too much too soon to the government:

  • Monthly cash available ($3,800 divided by 12) = $317
  • Savings rate if applied to their mortgage 3.25%.
  • Dollars saved over 25 years = $146,000
  • Savings rate if applied to guaranteed cash value 5.00%
  • Dollars saved over 25 years = $189,000

In these days of bad economics, declining wages and an uncertain investment market, you must take charge of your money in a different way than you have heretofore.  Unfortunately, your financial life is very complicated in real time and emotionally.  But on the bright side, there has never been a better time to get  effective help and support than now.  No one can afford to lose $146,000 or $189,000 anytime, for any reason. When it doesn’t have to be, why allow it to be so!!  Take action and call your financial coach now!

For more information affordable financial coaching call Alan at 801-292-1099, alan@moneymastery.com.

Why You Can Never Get Ahead Financially…

Based on U.S. Census data, workers in the average household will earn $52,000 annually and make approximately $2 million over their lifetime.  Of course if you are a CPA, you will earn double that or more.  A trial attorney will make over $12,000,000 in their lifetime.  But I want to look at averages to make a point: that most people do not process their money efficiently, regardless of how much they make! 

Census data also shows that at retirement, the average household will have less than $60,000 in total assets including their home.  How is it possible to make $2 million in a lifetime and barely have $60,000 left to show for it? And why are 92 percent of all retired people totally dependent on Social Security income? 

 

Nestegg w: Text (3:26:10)

Refer to this picture of a funnel and I will answer the question of why most people can’t seem to manage they income and payouts.  First, we make $2 million in a lifetime.   The first thing that happens are taxes are taken out.  Second, we have to live, so we buy food, clothing, other living expenses.  Third, we pay our debts, a mortgage, car payments, credit cards.  After all of these obligations are paid, historically as a nation, we are finally able to save 2 to 3 percent.  This example shows that the average person does make a lot of money over a lifetime, but that a great portion of it goes to taxes, living expenses, and debts.

After a lifetime of working, what we hope to end up with is a nice little “nest egg,” or a large amount of our earnings set aside in the form of savings.  But let’s take a look at what happens to our “nest egg” after we have managed to put some money into it.

Several events can drain off a substantial portion of our savings.  For example, we could make bad investments, or the economy could experience inflation.  Perhaps we get laid off from our job, experience sickness, or we feel the effects of technological changes.  We might go through a divorce.   Fifty-two percent of the people in our nation are divorced.  This can be very financially challenging, let alone emotionally challenging. Impulse spending draws off another substantial portion. Twenty-five to 50 percent of all purchases are unplanned.  More taxes, job lay-offs, technology changes, and any or all of these types of events could occur over a life time.  So it is little wonder that we find it hard to get ahead and keep our “nest egg.”

Money Mastery is all about how to stop this inefficient processing of money.  It will show you how to systematically stop the transfer of your money away from you and get it back under your control.  It will also show you how to maximize the amount of money you will have at retirement, and get out of all debt, your mortgage included, within 10 years or less.  

For more information about how you should really be managing your money (contrary to what all the so-called financial “experts” are telling you), contact me today:  peter@moneymastery.com.