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Know Your Plan Before You Die…

Most employees do not know what their Social Security benefits will be.  They don’t know what their 401(k) will provide for them at retirement, nor when they will be out of debt.  Few employers provide disability insurance if you get hurt or sick, so what will happen if you become sick or hurt?  And health insurance is a “can of worms.”  If you are self-employed, and/or running a small company, many more questions exist than there are answers.  What will you do when you die or your spouse does?

Everyone should know what benefits they are going to enjoy, and communicate with a spouse about them at least annually.  Things change so fast that if you think you have benefits and don’t, you can go broke in a single week!  It is not hard to gather all your financial information together and review it.  When you have a question, make the effort to call and get answers. 

To see how this works in the real world, I want to share one of my client’s stories:

The husband passed away suddenly at age 64 and his wife had never worked outside the home.  He had $20,000 of group term life insurance and they had $52,000 savings in a 401(k) account.  Their home was worth $230,000, but they still had $189,000 mortgage.  The wife is in good health and expected to live beyond the average life expectancy for women of 87.  The husband’s funeral cost $15,000.  The wife has the option of accessing Social Security benefits of $1,245 a month, or to wait another three years and get $1,570 a month.

What would you do in this situation?  Their monthly living expenses before the husband passed away had been $4,000 per month. Now there’s no money to live like that. Will the wife have to sell the house since the Social Security income she could take now will basically pay the monthly mortgage and that’s it?  If she does sell, where will she live and what will she live on?

This couple had not talked about early death or how one or the other would live once one of them passed away — there was never this kind of detail discussed, ever. They just went along thinking nothing would change.  But it did change and the woman in this situation is in a really bad place financially.  And it will change for you too.  It is only a matter of time before big changes come to your world.  Get prepared.  Review all your benefits and make decisions today as if one of you has passed away.  Play this game over and over until you feel comfortable that you have your financial situation right.

In my experience, most people die with nothing more than a simple will. Their assets have to be probated in court until they are cleared for distribution.  This can take two years.  The expense of having a judge decide how to divide up assets can drain another $30,000 off your assets.  And in many cases, the surviving spouse still needs an income to live on.  What if health problems arise?  

The best way to start preparing for coming changes is to stop spending any more money until you have a Spending Plan in place and have learned how to track that plan so you can see where you are wasting money. Once you do so you will find a surplus that you can begin saving. Fund your future with this real money, that comes from getting your spending and debt under control. Then make sure you create a living trust. Transfer your assets into the trust and make sure nothing goes to the court to decide. Go to www.easylegalplanning.com and see how simple it is to get organized and match assets with a real plan document.  Don’t delay and become part of the majority that leaves your family out in the cold, unable to help themselves.  The memory of you that will be left will not be good.  To learn more go to www.moneymastery.com or contact me: peter@moneymastery.com.

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

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.

Take Caution: Read Disclosure Notices on Investment Projections Before You Sit Back on Your Retirement Laurels

Following is a typical disclosure notice you might see at the end of an investment report. Take the time to read this disclosure,  you might be surprised what you find:

If a numerical analysis is shown, the results are neither guarantees nor projections, and actual results may differ significantly.  Any assumptions as to the interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only.  Rates of return shown are not indicative of any particular investment, and will vary over time.  Any reference to past performance is not indicative of future results and should not be taken as a guaranteed projection of actual returns from any recommended investment.

If you reviewed a report that said your retirement is going to be adequate but then get to the small print at the bottom of the report and it says, “Any assumptions as to the interest rates, rates of return, inflation, or other values are hypothetical and for illustrative purposes only,” how should you feel? How much credence can you place in the numbers from such a report when planning your future?  For example, if an assumed interest rate went from 5% to 3% in real time as you are saving for retirement, you might run out of money with 12 years left to live!

Or let’s say you use the past 40-year average market gains to forecast your future income and then read, “Any reference to past performance is not indicative of the future results.” You probably aren’t going to feel super confident about what your direction is going to be.

Of course we need to plan and project, using the best tools available, but how can you do any of those projections given all the unknowns?

In my experience, the best way to use forecasting projections is to keep track of each year’s projections and review from year to year.  As the years go by you can watch out for adjustments that will surely force some changes.  This way when something isn’t quite working out like you forecasted, you adjust. It’s the simple principle of tracking and you should be applying it when it comes to retirement funds, but what I have found is very few people do, only about 3 percent of us actually track and adjust each year.

Think of you being the navigator on an airplane.  As you fly from San Francisco to Dallas, you are seldom going straight to your destination because of wind and weather.  A navigator must keep adjusting and changing the course according to what affects the plane.  This is the same for each of us financially.  The forecasting is so important, but the adjusting to changes is critical.  So for the 97% of those who don’t forecast, they will not end up in Dallas, financially speaking, but probably Minneapolis.  I hope they like the colder north country. For information on how to create a more predictable retirement that you cannot outlive, contact me for a no cost consultation: peter@moneymastery.com.

Stretch Yourself Emotionally Today for a Better Financial Life Tomorrow…

The famed writer, Andre Gide wrote:

“One doesn’t discover new lands without consenting to lose sight of the shore, for a very long time.” 

I love this quote, it is full of pathos but also a lot of hope. To see what I mean, first take a look at the lives of the families who were left behind when their loved ones set sail back in the day on those horrifically risky voyages out on the open ocean. There was no way of knowing if the ship would return. There was no way of knowing what was happening to the people on board the ship during its absence. The amount of stress and worry for these people must have been almost overwhelming. Look at the courage the Pilgrims exhibited to sail across the Atlantic to the Americas. I cannot imagine what it would have been like to bring my wife and children along for this journey not knowing what the end result would be.

Now let’s apply this example of Pilgrim courage in taking some risks to discover a new life by consenting to leave the shore in terms of how you manage your money. 

  • First, you must try new things if you want to handle your money well and most importantly, if you want to keep it. If you’re not willing to get educated and look at new options for spending, paying down debt, and saving, then it’s like staying on the shore and not going anywhere. You will be safe (maybe) in what you do know, but you won’t be able to find any new options that might bring you much better success.
  • Second, if you leave the “port” so to speak for a long time, by learning how to control spending for an extended period of time, paying the price to get out of ALL debt in a short amount of time, and understanding what it takes to save over the long-term, you will find that you can create your own passive income. This will allow you the wonderful opportunity to not only retire wealthy, but have the means to help others as well. When we have passive income we are truly free! The more options that come into play, the more excitement comes to our lives.
  • Third, financially you can set sail by holding yourself accountable weekly as to how you are spending the money you have earned.  This is hard to do, at least emotionally, much as it would be to leave home and family to sail to the New World, but it opens up all kinds of new options you have never dreamt of before. This is the hard part of “losing sight of the shore, for a very long time.”   As you build a spending plan, examining the last 12 months of how you spent money, then share this detail with your spouse, you will be amazed at what you learn about yourself… what you value, what your real priorities are, and what you want to change NOW!  You will become totally transparent to yourself and your partner and this of course will make you very vulnerable. However, with the vulnerability comes opportunities financially that are not possible when you are closed off to your true self when it comes to spending, borrowing, and saving money. Remember, as long as the ship is in the port, it is safe, but as they say, that is not what ships were built for.

Building a spending plan, a debt plan, and a retirement/savings plan with yourself and/or your partner is the best way I know of to test your ability to discover “new lands” financially that are not possible playing it safe on the shore. But because they are plans, it is also the safest way I know of to make emotional changes that will positively affect your finances without costing you any more money out of pocket and without risking your family and relationships in the process.

Here’s how to start this process of “leaving the shore to discover new financial lands”:

  1. Create a 12-month history of the way you have spent money.
  2. Divide this spending into categories so you can see what you really value. Will you be surprised at how important eating out has become to you, or that you spent $1,000 in one year on spa treatments?  Maybe that’s important to you, but if you really didn’t want to spend all that money at McDonalds then it’s time to make change. WOW! This can be so hard as you face the future knowing how inefficient you have been with your money.
  3. Make a spending plan for how you want and need to spend money over the next 12 months. This is where the voyage gets more exciting and feels less risky.
  4. Track how you spend money so you can stay on track. Compare how you actually spent with how you planned to spend and make adjustments.

The Pilgrims left England not knowing what would become of them.  The result of their courage is what you and I enjoy today.  We enjoy the freedoms and liberties to travel as we wish, with one currency, along with the rule of law and order.  Amazing is the sacrifice of our forefathers so we could have it easy.  Don’t blow all that opportunity by refusing to stretch yourself emotionally when it comes to proper financial management.  I ask you to stretch yourself today, do the hard things today so you and your family will be far better off in the future.

Don’t Discount the Importance of Preparation When It Comes to Managing Your Finances

You have probably seen violin players getting ready to perform in an orchestra. They hear a tuning note and then turn the knobs at the end of the violin to make the strings sound in perfect harmony with other instruments, right?  The reason this is important is because violins get out of tune very quickly and must be brought back in line with the rest of the instruments in the orchestra. 

Another example of staying well tuned is with athletes. We have all watched Olympians and other collegiate or professional runners warming up within minutes of running a race. Without this warmup, they may injure themselves, or at the very least, be unable to perform as well as they have practiced. The body doesn’t do so well when it is cold, so this “tuning” is necessary.

Just as a violin needs tuning before a performance and the body needs warming up before a race, you need to be tuned up, stretched out, and ready to spend money before you do it. What happens if you spend money before you know how much you have to spend, not only in the entire account itself, but within a specific spending category? Or what happens when you use a credit card and have no idea whether you can pay the bill when it comes in 30 days or not?

To get in tune with your finances, it is crucial that you decide in advance what money you have available.  Create categories for spending, then prioritize in which categories you will spend money first. As you spend, track how much, where, and by what method you spent the money.  Finally, compare each day how you spent money with how you planned to spend so you can make adjustments where you are not handling things as well as you should. If you will do this each day  you will quickly get in control of your spending and find you have extra money you were wasting that you can apply to debt or put into savings. For more information about how to do all this, contact me at peter@moneymastery.com or go to www.moneymastery.com/spending. Get your financial life tuned up today!

Stay Tethered While Still Soaring with a Proper Spending Plan…

What do kite-flying and personal finances have in common? To answer that question, you must first ask another: While flying a kite, what keeps it in the air?  The string, of course.  If you cut the string, the kite will flutter downward to the ground.  Without the string, nothing holds the kite at the right angle to catch the wind to keep it flying safely in the sky.

Similarly, when you establish a spending plan (or some people like to call it a budget but they really are two different things) you might think you are tying yourself down to a certain amount of money you can spend.  This is restriction!  But if you just spend as you wish, without tracking your spending to see what you really value and where your true spending priorities are, then it’s like cutting the string to the kite… you will financially flutter down to the ground.

But what about those darned restrictions? With a true spending plan (not a budget), like the plan we teach our clients how to build at Money Mastery, there is a way to have more freedom within the plan than a plain old budget allows. This is like letting out more string when flying a kite — as you do so, the kite soars higher but it is still tied down so that it does not come crashing to the earth.

Tethering yourself to some kind of plan makes it possible for you to spread your wings, all while remaining in control. I have included the following words from the song “Let’s Go Fly a Kite,” from the classic Disney movie Mary Poppins, as a motivation to help you feel inspired to build a proper spending plan:

Let’s Go Fly a Kite

With tuppence for paper and strings
You can have your own set of wings
With your feet on the ground, you’re a bird in flight
With your fist holding tight
To the string of your kite

Oh, let’s go fly a kite
Up to the highest height
Let’s go fly a kite and send it soaring
Up through the atmosphere
Up where the air is clear

Oh, let’s go fly a kite!

I hope you will allow the words to sink in as you realize the power that comes from disciplining yourself to be grounded firmly to a plan. Visit www.moneymastery.com to get more information about how to create a spending plan that will let you control your spending,  while still allowing you the freedom to have the things you want without going over.

Do You Wash a Rental Car Before You Return It?

Whenever I have rented a car, I have never considered taking it through the car wash before I return it.  Why would I do that?  I don’t own the car, I only want to use it briefly.

When we don’t own something, we don’t take much interest in it.  So I ask, “How many people own their spending?”  Own it means being committed to it, spending money according to a plan, not deviating from the spending plan, and so forth. 

We may feel a need to have a “budget” (budgets don’t work by the way) and limit our spending to what is most important, but if we don’t have a real plan for how we need and want to spend, or in other words if we don’t “own” our spending, we will ultimately always overspend.

I challenge you to set a goal in the new year to “own” your spending.  That means:

  1. Make a spending plan (which implies writing it down)
  2. Post the plan where you can see it.
  3. Track your spending according to the plan.
  4. Review the plan every day.
  5. Make adjustments to your spending plan based on problems you see arise, but stick to the basic plan for a month and see what happens to your life.

You are the owner of your money and the way you spend it.  I urge you not to treat it like a car rental as if it’s someone else’s business to take care of.  Bring it home, take care of it, and use it daily with care.

Statistics Will Most Likely Determine How Well You Play the Financial Game…

If someone didn’t track the numbers LeBron James posts every week, do you think he would be making millions of dollars playing basketball? Of course not.  Isn’t it true that every player gets paid according to how well they average at these numbers?

Take a look at some of these stats:

It’s fun to watch elite athletes doing amazing things we can only dream of!  Wouldn’t it be equally fun to watch your own amazing numbers in terms of your financial abilities? Those who are doing great things with their finances are seeing some amazing opportunities present themselves, just like these star athletes, things like seeing their savings grow exponentially due to compounding interest, eliminating all debt including their mortgage in a short amount of time, and having the cash flow to invest in real estate that can make them more money. The truth of the matter is, just like professional athletes who are paid based on their numbers, you will “get paid” by how well you do the following:

  • Save money each month, and not go into further debt.
  • Pay off debts each month.
  • Manage emergencies that arise.
  • Provide fun activities for your family that you don’t put on a credit card.
  • Prepare for retirement.
  • Lower your taxes.

To take the sports analogy a little further, let’s suppose the following:

If you don’t track how you’re doing in these areas, you will fail financially and be “kicked off the team” so to speak.

If you don’t track your money and end up not performing well in your own personal financial game, you may be substituted out, or traded.  In a marriage, this is called a divorce and it is expensive!

Just as in sports, if you get mad and throw a fit, you can be charged with a penalty during play. In your financial life, this is called getting into arguments with your spouse or partner over money and it causes real harm to relationships.

If you run off the court while your financial game is being played, you end up out of bounds with your money. This is called debt in the game of life and it means you end up turning your money over to others to make them more money while you go broke.

If you don’t have the right equipment, you can slip and fall, even get injured and have to sit out of the game. In your own personal financial life, this is called not being prepared for retirement or having to go into long-term care without having any way of paying for it.

So many similarities exist with regard to playing sports and playing your financial games.  It’s always best to get a coach and and learn how to practice playing properly with their help than it is to go it alone.

For more information about a financial coach (as opposed to financial advisor) visit www.moneymastery.com. Or contact me:  peter@moneymastery.com for a no cost discussion.

Successful Resolutions Come from Thinking Gray, Not Black and White

The idea of dichotomous thinking means that you look at the world as if everything is either black or white.  That kind of thinking can be dangerous, especially to the accomplishment of goals and in the new year, “New Year’s Resolutions.”

To illustrate, I think of a friend of mine who was addicted to alcohol. At one point when he was trying to quit, he did very well not drinking for the first several months, but then fell off the wagon and went on a binge.  I encouraged him to get back on but instead of sitting just on the “edge of the wagon,” so to speak, to sit in the middle of the wagon, staying away from parties or friends that would encourage him to drink.  It helped a lot!  He told me that prior to this new way of thinking that when he made a mistake he would look at it as complete failure (black and white thinking) and would no longer care  what happened to him so he’d just keep drinking.  But changing his approach to more gray allowed him to make mistakes, knowing that all was not lost and that he did have the power to change. Eventually he fell of the wagon less and less often until one day he quit drinking all together.

Here are some clear actions that anyone can take to quit thinking so black and white about your New Year’s Resolutions. They may help you stop being so hard on yourself when you make a mistake and help you avoid the urge to give up all together:

  1. Write down precisely what it is you want to change or accomplish.
  2. List all the things that keep you from that change and avoid them.
  3. List all the support people, things, and mechanisms that will help you achieve your goals and schedule them into your life.
  4. Keep a daily journal of what you have been able to accomplish, reviewing weekly and making corrective action.

And, in addition to these four steps, be sure not to expect 100 percent perfection as a means to measure how well you have done or a motivation (or lack thereof) to continue on with your goals. I have found after years of tracking my goal setting, that I consistently accomplish about 50 percent of my New Year’s resolutions each year. Okay, you may think that doesn’t sound very good but I beg to differ. If over a 20-year-period I can say that I have been able to accomplish at least half or a little more of the goals I have set over the years, that’s a pretty darn good return on my investment. Hey, 50 percent is better than 0 percent and zero is what you get if you can’t at least shoot for half!

In addition to the idea that if you can’t have it all, why bother, here are two additional observations as to why people fail in their attempts. 

First, they don’t really write down on paper what they are trying to accomplish.  They think they “know” better and the goal should be obvious to they don’t write it down. Because of this, they can’t refer back to it and hold themselves accountable. Write it down. This is a great way to track yourself and to see how much you actually do accomplish in one year. Writing my goals down is what has allowed me to go back and figure a percentage of success as noted above.

Second, the other mistake often made when people fail to achieve success with a resolution is they don’t keep a journal, therefore, they don’t meet weekly with themselves to review and take corrective actions.  Everything in this world is changing all the time, including you, so you have to adjust!  You may have to adjust to less money, or a spouse’s lousy attitude, or the death of a loved one, or changes in your health that derailed your New Year’s weight loss goal, or whatever. Keep a journal so you can have documentation as to what changed and make needed adjustments weekly.

If you will take these 4 simple steps, you can have at least a 50 percent chance of success, and as much as 80 percent, rather than the dismal  national average of 8 percent. 

Dream with me:  

  • If you can change even a few things in your life, wouldn’t that make 2017 better? 
  • As you get more accustomed to this 4-step process, you can look forward to next year and the next!

For me, in my coaching work with people who want to change financially, I teach people to set goals with their spending, debt, and savings/retirement. I make them write these goals down in the form of plans, and then I work really hard with my clients to help them track the success of these plans. This constant planning, recording, tracking, and comparing/re-evaluating helps my clients see clearly what they want financially and how to get there realistically, day by day. I help them hold a weekly meeting with themselves or spouse and this helps them be more accountable. Teaching them in this way has changed many people’s lives for the better in a matter of months!

Take the challenge in the New Year to apply these 4 simple steps to anything you want to accomplish. Remember the cautions of being specific, writing the details down and reviewing daily.  Then keep track of it all.  You will find within one month you are half way to your objective.  This I know for a fact because I’ve tracked my own life this way for years, as I have already noted.  

Have a terrific new year and feel free to contact me for further consultation:   peter@moneymastery.com.

The “What’s Left” Spending System

Do you realize that only 28% of all people balance their checking account each month?  Did you know that only 1 person in 994 have a specific retirement plan and know how much they will have available at retirement?  Did you know that only 1 in a 1,000,000 know the month and year they will pay off their debts?

My point is this: If you are going to ever be out of debt, and ever retire with adequate income to live on, you must know how much you have left every time you spend your money.  I’m urging you now to establish a spending plan, get on board with a personal financial coach for a reasonable fee at www.moneymastery.com, and begin to have a surplus so you can calculate when you will be out of debt. 

The first place to start is by creating a Spending Plan, as noted above. Budgets are different from a spending plan.  Budgets fail most often because we cannot discipline ourselves to stay on them.  But a spending plan prioritizes where money goes so you always get the most important items paid for first and still have money you want for other things. It teaches you what you value, and therefore helps you get away from a strictly mathematical approach to spending, such as what a budget does, and instead helps you see where you spend emotionally and what really matters to you so you can get in immediate control. A spending plan also shows you “what’s left” in each spending category after each transaction, so you are better able to make responsible choices going forward about how and where you will spend the money you have left.

A What’s Left Spending System, as we call it at Money Mastery, will always have the accurate amount of money showing in each category.  I suggest you use January 1 as a target date for starting a new bunch of spending habits using the tips and tricks at moneymastery.com.